December 6, 2025 | Dubai, UAE: The government, through the Ministry of Finance and Federal Tax Authority (FTA) will make significant changes to the UAE VAT law and associated taxation processes starting 1 January 2026. These amendments are carried out based on the most recent decrees (in particular, Federal Decree-Law No. 16 of 2025 amending VAT law and Decree-Law No. 17 of 2025 amending the Tax Procedures Law) which are intended to revise the tax system, streamline the administrative process and enhance compliance.
At its most basic, the update aims at ensuring that the process of VAT compliance (large and small business to business alike) becomes more transparent, efficient, and in line with international best practice.
Provisions That Are Important For UAE VAT Law
- No additional self-invoices are done on reverse charge.
The new rules will allow businesses to no longer issue self-invoices in regard to reverse charge, a system where the buyer rather than the supplier pays the VAT. Rather, the taxable persons will simply be obligated to keep normal supporting materials (invoices, contracts, records of transaction etc) as outlined in the Executive Regulation.
This UAE VAT Law changes saves procedural paperwork and administration and also provides the FTA with the audit trail it requires to identify compliance.
- Five-year period of reclaiming a refund or credit balance.
Among the most important changes: a statute of limitation will now be introduced to reclaim excess VAT credits or refundable tax balances. The maximum time that taxpayers will have to request a refund or use the credit to cover other VAT liabilities will be five years after the expiry of the specific tax period.
Failure to make any such claim in this timeframe will lead to the waiver of the right to reclaim or offset the credit – a measure aimed at stopping the accumulation of tax credits indefinitely and adding greater predictability and constraints to the system.
- Tighter anti-evasion measures.
The revised UAE VAT Law gives the FTA power to refuse the deduction of input taxes, in case it establishes that a supply is a component of a tax-evasion scheme. It implies that businesses need to be cautious in order to avoid claiming the VAT credits on the basis of illegitimate supplies.
That is, in the event that the FTA has a suspicion that a transaction is structurally related to a fraudulent activity (e.g. suspicious supply chains, shell entities, etc.), it has the authority to deny VAT deductions – despite the paperwork seemingly being above board.
The Aim Of UAE VAT Law
The UAE VAT Law amendments are a reflection of the general trend in the region, as it tries to enhance its tax infrastructure, which is a global trend, towards more transparent, efficient and enforceable tax regimes.
The UAE hopes that with restricted refunding periods, eliminated administration overheads (such as self-invoicing) and a greater number of effective anti-evasion measures, the flow of VAT revenues will remain timely, audit records will be transparent, and the overall behaviour of compliance will be more predictable.
To businesses, this implies that financial management associated with VAT cash flows, balance sheets, and the accounting practices will have to be tighter, organized, and futuristic.
Implications: What business and taxpayers ought to do.
- Test current credit positions:
Existing credit balances incurred during previous periods must now be evaluated and either recouped or used to settle creditors within the five-year period loss period or be lost.
- Standardize book keeping and documentation procedures:
As self-invoices are eliminated under reverse charge, firms are required to maintain their standard invoices and contracts and supply documentation in an orderly and easily accessible way.
- Enforce due diligence of suppliers and transactions:
Since the input tax deduction to suspicious supplies has been tightened, the companies should ensure that suppliers are legitimate and supply chain is documented, lest the deductions are not allowed.
- Consider digital invoicing requirements in the future:
Although the January 2026 UAE VAT Law amendments do not do this, the wider context of reform would indicate that businesses need to be ready to make changes and transition into bigger billing/invoicing systems.
The stated forthcoming alterations to the UAE VAT Law and the tax-procedures framework in question will become a milestone in the history of the development of the taxation system in the country. The reforms are aimed at ensuring administrative burdens on compliant businesses are reduced and unnecessary paperwork reduced, and, at the same time, strengthening the system against abuse, which comes into effect on 1 January 2026.
To companies, both old and those that are relatively new, the message is simple: go more disciplined in their VAT practices, normalize past tax balances, keep their books well in order and get ready to enter a more tax-intensive, auditable tax environment. The system, in its turn, will offer increased clarity, equity, and predictability and position the UAE VAT Law landscape alongside the international best practices.
