The Ministry of Finance (MoF) of the United Arab Emirates has announced significant amendments to the Value Added Tax (VAT) framework through Federal Decree-Law No. 16 of 2025 and related updates. These changes, effective 1 January 2026, mark one of the most substantial updates to the VAT regime since it was first introduced in 2018.
The amendments aim to simplify compliance for businesses while tightening certain controls to ensure better transparency, documentation, and tax governance.
Below are a detailed and professionally structured analysis of the three major amendments and their practical implications for UAE businesses.
1. Removal of Self-Invoicing Requirement Under Reverse Charge Mechanism (RCM)
What Has Changed?
From 1 January 2026, businesses applying the Reverse Charge Mechanism (RCM) — typically for imports of goods or services from non-resident suppliers — will no longer be required to issue self-tax invoices to themselves.
What Businesses Must Do Instead
Although self-invoicing is removed, businesses must continue to maintain and preserve:
- Commercial invoices from suppliers
- Contracts or agreements
- Any other documentation prescribed under the Executive Regulations
Impact
This amendment reduces administrative work and simplifies bookkeeping for businesses involved in frequent cross-border transactions. It removes redundancy while ensuring that transactional documentation remains intact for audit verification.
2. Introduction of a 5-Year Limitation for VAT Refunds and Excess Input Tax Claims
What’s New?
Businesses will now have a strict five-year limitation period to claim refundable VAT or excess input tax. This period is counted from the end of the relevant tax period.
Why This Matters
Unclaimed or unused VAT credits older than five years will lapse. This has serious implications for:
- Export-heavy businesses
- Zero-rated suppliers
- Capital-intensive enterprises
- Entities with historical refund accumulations
What Businesses Should Do
- Conduct a thorough review of historical VAT filings
- Identify any refundable balances or unused credits
- File pending refund claims before the limitation period expires
Proactive action is essential to avoid permanent loss of legitimate tax credits.
3. Stricter Controls on Input Tax Deduction to Prevent Tax Evasion
What Has Changed?
While the format of MIS can differ by industry, an effective report generally covers these 5 key areas:
The Federal Tax Authority (FTA) will now have broader powers to deny input VAT deductions where the underlying transaction is found to be connected to tax evasion — even if the taxpayer claiming the deduction was not directly involved in the evasion.
Business Implications
This amendment requires stronger internal controls and due diligence. Businesses must ensure:
- They work with genuine and compliant suppliers
- VAT registrations of vendors are valid
- Documentation such as invoices, contracts, delivery proofs, and payment evidence are properly maintained
- Supply-chain risks are periodically reviewed
Good-faith defense will depend heavily on documented due diligence and transparency.
Overall Impact of the 2026 VAT Amendments
Benefits
- Reduced paperwork due to elimination of self-invoicing
- More clarity regarding refund timelines
- Improved tax governance and supply-chain transparency
Challenges
- Risk of losing historical VAT credits if not reviewed timely
- Higher responsibility for supplier verification
- Greater emphasis on audit trails and documentation
Early compliance preparation will help businesses avoid penalties, protect tax credits, and maintain smooth operations.
Recommended Next Steps for UAE Businesses
- Review all VAT refund positions, especially older balances.
- Update accounting workflows to reflect RCM changes.
Strengthen vendor onboarding and supplier verification.
Organise VAT documentation to ensure compliance with the new rules.
Brief internal finance or tax teams about the amendments.
Need Assistance With UAE VAT Compliance?
If your business requires support in understanding the 2026 VAT amendments, reviewing VAT refund positions, updating RCM processes, or enhancing supplier due-diligence frameworks, our team can guide you through the compliance requirements in line with UAE VAT law.
We assist with:
- VAT compliance reviews
- VAT refund claim preparation
- Impact assessment under the new VAT reforms
- Record-keeping and documentation checks
- Supplier verification and risk review
You may contact us for professional guidance tailored to your business structure and VAT obligations.
Disclaimer
This article is intended for general informational purposes only and does not constitute tax, legal, or financial advice. VAT laws and regulations may change, and their application can vary depending on specific business circumstances. Readers are advised to consult a qualified tax professional or refer to official UAE legislation and guidance before taking any action based on the information provided.