Subtitle: A simplified VAT process, stricter compliance rules, and expanded FTA oversight under the latest amendments
The UAE Ministry of Finance has announced Federal Decree-Law No. (16) of 2025, marking the most significant update to the country’s VAT system since its introduction in 2018. Effective January 1, 2026, the new amendments aim to enhance compliance, improve documentation accuracy, and strengthen transparency within the tax framework.
Key Highlights of the 2026 VAT Amendments
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Self-invoicing removed under the Reverse Charge Mechanism
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Mandatory retention of supporting documents for VAT claims
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Five-year deadline introduced for VAT refund requests
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FTA empowered to deny input tax linked to tax evasion activities
Reverse Charge Mechanism: Self-Invoicing Removed
One of the most notable changes is the removal of the self-invoicing requirement for reverse charge transactions, commonly applied to cross-border goods and services.
Required documentation moving forward:
- Supplier-issued invoices
- Import documentation
- Contracts or agreements
- Proof of payment
This update simplifies procedures, reduces administrative burdens, and aligns the UAE with international VAT standards.
Five-Year Limit on VAT Refund Claims
A new statutory limit of five years has been introduced for businesses wishing to reclaim excess refundable VAT after reconciliation.
Purpose of this change:
- Encourages timely submissions
- Prevents accumulation of outdated refund requests
- Supports better financial clarity for both businesses and authorities
The approach mirrors global VAT practices, including those followed in the European Union.
FTA Strengthened to Combat Tax Evasion
The Federal Tax Authority now holds expanded authority to deny input tax deductions if a transaction is connected to tax evasion or non-compliance.
Input tax may be denied if:
- The transaction is fictitious or illegal
- The supplier fails to comply with VAT regulations
- Valid documentation is missing or incomplete
This amendment promotes stronger due diligence, cleaner supply chains, and more reliable compliance across sectors.
Enhancing Transparency and System Efficiency
According to the Ministry of Finance, these reforms reinforce the UAE’s commitment to maintaining a modern, fair, and internationally aligned tax system. The updated rules are also expected to benefit SMEs by reducing procedural complexity and improving administrative clarity.
What UAE Businesses Should Do Now
Although the reforms take effect on January 1, 2026, businesses are advised to begin preparations immediately.
Action steps:
- Review and update VAT documentation practices
- Train finance and accounting teams
- Conduct a VAT compliance check with professionals
- Upgrade or refine ERP and accounting systems
Late preparation may lead to denied VAT claims, penalties, or extended audits under the new anti-evasion framework.
Conclusion
The upcoming VAT amendments introduce a balanced approach: easing documentation requirements while strengthening oversight to prevent abuse. For UAE businesses, the priority is to adapt early, refine internal processes, and stay fully informed. With less than a year before implementation, now is the ideal time to ensure systems and teams are ready for the 2026 VAT framework.
