What’s Changing – Overview of 2026 Amendments
In late 2025, the Ministry of Finance released Federal Decree Law No. 16 of 2025, which amended some provisions of the VAT Law in the UAE.
Important updates include the following points:
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In certain situations, businesses will not be required to prepare self-invoices related to the reverse charge process.
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A five-year window will be available for submitting requests to recover refundable tax amounts after the final review.
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The Federal Tax Authority (FTA) may decline input VAT claims if a transaction appears inconsistent with normal commercial activity.
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Under Cabinet Decision No. 129 of 2025, effective April 14, 2026, adjustments have been introduced to the administrative framework and compliance rules.
Together, these changes represent one of the most notable developments to the VAT framework since its initial implementation in the UAE.
What Each Change Means for Businesses
➠ No requirement for self-invoices under reverse charge
As per the amended tax law, businesses are no longer required to issue a self-invoice for transactions under the reverse charge mechanism.
Why it matters:
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Businesses bringing goods or services under the reverse charge no longer need to handle as many documents, which simplifies their tax responsibilities.
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Businesses still need to keep the supporting documents like contracts, import or customs documents and proof of taxable supplies, as mandated by the executive regulation.
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Businesses should maintain proper documentation and records for claiming input VAT. The record keeping was very crucial than before.
➠ Introduction of a 5-Year Deadline for Refund Claims
Businesses have up to five years (5) years from the end of the relevant tax period to apply for a refund or use any excess refundable VAT to offset the other VAT dues.
Why it matters:
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Businesses should have prompt action to check their VAT returns submitted and apply for the refund claims on time to avoid unnecessary delays.
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By limiting old VAT credits, businesses can have a clearer picture of their funds and improve control over their cash flow.
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Regular monitoring of VAT accounting and conducting periodic reviews helps businesses to manage VAT effectively.
➠ Enhanced Anti-Evasion Safeguards
The FTA is authorised to refuse a business the right to deduct input VAT if it identifies that a supply involved in the transaction is being used for tax evasion.
Why it matters:
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Businesses are responsible for ensuring that their suppliers and supply chains are legitimate and trustworthy through proper due diligence.
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Input VAT may be disallowed if the documentation is poor or the supply seems suspicious, even if the invoice and other legal requirements are met.
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Businesses engaged in imports, distribution and participating in high-risk procurement may face higher compliance risk.
➠ Harmonised & Updated Penalty Framework
Under Cabinet Decision 129 of 2025, the UAE is revising the administrative penalty regime across VAT, Excise Tax, and other tax laws. Effective 14 April 2026, penalties become more predictable and harmonised.
Why it matters:
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· The penalty structure is being simplified, which will help reduce uncertainty regarding fines.
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· This encourages businesses to comply and promptly correct their mistakes, instead of getting repeated penalties.
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· Businesses should review and strengthen their internal compliance systems, including returns filing, record-keeping, due diligence, and audit preparation.
What Businesses Should Do to Prepare (Action Plan)
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What to Do |
Why It Matters |
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Should review and revise their accounting and procurement policies to remain accurate and compliant. |
This is to ensure that all supplies are genuine, properly documented and qualify for input VAT |
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Ensure supplier verification process by conducting Know Your Customer (KYC) procedures and thorough background checks. |
To reduce the risk of supplies being treated as tax-evasion. |
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Conduct an annual review and reconciliation of VAT returns to identify any amounts that may be eligible for refund. |
This helps the businesses from losing refundable VAT which expires after 5-year window. |
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Ensure that all invoices and supporting documents are securely stored for a minimum of five years. |
This is essential for audit purposes, regulatory compliance and for claiming VAT refunds. |
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Conduct training sessions for the finance team to build awareness on the new rules regarding reverse charge, input VAT recovery, refund rules and penalties. |
It helps to reduce the risk of mistakes which will lead to financial penalties and loss of recoverable tax. |
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Update the internal compliance calendar to capture all new deadlines and the effective dates of penalties beginning in April 2026 |
This ensures in avoiding unintentional violations of tax rules and compliance requirements. |
Conclusion — What This Means for UAE Businesses in 2026
The VAT law updates coming in 2026 aim to improve transparency, accountability, and closer alignment with international tax standards. While certain amendments reduce compliance burdens such as removing self-invoicing under reverse charge, other areas, like stricter input VAT checks and refund time limits, increase the need for proper documentation, better processes and improved internal tax controls
For businesses which currently operating in the UAE, such as traders, importers, service providers and free zone entities, these changes mean:
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· Ensure their VAT compliance process are stronger and more critical than before.
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· Effective internal controls, thorough supplier checks and disciplined accounting practices are now essential for compliance.
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· Requires proper bookkeeping and documentation for VAT refunds and input VAT claims.
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· The risk of penalties and audits will increase if businesses do not follow best practices.
Frequently Asked Questions (FAQs)
1️. Do these updates affect all businesses, including free-zone and offshore companies?
Yes. These VAT law amendments and new penalty rules will be applicable for every taxable person under Federal Decree-Law No 8 of 2017, regardless of their geographical location.
2️. Does the removal of the self-invoice requirement mean reverse-charge supplies are now simpler?
Procedurally, yes — but businesses still must keep full documentation proving the supply and place of transaction to support input VAT claims under reverse charge.
3️. What happens if I miss claiming a refundable VAT before the 5-year limit?
You lose the right to claim that refund. After the 5-year window lapses, the FTA will not accept the claim.
4️. Is it still possible for the FTA to audit supplies that were considered legitimate when recorded?
Yes. The FTA has the power to disallow input VAT deductions if a supply is suspected or part of a tax evasion scheme, even if past returns were correct. This may also extend the audit period above the standard time frame.
5️. When will the new penalty system begin, and what impact will it have on business?
The new rules under Cabinet Decision 129 of 2025 will start with effect from 14 April 2026. Businesses must fully comply with the proper documentation, filings and audit requirements to avoid administrative penalties.
To learn more about New Update in VAT Law-Complete Overview 2026, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.