FTA Declines VAT Refund Residuals: Decision No. 9 of 2025
Effective from 1 January 2026, the UAE Federal Tax Authority (FTA) has issued Decision No. 9 of 2025, introducing clear rules on when the Authority can decline refunding the residual amount of a VAT refund request if the business is under a Tax Audit.
This decision has become significant for companies that regularly claim VAT refunds, especially for exporters, contractors, real estate developers, start-ups, and any business with continuous input tax credits.
From 1 January 2026, the FTA has the legal right to put your refund request on hold or decline it entirely if you qualify under any of the six conditions mentioned below.
In this blog, we have simplified the new rules, explained each condition, and provided practical examples so UAE businesses know exactly what to expect. Let us dive into the same.
What Are “Residual Amounts” in a VAT Refund?
When a VAT refund request is submitted, the Federal Tax Authority may sometimes approve only part of the amount during the initial review. Any remaining difference that stays in the taxpayer’s FTA account is referred to as the residual amount. This balance may go through additional verification before it is processed further.
Under the new FTA Decision No. 9 of 2025, these residual amounts may not be processed if a business is undergoing a detailed review and certain specified criteria are applicable.
1️ Evidence Suggests Significant Tax Liabilities May Arise
If the FTA notices that your business has substantial tax, they can decline your refund request until the audit is completed.
Example:
A trading company claims a large refund every quarter. During audit sampling, the FTA finds repeated input tax claimed on non-qualifying expenses.
Outcome: The Refund request for the residual amount will be declined.
2️ Grounds to Believe the Person Is Involved in Tax Evasion
If the FTA finds any sign of deliberate misreporting, fake invoices, or manipulation, it will lead to immediate cessation of the refunds.
Example:
A business uses inflated purchase invoices to increase input tax. FTA suspects invoice manipulation.
Outcome: The Refund request will be declined automatically.
3️ Refund Request Relates to Goods Suspected of Being Part of Supply-Chain Tax Evasion
Considering that the taxable person is not directly involved, the refund request can be declined if the goods are connected to suspicious suppliers or transactions.
Example:
A distributor imports electronics and claims a refund on import VAT. FTA identifies that the upstream supplier is under investigation for missing trader fraud.
Outcome: Refund request on the residual amount will be withheld by the FTA.
This explains why supplier due diligence is essential.
4️ Outstanding Tax Returns for Any Tax Type
In the case that your company has any unfiled tax returns, VAT, Corporate Tax, or Excise Tax, the FTA has the right to decline your refund request.
Example:
A company has filed its VAT refund request, but has not filed its Corporate Tax return within the due date and is still pending for submission.
Outcome: The refund request will be declined until all tax returns are submitted.
5️ Failure to Provide Information Requested During the Tax Audit
If a taxable person does not submit documents requested by the FTA within the timeline specified, it becomes a reason for the FTA to decline the residual refund.
Example:
FTA requests:
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Bank statements
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Purchase invoices
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Customs documents
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Contracts
The company delays or submits incomplete files.
Outcome: The Refund residual amount will be declined.
6️ Failure to Cooperate With the FTA during the Tax Audit
This is one of the non-negligible mistakes. Non-cooperation includes:
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Ignoring FTA emails
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Not attending scheduled meetings
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Blocking access to records
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Providing unclear or misleading responses
Example:
FTA asks for clarification of zero-rated export supplies, and the taxable person does not respond within the deadline.
Outcome: The Refund request will be declined.
How This Decision Affects UAE Businesses
Now we might wonder, how these decisions affect the UAE businesses! Let’s break down the ice in simple words:
➤ Refunds will not be automatically withheld for audits, only when these conditions apply.
This is one of the most important clarifications given. Previously, many taxable persons assumed that refund requests would be delayed during audits conducted by the FTA.
➤ You must maintain airtight documentation at all times.
FTA has the right to audit your financials, but not indefinitely. The FTA can request any record dating back 5 years.
➤ Having outstanding tax returns can block your refund.
Yes, we observe that many businesses have overlooked on their dormant branches or old VAT numbers, this decision makes it difficult to get you refund processed.
➤ Supplier compliance matters.
Considering that your supplier is involved in tax evasion, you can still lose your refund even if you did everything correctly. Hence it is important to to have the Supplier Due Diligence done on time.
➤ Proper response during audits is critical.
Any inappropriate or partial responses to the FTA will be considered as “lack of cooperation”.
Practical Tips to Avoid Refund Declines after 1 Jan 2026
This will be the interesting part of this blog, let us get prepared to the refunds on time without any hassle.
1. Maintain complete documentation
Now, this is the basics, every taxable person should maintain proper documentation to have a smooth process. When we say documentation, FTA looks for the basics like:
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Tax invoices
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Import declarations
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Contracts
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Export documents
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Payment proofs
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Management accounts
2. File all VAT + Corporate Tax returns on time
Remember, one missed tax return can block a refund request. Let us ensure that all your tax filings are done on time.
3. Conduct supplier due diligence
Yes, as mentioned above, the Supplier Due Diligence is a critical one. Being a taxable person, you should be aware of with whom you are transacting. Hence, checking on the below is mandatory:
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TRN validity
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VAT return compliance
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Red flags (frequent deregistration, missing invoices, unrealistic pricing)
4. Respond to FTA requests immediately
Any delays in response to the FTA give FTA the grounds for rejection of the application.
5. Engage an FTA Tax Agent
Certainly, engaging a Tax Agent can be more beneficial to deal with the FTA, citing the following reasons:
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Responds to FTA queries professionally
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Manage audits
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Prepare refund justifications
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Prevent minor errors that lead to major consequences
Need Support With VAT Refunds or FTA Audits?
Flying Colour Tax Consultant LLC specialises in:
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VAT refunds
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FTA audit support
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Compliance reviews
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VAT return filings
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VAT documentation health checks
FAQs: VAT Refund Decline Conditions under Decision No. 9 of 2025
1. Will my refund automatically stop if I am under a Tax Audit?
No, the VAT refund applications are declined only if one of the above-discussed six conditions is qualified.
2. Can the FTA decline a refund without informing me?
Not at all, FTA will notify the taxable person through EmaraTax. Hence, it is mandatory for you to keep a note on all the messages and notifications that you receive from the FTA.
3. If I fix my outstanding tax returns, can I reapply for the refund?
Yes, upon submission of all the tax returns, you may reapply.
4. Does this decision apply to Corporate Tax refunds?
No. It applies only to VAT refund residual amounts.
5. Can a Tax Agent help prevent a refund decline?
Yes. FTA-approved Tax Agents can manage audits, prepare responses, and ensure your documentation meets FTA standards.
To learn more about Why FTA Declines VAT Refund Residuals: Decision No. 9 of 2025, 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.