Ministry of Finance Announces Major VAT Law Amendments Effective January 2026
The UAE Ministry of Finance has formally announced significant amendments to the national Value Added Tax (VAT) framework, set to take effect on 1 January 2026. Issued via Federal Decree-Law No. (16) of 2025, which modifies provisions of the original 2017 VAT law, the changes are positioned as a strategic enhancement to the UAE’s fiscal ecosystem. The revisions aim to streamline procedures, bolster governance, and align the system more closely with international best practices, reinforcing the nation’s commitment to a transparent, efficient, and competitive economic environment.
Key Amendments and Implications
The decree outlines several pivotal changes with direct operational and financial impacts for taxable persons:
- Streamlined Reverse Charge Mechanism: A significant procedural simplification relieves taxable persons from the obligation to issue self-invoices when applying the reverse charge mechanism. Instead, businesses will be required to maintain and retain all supporting documentation related to such supply transactions as specified by the Executive Regulation. This shift is intended to reduce paperwork, enhance audit trail clarity, and improve overall administrative efficiency.
- Statutory Time Limit for Tax Reclaims: To promote financial certainty and prevent the accumulation of unresolved balances, a strict five-year deadline will be imposed for submitting requests to reclaim any excess refundable tax after reconciliation. The right to reclaim will expire once this period has elapsed. This measure brings the UAE in line with global standards for managing refund processes and ensures fairness among all taxpayers by encouraging timely settlement of accounts.
- Enhanced Measures to Combat Tax Evasion: In a decisive move to strengthen anti-evasion frameworks, the amendments empower the Federal Tax Authority (FTA) to deny input tax deduction if it determines that a supply is part of a tax evasion arrangement. Concurrently, the responsibility is placed on taxpayers to exercise due diligence by verifying the legitimacy and integrity of their supplies before claiming input tax deductions, following FTA-prescribed procedures. This approach establishes a model of shared responsibility, aiming to strengthen governance throughout the supply chain and protect public revenue.
