The Ministry of Finance (MoF) of the UAE has issued Federal Decree‑Law No. (16) of 2025, amending certain provisions of the previous VAT law (Federal Decree‑Law No. (8) of 2017 on Value Added Tax). The amendments come into effect on January 1, 2026.
The aim: simplify procedures for taxpayers, enhance transparency, strengthen compliance, and align the UAE’s tax framework with international standards.
Key Changes under the New VAT Rules
No more self-invoices under reverse charge mechanism
Under the reverse charge mechanism (where the buyer — rather than the supplier — accounts for VAT), businesses will no longer be required to issue separate “self-invoices.”
Instead, businesses will need to keep regular supporting documentation (e.g., supplier invoices, contracts) as evidence of supply transactions, as specified by the Executive Regulation.
This reduces administrative burden and simplifies the filing process for many businesses.
Five-year time limit for claiming VAT refunds/input tax credits
A firm deadline of five years has been introduced for refund claims or claims for refundable VAT/input tax after reconciliation of accounts. After this period, claims will no longer be accepted.
That means old outstanding refunds or credit balances can’t linger indefinitely – provides certainty to both taxpayers and the government.
Stricter compliance & anti-evasion measures
The Federal Tax Authority (FTA) is being empowered to deny input-tax deductions if a transaction is deemed part of a tax-evasion scheme.
Taxpayers will be required to verify the “legitimacy and integrity” of supply transactions before claiming any input VAT. This increases accountability across the supply chain.
The reforms are intended to strengthen governance and safeguard public revenue, while promoting fairness among taxpayers.
Broader tax-procedures reform under new law
The VAT changes are part of a wider update to the UAE’s tax procedures – under Federal Decree‑Law No. (17) of 2025 – which will apply across federally administered taxes, including VAT, Corporate Tax, and Excise Tax.
The updated tax-procedures law aims to remove ambiguities, ensure consistency in FTA’s decision-making, and provide clearer timelines for refunds, audits and compliance actions.
For example: refund requests or credit balances must be claimed within five years (subject to limited exceptions); the FTA has clarified when it can conduct audits or assessments beyond the normal limitation period (e.g. if refund claims are filed in the last year).
Also, the law introduces “binding directions” – formal interpretations issued by the FTA that both the authority and taxpayers must follow. This helps reduce inconsistent treatment of similar transactions, which had been a pain point.
What This Means – For Businesses, Residents & NRIs
For Businesses (especially VAT-registered)
Reduced paperwork and administrative burden – no need for self-invoices under reverse charge, simpler record-keeping.
More certainty: refund/credit claims must be settled within 5 years; prevents indefinite accumulation of old claims.
Stronger compliance regime – businesses must ensure supply legitimacy before claiming input VAT; risk of denial if associated with evasion.
Greater clarity thanks to binding interpretations and a unified tax-procedures framework.
For Individuals/NRIs/Foreign Investors
If you are doing business in UAE – as consultant, trader, freelancer, or investor – you need to be aware of these changes (especially reverse-charge rules and input VAT compliance).
For those claiming VAT refunds or credit (say, after leaving UAE or winding up business), ensure claims are filed within the new 5-year window.
For UAE’s Business Environment & Economy
The reforms signal the UAE’s intent to strengthen its tax system, improve transparency, align with global best practices.
New rules may encourage greater compliance and reduce tax-fraud risk – potentially making the UAE more attractive to credible businesses and investors.
A clearer, more predictable VAT and tax-procedures regime can enhance investor confidence, especially among international companies and NRIs.
Additional Context & Related Changes
The broader tax-procedures reforms (Decree-Law 17 of 2025) cover all federally administered taxes – not just VAT – which suggests UAE is overhauling its overall tax governance framework, not just making piecemeal changes.
Through these reforms, the UAE seems to be emphasizing “transparency, fairness and administrative efficiency,” likely to support its long-term goals of economic diversification and non-oil revenue growth.
