A New Rule on Withholding Tax Refunds During an Audit
FTA Decision No. 9 of 2025, formally titled the Decision on the Conditions to Decline the Refund of the Residual Amounts, was issued on 4 December 2025 and takes effect from 1 January 2026. It sets out exactly when the Federal Tax Authority can withhold or decline a refund of residual tax amounts where the person requesting that refund is simultaneously subject to a tax audit — and it applies uniformly across VAT, Corporate Tax, and Excise Tax.
This is a narrower, more specific rule than the broader five-year refund limitation reform introduced around the same time under Federal Decree-Law No. 17 of 2025 and the related VAT amendments — the two are related but distinct. Decision No. 9 governs whether a refund can be withheld during an active audit; the five-year rule governs how long a taxpayer has to claim a refund in the first place. This guide focuses specifically on Decision No. 9, what triggers a decline, and how the underlying legal mechanism actually works.
The Legal Basis for Declining a Refund
The authority to decline a refund in this context traces back to Article 39 of Federal Decree-Law No. 28 of 2022 on Tax Procedures. Article 39 first requires the FTA to set off any amount due for refund against non-disputed payable tax or administrative penalties before any residual amount is actually refunded. Beyond that set-off, Article 39 also permits the FTA to decline a refund of the residual amount in two circumstances: where the Authority identifies other disputed tax amounts relating to the taxpayer, or where the taxpayer is subject to a tax audit — and in this second case, the law specifically requires that the decline can only occur where the conditions set out in a decision of the FTA’s Board of Directors have been met. Decision No. 9 of 2025 is that decision — it supplies the specific conditions Article 39 refers to but does not itself define.
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The Six Conditions That Can Trigger a Refund Decline
Under Decision No. 9, the FTA may decline to refund residual amounts connected to a refund request where the taxpayer is subject to a tax audit and any of the following conditions are met.
Evidence Suggesting Significant Additional Tax Liability
Where the audit has produced sufficient evidence indicating that a significant additional tax liability may arise, the FTA can withhold the refund rather than process it while that liability remains unresolved. The logic here is straightforward: refunding money to a taxpayer who may simultaneously owe a larger, undetermined amount creates an obvious collection risk once the audit concludes.
Grounds to Believe the Taxpayer Is Involved in Tax Evasion
Where the FTA has sufficient grounds to believe the taxpayer is involved in tax evasion — whether directly or through their broader supply chain — the refund can be declined. Tax evasion carries serious legal consequences in the UAE, and this condition exists specifically to prevent a refund being paid out while that exposure is still being investigated.
Refund Requests Linked to Goods Suspected of Tax Evasion
Where the refund request itself relates to goods suspected of being part of a tax evasion scheme within the supply chain, the FTA can decline the refund even if the taxpayer’s own conduct isn’t yet the direct subject of suspicion — the connection to the suspect goods is sufficient on its own.
Outstanding Tax Returns
Where the taxpayer has outstanding, unfiled tax returns for any type of tax — not only the tax type the refund relates to — the FTA can decline the refund until full return-filing compliance is restored. This condition applies across tax types specifically to prevent a taxpayer from claiming a refund under one tax while remaining behind on filing obligations under another.
Failure to Provide Requested Audit Information
Where the taxpayer fails to provide the information the FTA has requested in connection with the tax audit, within the timeline specified, the refund can be declined. Audit information requests come with defined deadlines, and missing them carries this specific consequence in addition to whatever broader audit findings eventually emerge.
Failure to Cooperate With the Audit
Where the taxpayer fails to cooperate with the FTA in any manner relating to their obligations during the tax audit, the refund can be declined. This is a broader, more general condition than the information-request failure above — it covers the overall conduct of the taxpayer throughout the audit, not just a single missed document deadline.
How These Conditions Apply in Practice
Decision No. 9 only becomes relevant where two things are true simultaneously: the taxpayer has submitted a refund request for residual amounts, and the taxpayer is currently subject to a tax audit. Outside an active audit, none of these six conditions apply — a routine refund request from a taxpayer not under audit is processed under the standard rules, not under this decision.
Within an active audit, the FTA’s decision to decline isn’t automatic just because an audit happens to be underway — one of the six specific conditions above needs to actually be met. A taxpayer under audit who has filed all returns, is fully cooperating, has supplied every requested document on time, and faces no evidence of evasion or material additional liability should not see their refund declined purely because the audit itself is ongoing.
How Decision No. 9 Relates to the Broader 2026 Tax Reforms
It’s worth being precise about how this decision fits alongside the other major UAE tax procedural changes effective around the same date, since they’re often discussed together but serve different functions.
Federal Decree-Law No. 17 of 2025 introduced the broader five-year statutory limitation on claiming a refund or using a credit balance in the first place — a deadline question. Decision No. 9 of 2025 addresses a separate question entirely: even where a refund request is validly made within time, can the FTA still withhold it because the taxpayer is under audit? The two rules can interact — a refund request submitted near the end of the five-year window, for instance, faces both the limitation deadline and, if an audit happens to be underway, the conditions under Decision No. 9 — but they are not the same rule, and a business correcting its compliance position for one does not automatically address the other.
Practical Steps to Avoid a Refund Decline
Given the specific triggers above, the practical defence is largely about maintaining clean compliance fundamentals rather than anything refund-specific:
- File every outstanding tax return across all tax types, not only the one connected to the pending refund request
- Respond to FTA information requests within the specified deadline, every time, rather than treating early requests as low priority
- Maintain genuine, active cooperation throughout any tax audit, since the cooperation condition is assessed on overall conduct, not a single interaction
- Review supply chain and supplier relationships for any connection to suspected tax evasion before submitting a refund request tied to those goods
- Address any known discrepancies proactively rather than waiting for an audit to surface them, since evidence of a likely additional liability is itself a standalone trigger for decline
None of these are unusual or burdensome compliance practices on their own — what Decision No. 9 changes is the financial consequence of falling short on them while a refund happens to be pending.
Frequently Asked Questions (FAQs)
What is FTA Decision No. 9 of 2025?
FTA Decision No. 9 of 2025 is the decision that sets out the specific conditions under which the Federal Tax Authority can decline to refund residual tax amounts where the taxpayer requesting the refund is subject to an active tax audit. It is effective from 1 January 2026 and applies across VAT, Corporate Tax, and Excise Tax.
What are the conditions that can trigger a refund decline under Decision No. 9?
The six conditions are: evidence suggesting a significant additional tax liability may arise, grounds to believe the taxpayer is involved in tax evasion, a refund request linked to goods suspected of tax evasion within the supply chain, outstanding tax returns for any tax type, failure to provide requested audit information on time, and failure to cooperate with the audit.
Does Decision No. 9 apply to all taxpayers, or only those under audit?
It applies specifically to taxpayers who have submitted a refund request for residual amounts and are simultaneously subject to a tax audit. It has no relevance to a standard refund request from a taxpayer who is not under audit.
How does Decision No. 9 differ from the new five-year VAT refund limitation rule?
Decision No. 9 governs whether the FTA can decline an otherwise valid refund request because the taxpayer is under audit. The separate five-year limitation rule, introduced under Federal Decree-Law No. 17 of 2025, governs the statutory deadline for submitting a refund claim in the first place. The two operate independently and can both apply to the same refund request.
What is the legal basis for declining a refund under this decision?
The underlying authority comes from Article 39 of Federal Decree-Law No. 28 of 2022 on Tax Procedures, which permits the FTA to decline a refund where the taxpayer is under audit, provided the conditions set out in a decision of the FTA’s Board of Directors are met. Decision No. 9 of 2025 supplies those specific conditions.
Can a refund be declined just because a tax audit is in progress?
No. An audit being underway alone is not sufficient grounds for a decline. One of the six specific conditions set out in Decision No. 9 — such as evidence of a likely additional liability, outstanding returns, or failure to cooperate — must actually be met.
How can a business avoid having its refund declined during an audit?
Maintaining full compliance with return filing across all tax types, responding promptly to FTA information requests, cooperating fully throughout the audit, and reviewing supply chain relationships for any tax evasion exposure all reduce the risk of triggering one of the six decline conditions.
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
How Farahat & Co. Can Help
Understanding exactly when a refund request can be withheld during an audit — and what compliance steps actually protect against that outcome — matters considerably more once Decision No. 9 takes effect from January 2026. Farahat & Co. supports businesses across the UAE with tax audit preparation, refund claim management, and ongoing compliance designed to avoid the specific triggers this decision sets out.
Contact Farahat & Co. today to discuss your tax audit and refund position.
