UAE Tax 2026: FTA Updates of Compliance.

UAE is moving to a critical stage of taxation reform that will take effect on 1 January 2026. The recent changes to the VAT Law which was amended by Federal Decree-Law No.16 of 2025 and to the Tax Procedures Law which was amended by Federal Decree-Law No. 17 of 2025 by the Federal Tax Authority (FTA) have direct impact on compliance timelines, rights to refund and exposure to audit and enforcement.

This is not cosmetic reform. It is a shaping of the tax compliance system in the UAE.

Strategic Review of the 2026 tax makeover in the UAE.

The 2026 amendments signal a shift toward:

• Stated limitations under the law.
• Lessening the inefficiencies that are in the process.
• Improved FTA audit mandate.
• Increased enforcement in relation to the anti-evasion.

Compliant taxpayers gain clarity and predictability, while weak controls and aggressive tax positions face stricter scrutiny. Tax governance is now a core business risk, not an administrative afterthought.

Amendments to the VAT Laws- Federal Decree-Law No. 16 of 2025.

Reverse Charge Mechanism – Article 48(1).

The amended article 48(1) of Federal Decree-Law No. 8 of 2017 on Value Added Tax elucidates that taxable persons are not required to issue self-invoices for accounting VAT on imports under the reverse charge mechanism, provided the goods are used for business purposes.

Nevertheless, the necessity to keep good records and documentation of imports exists during the Executive Regulation.

Impact:

This reduces longstanding administrative burdens while preserving audit traceability.

Statute of Limitations of Excess VAT Credits – Article 74(3).

The recovery or input VAT of excess input of Article 74(3) is limited to a period of five years. The five-year limitation period starts from the end of the tax period in which the excess input VAT arose.

Once the limitation period expires, the right to claim a refund or offset the excess VAT against future VAT liabilities is forfeited permanently.

Reality check:

Dormant VAT credits now carry real financial risk; unused credits expire permanently after five years.

Input Tax – Article 54 Anti-Tax-Evasion Rules.

Article 54 has been amended to allow FTA to refuse to recover input tax where the transaction is related to tax evasion and the taxable person knew or should have known that the transaction was connected to tax evasion.

This applies even if:

• There is a valid tax invoice, and
• Payment has been made.

Translation:

Compliance now focuses on substance and intent, not just documentation.

 

Updates of tax procedures law – Federal Decree-Law no. 17 of 2025.

Five Year Period of Refunds and Credits – Article 9(3).

Article 9(3) of the amended Federal Decree-Law No. 28 of 2022 standardizes a five-year limitation period for

• Claiming tax refunds
• Settling the liabilities with credit balances.

Failure to act within this period results in forfeiture of the right to claim refunds or settle credit balances. This applies to VAT and Excise Tax unless specifically exempted.

Voluntary Disclosure Reforms- Article 10(5).

Article 10(5) is a flexible provision as it permits non-material errors to be exempt from mandatory voluntary disclosure, subject to FTA conditions. This is being done to lessen the meaningless compliance filings without sacrificing the enforcement of material misstatements.

Bottom line:

Non-material errors require less reporting, but strong internal controls remain essential.

Increased Audit and Evaluation Authority.

The amended statute gives the FTA the opportunity to:

• Conduct audits that exceed the normal limitation dates in certain situations.
• Assess taxpayer compliance and assign risk ratings based on defined parameters.
• Trust more in digital records and data analytics.

Message from the regulator:

• Poor record-keeping will increase audit risk.

Interaction With the Other UAE Tax Regimes.

Excise Tax Context

Although the 2026 overhaul does not directly impact Excise Tax procedures, indirect effect is that the amended Tax Procedures Law impacts the procedures of Excise Tax, especially in the context of:

• Refund limitation periods.
• Audit rights
• Administrative penalties

Excise taxpayers should align their procedures with the updated Tax Procedures Law to ensure compliance.

Corporate Tax and International Alignment.

These reforms complement the UAE Corporate Tax regime and the Domestic Minimum Top-Up Tax framework. The combination contributes to the determination of the UAE to adhere to international taxes, transparency, and Base Erosion and Profit Shifting (BEPS).

This is compliance maturity – not experimentation.

Business Practical Compliance Roadmap.

To stay ahead:

• Check past VAT credits and see that there are those ones that are close to expiry.
• Implement supplier due diligence procedures to mitigate Article 54 input tax risks.
• Govern credit balance monitoring with legal obligations.
• Train finance and tax teams on tax exposures and limitation periods under the new laws.

Regularly monitor FTA guidelines and Executive Regulation updates.

Farahat & Co recommend treating 2025 as a system upgrade and policy review period, not a pause in compliance action.

Frequently Asked Questions (FAQs)

Q1. Since when are the new limitation periods being applied?

• They apply to tax periods in accordance with the laws in amended form as of 1 January 2026, subject to transitional regulations by FTA.

Q2. Is it possible to be re-instated with expired VAT credits?

• No. The right is extinguished by the lapse of five years in case of Article 74(3).

Q3. Are voluntary disclosures now entirely voluntary?

• No. They are obligatory in case of material misdeeds or instances described by the FTA in Article 10(5).

Q4. Does the reverse charge change eliminate audit risk?

• No. Documentation and evidence requirements can still be enforced at the time of audit.

Q5. Will FTA have more audits after 2026?

• Due to the amended Tax Procedures Act and its expanded powers, there should be more audit activity.

Conclusion

The tax redesign of 2026 in UAE is straightforward and inflexible in its rules and complacency. Compliance is now defined by clear limitation periods, targeted simplifications, and expanded enforcement powers.

Businesses that modernize systems, resolve historical balances, and integrate tax governance into decision-making will adapt smoothly. Delays will increase financial exposure. The framework is set. The clock is running. Contact Farahat & Co. to stay updated on UAE tax reforms effective from 2026.