UAE VAT Reforms 2025: Federal Decree – Laws 16 & 17 – Key Changes in VAT Compliance Requirements

December 19, 2025

The Ministry of Finance issued two key legislative updates in October 2025:

Federal Decree-Law No. 16 of 2025 – Amending selects provisions of Federal Decree-Law No. 8 of 2017 (VAT Law)
Federal Decree-Law No. 17 of 2025 – Amending provisions of Federal Decree-Law No. 28 of 2022 (Tax Procedures Law)

Effective date of the amendments: January 01, 2026

Key VAT Law Amendments (Federal Decree-Law 16 of 2025)

Article 48(1) – Reverse Charge

Overview of the Amendment:

Taxable Person imports Goods or Services for the purposes of his Business, then he shall be treated as making a Taxable Supply to himself. It is therefore responsible for calculating and paying the VAT liable on this supply. The Key change is that the company does not have to send itself a tax invoice for these imported goods or services.

It is important to note that despite the amendment, self-invoicing may still be required in certain cases to facilitate recovery (where supplier invoice/documents may not be available).

Implications:

Lightens the administrative workload and enables efficient accounting practice.
Applies stronger importance on the compliance of supporting paperwork, such as contracts, supplier invoices, and proof of supply.

Article 54 – Recoverable Input Tax (New anti-tax-evasion provisions introduced)

Overview of the Amendment:

Input tax deductions will be disallowed if the supply is part of a chain linked to tax evasion and the Taxable Person was aware of this relation upon deducting the Recoverable Input Tax.
Input tax deductions may also be denied if the taxpayer ‘should have known’ based on the circumstances of the supplies related to Tax Evasion.
For the purposes of applying the provisions of Clause 2 of this Article, a Taxable Person shall be deemed to be aware of the tax evasion in the supply chain if they fail to verify the validity and integrity of supplies before claiming input tax in accordance with the conditions, procedures and measures determined by the FTA.

Implications:

Strong internal control & approval is required for tax invoices to claim the input VAT.
Appropriate & sufficient documentation is required for Input VAT claims and to reduce fines.

Article 74(3) – Excess Recoverable Tax.

Overview of the Amendment:

Excess input tax may be carried forward for a period of five years from the end of the tax period in which it arose.
After the expiry of five years from the end of the relevant tax period, such input tax credit can no longer be utilized, offset against output tax, or claimed as a refund.

Implications:

Finance teams should ensure that these excess credits have been claimed by reconciling past VAT balances by filing VAT refund application.

Transitional Provision allowing one year window until December 31, 2026

Overview of the Amendment:

Taxpayers whose five-year claim period has expired or will expire within one year of the Decree-Law’s effective date can still request a refund or apply credit balances toward tax due or penalties.

With the introduction of the amendments (including transitional relief), businesses have a limited window until 31 December 2026 to claim refunds for tax periods 2018–2020. After this date, the right to recover these amounts will permanently expire.

Business Implications:

Businesses should promptly review VAT records for FY 2018–2020, as any unclaimed input tax must be recovered by 31 December 2026. Amounts not claimed by this deadline will be permanently lost, adversely impacting cash flow.

Illustrations 1

Scenario

ABC Trading LLC filed its VAT return for the quarter Jan to March 2018.
Due to capital expenditure, the company reported excess input VAT of AED 120,000.
No refund application was submitted, and the balance was carried forward in subsequent VAT returns till Dec 2025.

Application of the Amendment

The five-year period starts from the end of the tax period (31 March 2018).
The excess input VAT should be utilized, offset, or claimed as a refund on or before 31 March 2023. As five years to claim the input tax credit period is already expired, the FTA granted the transitional relief and permitted the submission of the VAT refund application on or before 31 December 2026.
If ABC Trading LLC does not submit the VAT refund application by 31 December 2026, the excess input VAT of AED 120,000 will lapse and cannot be utilized, offset, or refunded in any future VAT return.

Illustrations 2

Scenario

XYZ VAT Group consists of Parent Co and Subsidiary A.
In the VAT return for Q2 2022 (Apr–Jun 2022), the VAT Group reported excess input VAT of AED 300,000, mainly arising from Subsidiary A.
The excess credit was carried forward in the VAT Group’s subsequent returns and not claimed till December 2025.

Application of the Amendment

The five-year limitation period begins from 30 June 2022.
The VAT Group should utilize, offset, or submit a refund application by 30 June 2027.
If the VAT Group does not submit the VAT refund application by 30th June 2027, the excess input VAT of AED 300,000 will expire and cannot be refunded, even if the relevant group member is later de-registered or removed from the VAT Group.

Article 79 (bis)

This law has been officially repealed and is no longer applicable.

VAT-Relevant Tax Procedures Law Amendments (Federal Decree-Law No. 17 of 2025)

Article 9 (3) -Determination of Payable tax

Overview of the Amendment:

Taxable Person pays an amount in excess of the Payable Tax, or has a credit balance with the Authority, the Authority may apply such excess or credit balance to settle any outstanding tax or liabilities due to it, within a period not exceeding five (5) years from the end of the relevant Tax Period.

Business Implications:

It helps in reconciling accurately and timely.
This supports effective cash flow management

Article 10(5) -Voluntary Disclosure

Overview of the Amendment:

If a Taxpayer discovers an error or omission in a Tax Return submitted to the authority that does not result in any difference in the amount of Due Tax, such errors are required to be corrected through a Voluntary Disclosure only in the cases specified by the Authority. In all other cases, the Taxpayer may rectify the error in the subsequent VAT return.

Business Implications:

Minimising administrative burden and compliance risk.

Article 38(1-2)- Application for refund of credit balance

Overview of the Amendment:

Refund claims (which are in excess of due tax and penalties) must be submitted within five years of the relevant tax period.

Article 38(3-6)- Application for refund of credit balance- New Clauses added

Introduces special timelines as an exception to the five-year rule:

Clause 3: If a credit balance arises from an FTA decision after the five-year period or in the last 90 days of that period, the taxpayer has one (1) year from the date the balance arose to submit a refund request.
Clause 4: Without prejudice to the provisions of Clause 3 of this article where the credit arises after the five-year period or in the last 90 days, the taxpayer has 90 days from the date the balance arose to submit a refund request.
Clause 5: The FTA must review refund requests and notify the taxpayer of its decision for approval or rejection.
Clause 6: If the refund request is not submitted within the specified timelines, the taxpayer’s right to claim the refund expires permanently.

Article 46- Statute of limitations

Overview of the Amendment:

Except in certain specific situations, the UAE VAT Law prohibits the tax authorities from auditing a business or issuing a tax assessment for a VAT period after five years have elapsed. If the taxable person submit VAT refund application in the 5th year or on any late VAT credit periods, the FTA can still conduct audit which must be completed within 2 years from when the claim was submitted. Further, voluntary disclosures are generally not allowed to be submitted beyond five years, except in cases where they relate to an unresolved refund application.

Article 54(bis)

Overview of the Amendment:

The FTA may issue official, legally binding directions to clarify VAT interpretation and ensure uniform application across taxpayers.

Practical Measures

The Taxpayer should Review all VAT credit balances and submit any pending VAT refund applications before the statute of limitations takes effect.
Ensure that all transactions are recorded with consistent and acceptable VAT treatment to minimize compliance risks and audit exposure.