The UAE has announced important amendments to its Value Added Tax (VAT) framework, effective 1 January 2026. These changes are designed to reduce procedural complexity, strengthen compliance, and enhance transparency in the VAT system. Businesses operating in the UAE should review these updates early to avoid compliance risks.
Removal of Self-Invoicing Under Reverse Charge
Under the revised rules, self-invoicing will no longer be required for transactions subject to the reverse charge mechanism. While VAT accounting under RCM will continue, businesses must maintain appropriate supporting documents as specified by the Executive Regulations. This change significantly reduces administrative workload without weakening audit controls.
Introduction of a 5-Year Limit for VAT Refund Claims
A five-year time limit will apply to the recovery of excess input VAT. Taxpayers must either offset excess VAT against future liabilities or submit refund claims within five years from the end of the relevant tax period. Any unclaimed balance after this period will expire, making periodic VAT reviews critical.
Enhanced Measures to Prevent Tax Evasion
The Federal Tax Authority (FTA) will have expanded authority to deny input VAT deductions where transactions are linked to tax evasion or non-compliant supply chains. Businesses are expected to conduct proper due diligence on suppliers and transactions before claiming input VAT.
Greater Transparency and Simplified Compliance
The amendments aim to improve clarity in VAT reporting, simplify filing procedures, and align the UAE VAT regime with international best practices. Overall, the reforms promote a more transparent and efficient tax environment for businesses.
Key Action Points for Businesses
Businesses should review existing VAT processes, assess historical input VAT balances, strengthen documentation and supplier verification, and train internal teams on the updated requirements well ahead of 2026.
Stay informed with HKMS. Reviewing your VAT processes early will help ensure smooth compliance under the new UAE VAT framework.