New UAE Tax Legislation Aligns Closer to Global Standards

The United Arab Emirates (UAE) has enacted major amendments to its tax legislation. Effective 1 January 2026, these enhance compliance and aligns the UAE’s fiscal framework more closely to global standards. Ajil Varghese,  Associate Director - Taxation at CLA Emirates examines how the amended regulations support tax reporting transparency while maintaining a competitive environment for domestic and international businesses.

The revised rules apply to all UAE  tax registrants, including mainland and free zone entities, SMEs, holding companies, multinational groups and businesses with cross-border activities.

Key changes under Value Added Tax include simpler reverse-charge compliance requirements, a five-year VAT refund deadline and stricter VAT anti-evasion rules. The main rationale for these amendments is to support the development of a digitally aligned global taxation framework and ensure greater clarity regarding limitation periods, confirms Ajil Varghese. Most notably, the new laws introduce a strict five-year statute of limitations for the Federal Tax Authority (FTA) to undertake audits and for taxpayers to request refunds.

“The new system reduces the scope for fraud or manipulation in invoices or any kind of tax evasion,” reports the CLA Emirates taxation specialist. “These legislative updates form part of a much wider initiative to modernize and strengthen the business framework in the UAE.”

Long regarded a pro-business environment, the UAE currently ranks 16th in the World’s Ease of Doing Business list. Oil accounts for around 30% of the national GDP, however the remaining 70% comprises prominent industries including tourism, real estate, aviation and financial services.

VAT amendments (effective 1 January 2026)

• Removal of self-invoicing (Article 48 (1): The issuing of self-invoices under the Reverse Charge Mechanism (RCM) for imports of goods and services is no longer permitted. Businesses must instead retain original supplier invoices and import documents.
• Five-year refund deadline (Article 74 (3) - Excess Recoverable Tax): This strict five-year statute of limitations is introduced for claiming excess VAT refunds. It applies from the end of the relevant tax period. Businesses are strongly encouraged to review all historical excess recoverable input taxes to avoid forfeiture. 
• 12-month deadline to claim legacy VAT credits (Article 3 (1)– Transitional Relief): Businesses have until 31 December 2026 to claim older VAT credits before they expire. This specifically allows for the recovery of legacy credits from tax years 2018–2020. If not claimed by 31 December 2026, the right to recover these historical VAT credits expires.
• Input tax denial (Article 54 (bis) Recoverable Input Tax): The FTA can deny input tax recovery if the transaction is linked to tax evasion, or if it is considered that the taxpayer knew or should have known about it. This places greater emphasis on taxpayers to maintain strong compliance systems and conduct thorough supplier due diligence before claiming input tax credits.

Key tax procedures amendments (changes to the Federal Decree-Law No. 28 of 2022 (Tax Procedures Law)

• Determination of Payable Tax (Article 9): This new law introduces a strict timeframe and permits the FTA to apply overpaid taxes or credits to outstanding tax liabilities in accordance with the procedures specified in the New Executive Regulation.
• Correction of errors (Article 10 (5)- Voluntary Disclosure): Even if no tax impact the penalties for incorrect tax returns has reduced to AED 500 for the first violation and AED 2,000 for repeat violations, providing they are corrected by Voluntary Disclosure for cases specified by the Authority.
• Application for credit balance refund (Article 38 (2): The five year statute of limitations deadline applies to recover any credit balance resulting from overpayment, tax returns or voluntary disclosures. Exceptions to the five-year deadline exist for certain credits.

Greater clarity for tax positions under Corporate Tax Law

The release of the UAE Corporate Tax Law (Law) on 9 December 2022 marked a major shift in the region's tax landscape.  A key update is the introduction of a clear sequence for applying global tax credits and incentives, summarizes Ajil Varghese. He expands: “Companies are now required to offset withholding tax credits, foreign tax credits, and approved incentives in a specified order before calculating any remaining corporate tax payable. This removes the uncertainty that may previously have pushed many businesses—particularly multinational groups—to adopt overly cautious tax positions or overpay corporate tax due to this lack of clarity.”

In September 2025, many UAE -based entities completed their first full CIT reporting cycle which required the application of robust accounting principles to comply with:

• Corporate tax (9%): Applies to businesses with profits exceeding AED 375,000, effective from 1 June 2023.
• Minimum top-up tax (15%): For financial years starting on or after 1 January 2025, a 15% minimum tax applies to large multinational enterprises (MNEs) with revenues over €750m. 

UAE’s Transition to Digital VAT E-Invoicing

“There will be a phased roll out of the digital VAT e-invoicing system. The pilot phase will commence on 1 July 2026, and mandatory rollout by the FTA will commence in 2027. This all forms part of the transition toward a fully digital tax ecosystem in UAE and globally,” confirms Ajil Varghese.

What do UAE-based entities affected by these changes need to do next?

1. Review corporate tax position: confirm correct application of tax credits, incentives, and exemptions.
2. Assess permanent establishment risk: especially applicable for groups with foreign staff, any workers on secondment in the UAE or regional operations managed from the UAE.
3. Align accounting and tax reporting: ensure financial statements and tax calculations are consistent and digitally documented going forward. 

For a detailed overview of the changes, visit https://www.claemirates.com/major-amendments-to-vat-decree-law-and-tax-procedures-laws-taking-effect-from-1st-january-2026/. For further guidance or to navigate how these new tax developments might impact your clients with entities located or connected to the UAE contact Ajil Varghese using the contact details below.

For further information

Ajil Varghese
Associate Director - Taxation
https://www.linkedin.com/in/ajil-varghese-58637818/

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