Tax changes in the UAE

Five-year time limit for applying for a VAT refund

What are the latest tax changes in the UAE? From January 1, 2026, a key change in VAT regulations will come into force in the United Arab Emirates, introducing a five-year statutory time limit for applying for a refund of excess input VAT or using it to offset other tax liabilities. This is the most significant modification to the tax framework in years, as the right to claim or use this credit will definitively expire if not filed within this five-year window. Although this change is crucial for VAT, it actually applies to all federal taxes, including corporate tax, with the aim of standardizing administrative procedures. The purpose of introducing this limit is to provide businesses with greater financial certainty, eliminate legal ambiguities, and prevent the accumulation of old, unsettled tax claims. As a result, companies in Dubai and other Emirates must urgently review their VAT credit balances and act in a timely manner to avoid losing funds due to the statute of limitations. See also: How to start a business in the United Arab Emirates? Guide.

Extension period for old credits

In connection with the introduction of a fixed five-year time limit for recovering excess input VAT or using it to offset outstanding liabilities from January 1, 2026, the Federal Tax Authority (FTA) has applied key transitional provisions to protect companies' historical balances. As a result, taxpayers whose original five-year VAT credit expiry date has already passed before the new rules come into force, or is due to expire within the first year of their application, are granted a one-year extension period. This means that businesses have until December 31, 2026, to file claims for refunds on these historical credits, which would otherwise be legally expired and forfeited. This strategic move is seen as a valuable opportunity for businesses, aimed at ensuring financial transparency and enabling companies to recover funds that are due to them but overdue. Furthermore, under this transitional relief, taxpayers may also file for Voluntary Disclosure within two years of filing their refund claim, provided that the FTA has not yet issued a final decision.

Abolition of self-invoicing (Reverse Charge)

From the new year, businesses in Dubai will be exempt from the burdensome obligation of issuing self-invoices when importing goods and services under the reverse charge mechanism (corporate tax). This simplified procedure eliminates an unnecessary administrative step, allowing local companies to significantly reduce their tax accounting workload. Instead of creating new documents, it is essential to keep standard proof of purchase, such as contracts or invoices from foreign contractors, in a reliable manner. However, the new regulations require that the documentation retained accurately confirms the value, nature, and source of origin of all imported supplies. This reform effectively modernizes the VAT system in the Emirates, making it more business-friendly and compliant with global standards.

Simplified correction of VAT errors

Are there any other VAT changes in the UAE? Yes, from January 1, 2026, correcting VAT errors will become much simpler and more flexible for companies operating in Dubai. Under the new rules, the Voluntary Disclosure procedure will only be required for specific errors included in a list published by the authorities. All other errors can be corrected directly in the next VAT return, avoiding time-consuming and costly formalities. This reform will significantly reduce the administrative burden, providing businesses with a more transparent and user-friendly way to remain fully compliant with the law.

Restrictions on VAT deductions (Anti-Evasion)

From the first days of January 2026, the tax authority in the Emirates will have the right to refuse VAT deductions if any transaction is linked to a tax fraud mechanism. How do tax changes affect entrepreneurs in the UAE? Entrepreneurs will be liable even for unwitting participation in suspicious schemes, which imposes on them the obligation to rigorously verify all contractors. Failure to conduct a thorough check of suppliers, i.e., due diligence, will be treated by the tax authorities as equivalent to conscious participation in abuse. The new regulations aim to eliminate fictitious invoicing and carousel fraud by forcing companies to be fully transparent throughout the supply chain.

Want to know where to shop VAT-free in the Emirates? Read where you can shop VAT-free in Dubai.

Binding interpretative directives

Thanks to another New Year's change, the Federal Tax Authority will gain the power to issue official, binding directives that will precisely explain how to apply tax regulations. These guidelines will apply to both taxpayers and the authority itself, effectively eliminating the risk of conflicting administrative decisions. This change is intended to provide greater legal certainty for businesses in Dubai and to standardize the interpretation of the law. The new regulations will make the Emirati system more transparent, further enhancing the region's attractiveness to global investors.

Expanded audit powers

Further new tax regulations in the Emirates: The Federal Tax Authority will gain the right to conduct audits and issue assessments even after the standard limitation period has expired. This extension of powers applies to strictly defined cases, such as a taxpayer filing a refund claim in the last year of the five-year time limit. This change will allow officials to thoroughly verify claims filed just before they expire, which is intended to ensure greater security for state revenues. The new regulations are part of a strategy to build a transparent system that combines the protection of entrepreneurs' rights with effective oversight of the Emirates' finances.

Graduated tax on sweetened beverages

The New Year brings a big change for fans of sweetened beverages. The United Arab Emirates is saying goodbye to a fixed 50% excise tax on sweetened beverages in favor of a modern graduated system. The amount of the tax will now be directly dependent on the sugar content, which means that the sweetest products will be subject to the highest taxes. This reform is intended to encourage manufacturers to reduce the level of sweeteners in their products, offering Dubai residents healthier and lighter alternatives. Thanks to the new regulations, the domestic market will align with GCC standards, promoting conscious food choices without imposing excessive burdens on less harmful products.

Refundable tax credit for R&D

From January 1, Dubai is focusing on innovation by introducing a groundbreaking refundable tax credit for research and development of between 30 and 50 percent of eligible costs. This powerful financial incentive covers a wide range of activities, from innovative scientific research to the implementation of modern technologies and the improvement of production processes. The new regulations aim to transform the Emirates into a global innovation hub, attracting companies investing in unique products and technical solutions to the region. Entrepreneurs should start meticulously documenting their development expenses now in order to take full advantage of these attractive incentives as soon as the reform comes into force. See also: learn more about off-plan loans in Dubai.

E-Invoicing System

From July 2026, the United Arab Emirates will take a giant leap towards a digital economy by introducing a modern national E-Invoicing System. The pilot program will start on July 1, 2026, requiring selected companies to digitally issue, exchange, and store invoices in B2B and B2G transactions. This reform aims to completely eliminate paper documentation, reduce errors, and significantly speed up accounting processes in Emirati companies. The gradual implementation of the system in successive stages will ultimately integrate the local market with the most advanced global standards of financial transparency.

Taxes and life in Dubai – learn more

What do the new taxes in the Emirates mean? Who is affected by the new taxes in the UAE? You can read about topics such as UAE economic regulations, real estate, and business on the Two Continents blog. And if you are planning a trip to the UAE, check out the offer of trips to Dubai or accommodation in Dubai in private apartments with a view of the city, and read the Dubai Guide, where you will find a lot of useful information about traveling to the United Arab Emirates.

How have VAT rules changed in the Emirates? What were taxes like in previous years? For those interested in how taxes have changed in the UAE, you may find the guide to taxes in Dubai useful.

Questions and answers (FAQ)

• Do individuals in the UAE pay income tax?

At the moment, there is no income tax in the UAE 2025, so individuals in the United Arab Emirates do not pay income tax.

• When was income tax introduced in the Emirates?

Corporate income tax, introduced in the United Arab Emirates on June 1, 2023, is 9% and applies only to companies with annual revenues above AED 375,000.

• Has the UAE introduced a corporate tax?

The United Arab Emirates issued a corporate income tax law on December 9, 2022, establishing a legal framework for the introduction and implementation of a federal corporate income tax in the country. The UAE tax system changed when the federal decree of June 2023 came into force. Corporate taxation in the UAE is as follows: no income tax for business owners and a low 9% income tax for companies with an annual income exceeding AED 375,000.