The start of 2026 felt ordinary for most businesses in the UAE. Offices reopened after the holidays, invoices were issued, payrolls were processed, and operations continued without interruption. There was no announcement of a new tax rate and no sudden policy shock.
Yet the tax system did change on January 1, 2026, and it changed in a way that quietly affects how businesses manage time, documentation, and risk.
The UAE did not increase taxes. Instead, it tightened how taxes are administered.
Deadlines now have finality. Credits now expire. Audits now reach further into past periods. For many businesses, the impact will not appear on a rate table but in cash flow, compliance reviews, and audit outcomes.
This article explains what has changed, why it matters, and how to respond thoughtfully rather than reactively.
Your Quick Guide to the 2026 UAE Tax Changes
| Key Point | What It Means for Your Business |
| No Change in Tax Rates | Rates stay the same; enforcement and deadlines are stricter |
| Five-Year Expiry of Tax Credits | VAT credits from 2021 expire in 2026—claim or lose them |
| Late Refund Claims Trigger Deeper Audits | Don’t wait until the last moment to claim refunds |
| Input VAT Recovery Needs Due Diligence | Valid invoices alone no longer guarantee recovery |
| Self-Invoicing for Reverse Charge Ends | Must keep strong supporting documents instead |
| Corporate Tax and VAT Filings Must Align | Discrepancies increase audit risk |
| Small Business Relief Requires Careful Election | No loss carry-forwards when elected |
| Transfer Pricing Documentation Is Mandatory | Must be ready within 30 days of FTA request |
| Free Zone Tax Benefits Need Annual Proof | Substance and qualifying income must be documented yearly |
| Penalties Are Severe and Escalate Quickly | Voluntary disclosure reduces penalties |
| E-Invoicing Is Mandatory for Large Businesses | Non-compliance leads to penalties and operational risks |
What Changed on January 1, 2026
Two laws are now fully in force:
- Federal Decree Law No. 17 of 2025 amended the Tax Procedures Law
- Federal Decree Law No. 16 of 2025 amended the VAT Law
Together, they reshape how refunds, audits, documentation, and penalties work in practice.
Corporate tax rates remain unchanged. VAT rates remain unchanged. What has changed is the discipline of the system. The Federal Tax Authority now operates with clearer authority, stricter timelines, and broader audit reach. For businesses that have historically deferred clean up or relied on flexibility, that shift is significant.
A Situation Many Businesses Will Recognize
Over the past several years, many UAE businesses accumulated excess VAT. Some quarters resulted in refunds, others in carry forward balances. In many cases, those balances were left untouched with the assumption that they could be recovered later when it became convenient. That assumption no longer holds.
| Do you know? As of 2026, VAT credits expire. When they expire, they are lost permanently. What was once an accounting detail has become a real cash risk |
The Five-Year Rule Now Applies
All tax credits in the UAE are now subject to a strict five-year limitation period. This applies to VAT, Corporate Tax, and Excise Tax. The five-year period begins at the end of the tax period in which the credit originally arose. If a credit is not refunded or used to offset liabilities within that period, it expires and cannot be recovered.
For VAT, the practical effect is immediate. VAT overpaid in 2021 is now approaching the end of its allowable life. Credits from the first quarter of 2021 expire in the first quarter of 2026, with later quarters expiring progressively throughout the year.
| Warning! For businesses carrying historic VAT balances, 2026 is not a planning year. It is the final opportunity to act. |
✔ Transitional Relief That Is Available Right Now
The law does provide limited transitional relief, but it is narrow and time bound. Where a VAT credit either expired before January 1, 2026, or is due to expire within one year after that date, a temporary window applies.
Businesses have until December 31, 2026, to submit refund requests for those credits. In addition, there is a two-year window to submit a voluntary disclosure correcting errors related to the claim, provided the Federal Tax Authority has not yet issued a decision.
This relief is not an extension policy. It is a one-time statutory measure designed to clear legacy balances. Once this window closes, expired credits cannot be revived.
✔ Audits Are Now More Forward and Backward Looking
Another important change is how the Federal Tax Authority conducts audits. The FTA now has explicit authority to audit refund claims submitted late in the five-year window, even where the usual limitation period would otherwise have expired.
The reasoning is straightforward. Late-stage refund claims are treated as higher risk and are therefore subject to deeper verification. From a business perspective, this means timing matters. Waiting until the final year to recover VAT is no longer a neutral procedural choice. It increases audit exposure.
Audit selection is increasingly data driven. The FTA now routinely cross checks VAT filings against corporate tax returns, revenue disclosures, and historical patterns. Inconsistencies across taxes, unexplained profit swings, repeated losses, or unusually large refund claims are more likely to attract attention.
VAT and corporate tax can no longer be managed in isolation. They must align.
✔ VAT Recovery Now Requires Care, Not Assumption
Input VAT recovery has also become more demanding. The law now allows the Federal Tax Authority to deny input VAT where a supply is connected to tax evasion and the recipient knew or should have known that something was wrong.
In practice, this introduces a duty of care. Businesses are expected to apply reasonable verification, particularly for material transactions.
Risk commonly arises where VAT is charged instead of applying the reverse charge mechanism, where VAT is charged on exempt or out of scope supplies, or where VAT is charged by a supplier that is not properly registered or entitled to charge tax.
A valid invoice alone is no longer sufficient protection. The expectation is that businesses understand the VAT treatment of what they are buying.
✔ Reverse Charge Without Self Invoicing
From January 1, 2026, businesses are no longer required to issue self invoices for reverse charge transactions. This simplifies administrative steps, but it does not reduce documentation requirements.
In the absence of self invoices, the audit trail now rests more heavily on commercial evidence. Contracts, agreements, payment records, and transaction flow must clearly support the VAT treatment applied.
If documentation is incomplete or unclear, the tax position becomes difficult to defend.
Corporate Tax Remains Stable but Is Closely Watched
Corporate tax rates remain unchanged, with taxable income up to AED 375,000 subject to zero percent and income above that threshold taxed at nine percent. It is important to remember that the zero percent band is not an exemption. All taxable persons must register, file returns, and maintain records regardless of profitability.
For businesses with a December 31 year end, the filing and payment deadline for the 2025 tax period falls on September 30, 2026. The FTA is increasingly attentive to consistency between corporate tax filings and other regulatory submissions.
Small Business Relief Requires Deliberate Choice
Small Business Relief continues to be available for eligible resident taxpayers with revenue not exceeding AED 3 million for tax periods ending on or before December 31, 2026. While the relief treats taxable income as zero, it also prevents the carry forward of losses and net interest expense.
For some businesses, eliminating current year tax makes sense. For others, preserving losses for future periods is more valuable. The decision requires analysis rather than assumption, and the FTA now expects that choice to be commercially defensible.
Key Compliance Areas Now Under Active Enforcement
| Area | Who Is Affected | What Is Required | Practical Risk |
| Transfer Pricing | Businesses with UAE revenue above AED 200 million or members of MNE groups with consolidated revenue above AED 3.15 billion | Contemporaneous transfer pricing documentation, including benchmarking and intercompany agreements, to be submitted within 30 days of FTA request | Documentation prepared after a request is too late and increases adjustment and penalty exposure |
| Free Zone Tax Status | Businesses claiming 0 percent corporate tax as Qualifying Free Zone Persons | Proof of qualifying income, economic substance, arm’s length pricing, and supporting documentation | Failure results in loss of 0 percent treatment, corporate tax exposure, and penalties |
| Penalties | All taxable persons | Timely registration, filing, and payment, or voluntary disclosure of errors | Delays lead to cumulative penalties and uncapped interest, while audit discovery is significantly more expensive |
| E Invoicing | Entities required to implement the UAE e invoicing system | System implementation and compliance with rollout timelines starting with the July 2026 pilot | Late preparation leads to operational disruption and statutory penalties |
What a Sensible Start to 2026 Looks Like
A calm and effective response does not require wholesale change. It requires focus. Businesses should begin by reviewing VAT credit balances by tax period, identifying credits approaching expiry, and reconciling VAT and corporate tax filings.
Transfer pricing documentation should be updated where necessary. Supplier VAT verification should be strengthened for significant transactions. Small Business Relief elections should be revisited with a forward-looking view.
Practical Next Steps for Businesses
- Review VAT credit balances and claim or use credits before expiry deadlines.
- Reconcile VAT and corporate tax filings for consistency.
- Update transfer pricing documentation proactively.
- Strengthen supplier VAT verification processes.
- Evaluate Small Business Relief eligibility carefully.
- Prepare for e-invoicing compliance and system implementation.
If you need help with VAT, you can trust athGADLANG to help you out. We are always ready and happy to help businesses improve their tax situation.
A Closing Thought
The 2026 tax framework is not punitive. It is precise. It rewards businesses that act on time, document properly, and understand their positions. Those who engage early will find compliance manageable. Those who delay will find enforcement expensive.
