On October 20, 2020, the United Arab Emirates Government announced new tax procedures for Federal Decree-Law No17 of 2025. The proposed new procedures will replace existing laws to improve transparency, increase compliance with tax law, and create a uniform procedure across all tax types in the country. These improvements will be implemented on January 1, 2026.
The amendments increase the authority of the Federal Tax Authority (FTA) to enforce compliance with tax laws. They also provide new deadlines and responsibilities that must be complied with by any business operating in the U.A.E.
Increased Period of Time to Audit and Assess
The amended law has increased the amount of time allowed for the FTA to audit and assess a business’s taxes. The previous period allowed the FTA five years to complete an audit of a business’s tax records; under the amended law, the time allowed may be extended to as many as 15 years in certain cases (i.e., cases where tax evasion is involved, or a business has failed to register for taxation). The extension of time will allow the FTA to further investigate complex or potentially high-risk transactions before issuing penalties against businesses that intentionally fail to comply with tax laws.
The Revised Rules Regarding Tax Return Correction
The change to the tax law specifies how taxpayers can correct mistakes made in their previously filed tax returns. Corrections for errors that do not affect the tax owed can be made by filing another return to correct the error, but for any of these instances that are specifically mentioned within the Federal Tax Code (FTC), the taxpayer is now required to file a Voluntary Disclosure to formally correct the error. These changes add to the overall accuracy of tax reporting and to the overall accountability of individuals and businesses filing tax returns.
The Enhanced Deadline for Filing Refund Claims
One of the major revisions to the tax rules is an extended deadline for filing a claim for a tax refund on any taxes paid to the government in excess of what was owed. Under the new law, a business is now required to submit a claim for refund for all excess or overpaid taxes to the federal government within five years from the end of the tax period to which the claim applies. Before this law, there was no limit to how long a business could carry a credit not utilized toward a refund to the federal government; now, a refund right for failing to claim a refund for excess overpaid taxes expires after five years. The new law reinforces the need for businesses to monitor their tax liability proactively and submit refund claims timely manner.
FTA Binding Directives
Under the new law, the FTA has been given the authority to bind itself and all taxpayers to its binding directives, which will help clarify how tax laws are applied to particular transactions. This will allow taxpayers and the FTA to interpret and apply tax laws in the same manner in all instances.
Transitional Rules for Old Refund Applications
New transitional rules will also apply to refund applications and credit balances that are older than five years. Taxpayers who have applied for refunds or used their credit balances to satisfy tax debts or penalty assessments will be able to submit their applications until December 31, 2026.
For refund applications under these transitional rules, the FTA can perform audits of refund applications or issue assessments for up to two years from the date the application is submitted. Furthermore, voluntary disclosures about refund applications may also be submitted during these two years unless the FTA has already issued a final determination.
Important Points for Businesses Operating in the UAE:
Recent changes to the UAE tax procedures law reflect an increased focus on compliance and enforcement. In particular, these amendments will result in:
- Certain audit and assessment periods can be as long as 15 years.
- Businesses will now be required to claim tax refunds within five years of the date of the refund.
- Unused credits cannot be carried forward indefinitely; and
- The FTA has the authority to issue binding rulings regarding the application of tax law.
As a result of these changes, businesses with operations in the UAE are encouraged to review their tax processes and ensure that they keep accurate records of transactions to ensure compliance with the new laws. Additionally, businesses should consider seeking professional assistance with compliance with the new law.
