The UAE’s Finance Ministry announced on October 19, 2023, the release of Federal Decree-Law No. 16 of 2025, which makes significant changes to the VAT Decree-Law No. 8 of 2017. The Decree-Law is officially effective as of January 1, 2026. The Decree-Law builds on previous efforts to modernize and continue the evolving nature of the UAE tax system in accordance with international tax norms.
To enhance transparency and improve the administrative burden.
As stated in the Ministry announcement, these amendments provide taxpayers with a clearer pathway for filing their VAT returns, enabling them to minimize compliance costs due to the global adoption of best practice procedures.
One of the more significant changes was the abolishment of the obligation (if any) for a taxable entity to issue self-invoices to taxpayers in relation to reverse-charge mechanism (RCM) applications. All VAT registrants are only obligated to maintain sufficient documentation required by the Executive Regulation to support the treatment of their supplies from a VAT perspective. The result of these changes, according to the Ministry, will be improved clarity of audit trails; increased administrative efficiency for all VAT registrants, and less administrative burden on all taxpayers.
The changes include the introduction of five years for taxpayers to submit a request to recover any overpayments of refundable tax that arose as a result of reconciling their accounts. Taxpayers will not be able to submit claims after these five years. This is intended to promote financial certainty and eliminate the long-term building up of out-of-date credit balances.
Reinforcing Governance & Combating Tax Evasion
The amendments will enhance VAT governance by providing the Federal Tax Authority (FTA) with the authority to reject the input tax reclaim if it can be established that the underlying supply is associated with a tax evasion scheme. As such, businesses will need to perform their own due diligence and verify that the supplies for which they are claiming input tax are legitimate.
This will create a shared responsibility throughout the supply chain and protect the government’s revenue, thus improving public trust in the UAE’s tax system.
Supporting a Sustainable and Competitive Economy
The Ministry of Finance reaffirmed that the amendments to the law represent the UAE’s long-standing commitment to establishing a fair, transparent, and efficient tax environment. By improving compliance and providing greater regulatory oversight, the amendments provide continued support to ensure the long-term viability of public revenue and increase the competitiveness of the UAE’s economy.
