Changes to Tax Credit & Refund Claims in the UAE from January 2026

To enhance the tax and administrative regulatory system, the UAE announced the issuance of Federal Decree Law Nos. 16 and 17 of 2025. There are several key changes applicable to this set of laws; however, we will primarily discuss changes related to claiming tax credit refunds. The changes take effect from January 2026, but we recommend seeking professional advice before making any decisions. Let’s understand what exactly a tax credit is and how a refund claim happens.

What Are Tax Credit & Refund Claims in the UAE?

A tax credit and a refund claim are often meant to be the same; however, there is a slight difference between the two. A tax credit is like a voucher, where the taxable entity adjusts the tax liability by the value of the tax credit. On the other hand, a tax refund is the excess tax paid that is due from the tax authority. Let’s understand with examples.

Suppose a business buys products and incurs input VAT of AED 25,000. Similarly, the same business collects output VAT of AED 35,000 on sales. The net VAT payable will be calculated as

Output VAT less Input VAT: 35,000 – 25,000 = 10,000

The input VAT works as a credit in the above example. However, if the input VAT is higher than the output VAT, say AED 50,000. The VAT payable will be:

Output VAT less Input VAT: 35,000 – 50,000 = -15,000

In this scenario, there is an excess VAT paid on purchases, and thus, there is a creation of excess tax credit. The entity can either offset this amount against the future VAT liability or apply for a refund claim from the tax authority. Similarly, there are other cases when excess credit can arise, such as by overpayment of taxes. Let’s highlight the new rules applicable from 2026.

What are the New Rules & Eligibility Criteria Effective from January 2026?

The UAE’s Ministry of Finance, in late 2025, announced the issuance of two laws. These are:

1. Federal Decree-Law No. 16 of 2025 amending certain provisions of Federal Decree-Law No. (8) of 2017 on Value Added Tax.
2. Federal Decree-Law No. 17 of 2025 amending certain provisions of Federal Decree-Law No. (28) of 2022 on Tax Procedures.

Federal Decree-Law No. 16 of 2025 – VAT

The main objective of this amendment is to align the VAT law with international practices while ensuring simplification and transparency.

There is now a five-year time limit for submitting requests to claim excess refundable tax after the reconciliation process. After this period, there is no right to claim refunds. This, in turn, results in higher certainty and clarity in the refund process.

To counter tax evasion, the law now authorizes FTA to reject the deduction of input tax for a supply if it determines that there is a tax-evasion arrangement. Thus, taxpayers must verify the credibility and legitimacy of the supplies before deducting input tax.

Federal Decree-Law No. 17 of 2025 – Tax Procedures

The amendment aims to provide an organized legal framework for tax responsibilities and procedures. This includes the regulation of the timeframe for claiming refunds of credit balances from the FTA. This, in turn, will ensure clarity between the rights and obligations of both the taxpayer and the FTA.

The credit balance can arise due to overpayment, tax returns, voluntary disclosures, and other reasons. The amendment specifies the time period for claiming refunds. It is a maximum of five years from the end of the relevant tax period to request the refund of a credit balance from the FTA or to use it against tax liabilities.

However, specific cases are flexible if the credit balance arose after five years or in the last 90 days of the 5-year window. In this case, the taxpayer can submit a refund request within the stipulated timeframe.

Common Refund Rejection Reasons

The Federal Tax Authority (FTA) can reject a refund claim in many cases. However, if everything is in order according to the law, there are very few chances of rejection. Below are the common reasons, especially for the VAT refunds.

Invalid Invoices

The input VAT is not recoverable if there are invalid or missing invoices. The invoice must include all the relevant details, such as the TRN, VAT amount, supply details, and so on.

Non-Recoverable Expenses

Certain expenses are not allowable or deductible under the VAT law. Claiming such expenses will result in rejection. For instance, non-business-related expenses are not deductible; therefore, any claims concerning the non-business expenses will result in a rejection.

Incomplete Supporting Documentation

Some documents are compulsory; however, FTA can also require additional documents. A business must have the following documents:

• Tax invoices
• Import VAT documents
• Accounting records and expenses
• Other documentary evidence, if needed by the FTA.

How to Ensure Faster Tax Refund Approvals

Your business must ensure the following points for faster tax refund approvals.

• Register for VAT on time
• Accurate VAT returns
• Verified Invoices
• Supporting documentation
• Submit applications on time and fulfill other requirements.

The information provided above may not be enough for a smooth tax refund. However, it might direct a business to the correct path. The ideal way to ensure smooth claiming of credit tax refunds is to seek professional assistance from experts in the field. Our team at CZTA provides professional services and assists in streamlined tax refunds.

Summary

From 2026, there are changes to claiming credit tax refunds in the UAE. We discussed both perspectives, VAT and tax procedures, in our blog. In both cases, the time limit to claim tax credits or refunds is now limited to a maximum of five years. After five years from the relevant tax period, the refund will not be claimable or refundable. However, there is some flexibility for specific cases if the credit balance arose after five years or in the last 90 days of the 5-year window under the tax procedures law. Entities must prepare themselves if there are any outstanding tax credits and avoid any tax losses. The best way is to consult experts such as CZTA.

Creative Zone Tax & Accounting (CZTA)

The purpose of tax filing and paying the tax liability is a compliance responsibility. However, with proper management and optimization, an entity can save taxes within the boundaries of the law. One way is to claim tax credits and refunds. Contact us for a detailed evaluation and reconciliation of your business.

Frequently Asked Questions (FAQs)