The UAE is focusing on tax reforms, and 2026 will bring more changes to the system.
The Emirates imposed value added tax (VAT) at a rate of 5 per cent in 2018 and corporate tax at 9 per cent in 2023 as part of its plans to diversify its economy. From January 2025, it also implemented domestic minimum top-up tax of 15 per cent on large multinational companies in line with OECD’s corporate tax guidelines. The UAE also levies excise tax as an indirect tax on goods deemed harmful to health such as tobacco and sugary drinks.
The country forecasts tax revenue for fiscal year 2025 at Dh12.6 billion ($3.44 billion), up more than 12 per cent annually. VAT is expected to contribute Dh11.3 billion, followed by excise tax revenue of Dh1.3 billion.
As its tax system matures, the UAE has been introducing more regulations and amendments to comply with international standards.
Here are some notable changes to look out for in 2026:
VAT amendments
New VAT rules that take effect on January 1 are created to simplify tax procedures for taxpayers while ensuring transparency and compliance with international standards, the Ministry of Finance said last month.
First, the amendments say taxpayers will no longer need to issue self-invoices when applying the reverse charge mechanism, but they will need to retain supporting documents related to supply transactions. Reverse charge is when the responsibility for accounting and paying the tax is shifted from the supplier to the buyer.
“This is a great simplification and one that had been of concern to many businesses,” said Justin Whitehouse, managing director with Alvarez & Marsal Tax in Dubai.
Mira Bagaeen, associate at law firm Reed Smith, agreed that the move eases the administrative duties for companies.
Another key change is that there is now a five-year time limit for submitting requests to reclaim any excess refundable tax. This period begins at the end of the tax period when the credit first arose.
The change will prevent VAT refund balances from remaining indefinite, said Thomas Vanhee, partner at Aurifer, a tax advisory services firm.
“Businesses that do not actively monitor their VAT refund positions, or submit refund claims late, are likely to face closer scrutiny from the FTA [Federal Tax Authority] and may risk permanently losing the right to recover those amounts once the deadline has lapsed,” he said.
Businesses could definitely lose out if they do not take action, added Mr Whitehouse.
“The change aligns with international best practices and aims to provide greater financial certainty and predictability for businesses and the FTA in its revenue collection efforts,” he said.
However, to ease the transition, the law includes a provision for old claims.
Companies having input tax credits from 2018 to 2020 – credits that would otherwise expire under the new default rule – have been given an additional grace period. These businesses have until December 31, 2026, to submit outstanding refund claims, Mr Whitehouse said.
A third change taking effect from January 1 is that the FTA can deny the deduction of input tax if it determines that the supply forms part of a tax evasion arrangement. Taxpayers are required to verify the legitimacy and integrity of supplies, the ministry said.
“In our view the biggest change here is measures to help with preventing tax fraud,” Mr Whitehouse said.
“The type of fraud addressed here is missing traders – these are businesses that charge VAT, but disappear before paying it to the authorities. These frauds can be complex, and innocent businesses can easily get caught in the crossfire (deducting VAT that has never been paid),” he said.
“The ‘should have known’ test is something businesses need to take seriously as the FTA is expecting businesses to play their part by shifting from invoice processing to acting as the first line of tax compliance defence – making sure they know who they are dealing with and making sure they trust their suppliers.”
Overall, trading entities and service providers that are part of complex supply chains, such as financial service providers, exporters and re-exporters reliant on refunds, construction and manufacturing firms with substantial input VAT, free-zone logistics operators, and businesses engaged in frequent cross-border or reverse charge transactions are likely to see the greatest impact from the new regulations, Ms Bagaeen said.
There is also a change to the penalty regime which harmonises the VAT and excise penalties to the ones under the corporate tax, Mr Whitehouse said.
“This is a sensible simplification. While there is a significant reduction for most penalties, there is a slight increase in penalties when making voluntary disclosures,” Mr Whitehouse said.
Excise tax
In December, the ministry also said it was introducing a new excise tax mechanism for sweetened drinks to encourage manufacturers to lower sugar levels in their beverages.
The tiered volumetric model links the tax value on each litre of a sweetened drink to its sugar content per 100ml. It applies to carbonated drinks and other beverages containing added sugar or sweeteners.
Excise tax will be calculated based on the total sugar content, which includes natural and added sugar as well as other sweeteners, excluding artificial sweeteners.
Drinks that contain total sugar from 5g to less than 8g per 100ml will pay Dh0.79 per litre, while those with total sugar of 8g or more per 100ml will be charged Dh1.09 per litre.
Tobacco and tobacco products, electronic smoking devices and tools and their liquids, and energy drinks are not affected by the new model, the ministry clarified.
Tax procedures
In November, the ministry issued a decree-law amending certain provisions of its law on tax procedures “to enhance the efficiency of the tax system and strengthen the principles of transparency and fairness in tax transactions”. The amended law will come into effect on January 1, 2026.
One major change is that taxpayers now have five years from the end of the relevant tax period for requesting the refund of a credit balance from the FTA for using that balance to settle tax liabilities.
It also grants additional flexibility to submit a refund request if the credit balance arises after the five-year period has elapsed or within the last 90 days of that period in specific cases.
Another amendment is that the FTA can now conduct tax audits or issue tax assessments after the expiry of the limitation period – which is five years – in certain cases.
E-invoicing
While not a tax legislation, the UAE is implementing a mandatory, phased e-invoicing system as an upgrade to the way transactions are conducted between businesses and government entities in the country.
E-invoicing requires invoice data to be created and exchanged in a structured digital form for real-time reporting to the FTA, marking a shift away from traditional PDF and email-based invoicing, said Hend Rashwan, counsel at Aurifer.
A voluntary pilot is expected to begin in July 2026, with mandatory adoption for large businesses starting from January 2027.
“Many large businesses have already started assessing their systems and engaging potential service providers, recognising that changes to ERP [enterprise resource planning] systems and internal controls requires substantial time,” Ms Rashwan said.
“However, it has been observed that some businesses, particularly midsized entities, may underestimate the level of effort involved in the implementation.”
The tax impact comes where every transaction is reported in real time to the FTA automatically, said Pierre Arman, managing director with Alvarez & Marsal Tax in Dubai.
“Hence, applying the correct VAT treatment, from the get-go on all transactions, becomes essential to ensure there is no discrepancy with the VAT return filed at the end of the period.”
The impact is “significant” as failure to comply from 2027 for businesses in the first roll-out phase will mean the inability to issue a valid invoice to your customers, and therefore to get paid, which is a much wider issue than just tax, Mr Arman said.
“While the impact of e-invoicing is expected to be felt primarily at an operational level, over time, it should lead to improved data quality, more efficient workflows and improved compliance processes,” added Ms Rashwan.
Looking ahead
The UAE’s tax system has reached a notable level of maturity, Ms Bagaeen said. “The evolving regime presents challenges for businesses navigating their tax obligations, especially given the relative novelty of corporate tax in the country,” she said.
“Companies should proactively manage compliance by monitoring official updates, implementing formal internal tax governance structures, maintaining up-to-date manuals and policies, and conducting periodic reviews.”
