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There’s a tax deadline approaching on 31 December 2026 that has nothing to do with corporate tax — and it could cost UAE businesses more than the AED 10,000 late-registration penalty everyone is focused on right now.

Since VAT was introduced in the UAE in 2018, many businesses have been quietly accumulating excess input tax credits in their EmaraTax accounts. Zero-rated exporters, free zone companies with out-of-scope supplies, and businesses with high capital expenditure have built up significant VAT credit balances over the years. Under the old rules, those credits could be carried forward indefinitely — a passive accounting entry that required no action.

That era is over.

The Law That Changed Everything

Federal Decree-Law No. 16 of 2025 amended the VAT Law (Federal Decree-Law No. 8 of 2017) with a deceptively simple change to Article 74(3): excess recoverable input tax may now be carried forward for a maximum of five years from the end of the tax period in which the credit arose. After that, the credit is permanently extinguished.

This was paired with Federal Decree-Law No. 17 of 2025, which amended the Tax Procedures Law to harmonise limitation periods across all federal taxes — VAT, Corporate Tax, and Excise.

Both laws took effect on 1 January 2026.

What This Means in Practice

The five-year clock starts from the end of the specific tax period in which the credit was first reported. For a business filing quarterly, this means each quarter has its own expiration date:

• Credits from Q1 2021 (January–March): expired 31 March 2026 — already gone
• Credits from Q2 2021 (April–June): expired 30 June 2026 — already gone
• Credits from Q3 2021 (July–September): expire 30 September 2026 — 74 days away
• Credits from Q4 2021 (October–December): expire 31 December 2026 — 165 days away

For credits from 2018, 2019, and 2020 — which would normally already be time-barred — the government has granted a transitional relief window. All of these credits can be recovered if a formal refund application (Form VAT311) is submitted by 31 December 2026.

After that date, every dirham of excess input VAT from 2018 through 2020 — and from the first three quarters of 2021 — becomes permanently unrecoverable. Not deferred. Not suspended. Gone.

Who Is Most at Risk

Zero-rated exporters. Companies whose supplies qualify for zero-rating under international transport, exports of goods, or certain cross-border services typically have large input VAT credits because they pay 5% VAT on local purchases but charge 0% on their output. These credits have been accumulating since 2018.

Free zone businesses. Designated zone companies with out-of-scope supplies incur VAT on local procurement but don’t charge VAT on many sales, creating persistent refund positions.

Capital-intensive businesses. Companies that made significant equipment or fit-out purchases in their early years may have large one-off credit balances sitting dormant.

Businesses that never filed refund applications. If your finance team has been treating the EmaraTax credit balance as a “settle it later” line item rather than filing Form VAT311, the clock is now running against you.

The New “Should Have Known” Standard

The amendments also introduced Article 54 bis to the VAT Law, which gives the FTA explicit power to deny input tax recovery if the supply was part of a chain connected to tax evasion — even if the taxpayer didn’t knowingly participate.

The standard is “knew or should have known.” Simply holding a valid tax invoice and a verified TRN is no longer a guaranteed defence. The FTA can require businesses to demonstrate that they conducted reasonable due diligence on their suppliers and the integrity of the transaction chain.

This means that businesses rushing to claim historical credits now need to ensure their supplier documentation can withstand scrutiny — not just that the invoices exist, but that the underlying transactions were legitimate.

The Narrow Exceptions

The amended Tax Procedures Law provides two limited exceptions to the five-year rule:

1. FTA Decision Exception: If a credit balance arises from an FTA decision (such as a successful appeal or retrospective correction) issued after the five-year period has expired, the taxpayer has one year from the date of that decision to file a refund claim.
2. The 90-Day Rule: If a credit balance arises during the final 90 days of the five-year period — or after it has expired in certain circumstances — the taxpayer has 90 days from the date the credit arose to file.

These are narrow safety nets, not broad extensions. The burden is on the taxpayer to monitor timelines and act within the prescribed windows.

What to Do Now

If your business has unclaimed input VAT credits from 2018 through 2021, the actions are straightforward but urgent:

1. Pull your EmaraTax credit history. Identify the exact credit balances by tax period — not just the aggregate. Each period has its own expiration date.
2. Prioritise by expiration. Credits from Q3 2021 expire on 30 September 2026. Everything else from 2018–2021 expires on 31 December 2026. File the earliest-expiring credits first.
3. File Form VAT311. This is the formal refund application. Credits are not recovered by carrying them forward in your VAT return — you must actively submit the refund form.
4. Audit your supplier documentation. Before filing, ensure your input tax claims are supported by valid tax invoices from legitimate, TRN-registered suppliers. The “should have known” standard means due diligence is now a filing prerequisite, not a post-audit afterthought.
5. Review voluntary disclosure options. If you discover errors in your historical VAT returns while preparing the refund claim, the transitional rules allow you to file a Voluntary Disclosure within two years of submitting the refund application, provided the FTA hasn’t issued its final decision.

The Bottom Line

The UAE’s VAT regime has moved from a lenient introduction phase to an enforcement-driven system. The five-year cap on input tax recovery is not a future concern — it is an active, ticking deadline. Credits from Q1 and Q2 2021 have already expired. Credits from Q3 2021 expire in 74 days. Everything from 2018 through Q4 2021 expires on 31 December 2026.

For businesses with six-figure or seven-figure credit balances accumulated over the past eight years, this is not a compliance footnote. It is a material financial event with a hard deadline.

File now, or forfeit permanently.

FSH Financial Consultants assists UAE businesses with VAT credit recovery, refund application preparation, and supplier due diligence reviews under the amended VAT Law. Contact us to protect your historical input tax credits before the 31 December 2026 deadline.

Sources: Federal Decree-Law No. 16 of 2025 (amending VAT Law), Federal Decree-Law No. 17 of 2025 (amending Tax Procedures Law), Federal Decree-Law No. 8 of 2017 (VAT Law), FTA EmaraTax portal, CLA Emirates tax advisory analysis