UAE VAT Credit Expiry 2026: How the New 5 Year Refund Deadline Affects Your Business

9 min read

If your business has been carrying forward excess input VAT without claiming refunds, you could be sitting on a ticking time bomb. Under the amended UAE VAT Law — Federal Decree-Law No. 16 of 2025 — a strict five-year deadline now applies to all recoverable VAT credit balances. Credits that are not claimed or offset within five years of the tax period in which they arose will expire permanently.

This means VAT credits originating in early 2021 are already at risk of expiring in 2026. Businesses across Dubai, Abu Dhabi, Sharjah and the wider UAE must act now to review their VAT credit positions and submit refund applications before it is too late.

What Has Changed Under the Amended VAT Law?

The UAE Government issued Federal Decree-Law No. 16 of 2025, amending the original VAT Law (Federal Decree-Law No. 8 of 2017). These amendments took effect on 1 January 2026 and introduced several important changes, including the five-year cap on VAT credit recovery.

Under the amended Article 74(3), if excess recoverable VAT is neither used to offset future VAT liabilities nor the subject of a refund request within five years from the end of the relevant tax period, the right to recover that excess VAT lapses entirely. The balance cannot be carried forward any further and cannot be used to settle any future VAT obligations.

Previously, there was no explicit statutory deadline for claiming accumulated VAT credits. Businesses could carry forward excess input VAT indefinitely. That era is now over.

Which Businesses Are Most at Risk?

The five-year VAT credit expiry rule applies to all VAT-registered businesses in the UAE. However, certain types of businesses are at significantly higher risk of losing accumulated credits:

• Exporters and zero-rated suppliers: Businesses that predominantly make zero-rated supplies (such as international exports) regularly accumulate excess input VAT because they charge 0% on outputs but pay 5% on inputs. These businesses often have large credit balances building up over multiple years.
• Capital-intensive businesses: Companies that invested heavily in assets, equipment or property between 2018 and 2021 may have significant input VAT credits that have been carried forward without refund claims.
• Real estate developers: Developers involved in mixed-use projects often have complex VAT recovery positions with credits accumulated over long development cycles.
• Free zone businesses: Some Qualifying Free Zone Persons (QFZPs) making designated zone supplies may have unclaimed input VAT credits from earlier periods.
• Startups and pre-revenue businesses: Companies that registered for VAT early but took time to generate taxable revenues may have input VAT credits sitting dormant from 2018-2021.

Transitional Relief: The One-Year Grace Window

Recognising that many businesses may have old VAT credit balances that technically expired before the new law even took effect, the UAE Government has included a transitional relief provision.

If the five-year period for a VAT credit balance already expired before 1 January 2026, or will expire within one year after that date (i.e. before 31 December 2026), the taxpayer receives a fresh one-year window starting from 1 January 2026 to submit a refund request. This effectively means all at-risk credits have until 31 December 2026 to be claimed.

How to Check Your VAT Credit Position

The first step is to conduct a thorough review of your VAT credit history. Here is what every UAE business should do immediately:

1. Review Your VAT Return History on EmaraTax

Log in to your EmaraTax account on the FTA portal and review your filed VAT returns from 2018 onwards. Identify every tax period where your input VAT exceeded your output VAT, creating a credit balance. Pay particular attention to returns filed for January 2021 through December 2021 — these credits will begin expiring throughout 2026.

2. Track the Age of Each Credit Balance

Create a schedule mapping each excess VAT credit to its originating tax period. For monthly filers, this means reviewing up to 96 returns (2018 to 2025). For quarterly filers, that is 32 returns. Identify the exact date each credit arose and calculate when the five-year window closes.

3. Determine Whether Credits Were Already Offset

Some of your older credits may have already been used to offset output VAT liabilities in later periods. You need to confirm which credits remain outstanding and which have been absorbed. Only the net unclaimed balance is at risk of expiry.

4. File a Refund Application Before the Deadline

If you identify credits at risk, submit a VAT refund application through EmaraTax. Importantly, it is the submission of the refund request that preserves your right to recovery — the refund does not need to be processed or paid within the five-year period, provided the application is filed in time.

Common Mistakes to Avoid When Claiming VAT Refunds

Filing a VAT refund application is not as simple as clicking a button on EmaraTax. The FTA reviews each application carefully, and errors can result in delays, partial rejections or even penalties. Here are the most common mistakes businesses make:

Incomplete Documentation

The FTA requires valid tax invoices for all input VAT claims. If your records from 2018-2021 are incomplete, missing supplier TRNs, or not compliant with the Tax Invoice requirements under the VAT Executive Regulations, your refund claim could be rejected. Start gathering documentation now.

Claiming Input VAT on Blocked Items

Remember that input VAT recovery is blocked on certain items, including entertainment expenses and employee personal use items. Ensure your refund claim does not include input VAT on blocked categories, as this could trigger an FTA audit.

Not Reconciling VAT Returns with Financial Records

The FTA will cross-check your refund application against your filed VAT returns and may request supporting financial statements. Ensure your accounting records reconcile with the figures reported on your VAT returns. Discrepancies will delay the refund process.

The Anti-Evasion Amendment: A New Risk Factor

Alongside the five-year credit expiry rule, the amended VAT Law also introduced a new anti-evasion provision. Under this change, the FTA now has the power to deny input VAT recovery where a supply is connected to tax evasion and the taxable person has failed to exercise reasonable due diligence.

This means businesses must not only claim refunds before the deadline but also ensure that the underlying transactions were legitimate and that proper due diligence was conducted on suppliers. Businesses should review their vendor verification processes and maintain records demonstrating that they checked the validity of their suppliers’ tax registrations.

Other VAT Changes to Watch in 2026

The credit expiry rule is not the only change businesses need to prepare for. The 2026 VAT amendments also include:

• Self-invoice removal for reverse charge: From 1 January 2026, businesses importing goods or services under the reverse charge mechanism are no longer required to issue a self-invoice. While this simplifies administration, businesses should update their accounting systems accordingly.
• Expanded FTA audit powers: The FTA can now conduct audits and issue assessments even after the standard five-year limitation period in certain cases. Given the 135% increase in FTA inspection visits in 2024 (93,000 visits according to the FTA Annual Report), businesses should expect heightened audit activity.
• Binding FTA interpretations: The FTA is now authorised to release official, binding interpretations of tax law, providing businesses with greater certainty on complex VAT positions.
• New penalty regime from 14 April 2026: A revised penalty framework under Cabinet Decision No. 129 of 2025 will take effect, harmonising VAT and Corporate Tax penalty structures.

Why You Should Act Now — Not Later

Many businesses take a passive approach to VAT credit management, assuming they can always claim refunds in the future. The new five-year deadline removes that safety net entirely. Here is why acting now is critical:

The money is real. VAT credit balances represent actual cash that your business has already paid to suppliers. Letting these credits expire is no different from writing a cheque and never cashing it.

FTA processing takes time. VAT refund applications are not processed overnight. The FTA may take several weeks to review your application, request additional documentation, and process the payment. Filing early gives you time to respond to queries and resolve any issues.

Documentation gaps take time to fix. If your records from 2018-2021 are incomplete, you may need to contact suppliers to obtain duplicate invoices or gather additional supporting evidence. This process can take months — do not wait until December 2026.

How Qaspro Global Can Help

At Qaspro Global, our team of qualified tax consultants in Dubai specialises in helping businesses across the UAE manage their VAT compliance, including credit recovery and refund applications. We can help you:

• Conduct a comprehensive VAT credit audit across all tax periods since 2018
• Identify at-risk credit balances approaching the five-year expiry
• Prepare and submit VAT refund applications to the FTA
• Resolve documentation gaps and support FTA audit responses
• Set up ongoing credit tracking systems to prevent future expiries

Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Consult a qualified tax advisor for guidance specific to your situation.

Related Reading

• UAE VAT Law Amendments 2026 – Key Changes for Businesses
• Common VAT Errors and How to Avoid Fines in UAE
• Free Zone VAT Exemption UAE – What Business Owners Must Know