This is the kind of rule that makes no noise when it is published and is felt two years later. Excess value added tax (VAT) credit builds up in two common situations: businesses that sell abroad and collect no output tax, and businesses that made heavy capital expenditure in a year of low turnover. Many have simply left the balance where it was, carrying it from return to return without ever claiming it back. That carry-forward now has an end date, and for credits already accrued the window is a single one.
What happened
Federal Decree-Law No. 16 of 2025 amended the UAE value added tax (VAT) law with effect from 1 January 2026. Two changes matter for anyone running an operating company. First: excess VAT credit — input tax paid on purchases exceeding output tax collected on sales — may be carried forward for a maximum of five years from the end of the tax period in which it arose, after which it can no longer be offset or refunded. Second: the requirement to issue a self-invoice on reverse-charge transactions is removed. Reverse charge is the mechanism under which the buyer, rather than the seller, accounts for the tax. In place of the self-invoice, the ordinary transaction documentation must be retained.
What changes in practice
Previously the credit remained available with no expiry and could be rolled from return to return indefinitely. It now has a term. For credits already accumulated before the amendment took effect there is a transitional window: the refund claim must be filed by 31 December 2026, failing which those credits are extinguished. On reverse charge the change lightens the load: the self-invoice was a document the business issued to itself for evidential purposes, and it is no longer required. What must still be retained is the supplier invoice, the contract and the transaction trail — the documents the Federal Tax Authority (FTA), the UAE tax administration, actually examines on audit.
Who it applies to
Every VAT-registered company in the UAE. The credit rule bites hardest on exporters, on businesses supplying non-resident customers, on zero-rated activity, and on any company that concentrated capital expenditure in a single financial year. The reverse-charge change affects anyone buying services from abroad — consultancy, software licences, professional services — which is close to every company with non-UAE suppliers.
The exposure
VAT credit sits on the balance sheet as an asset, and for as long as it is carried there it looks like a certain value. It is no longer certain: after five years it becomes a write-off, and for older balances the date is 31 December 2026. Businesses that have changed accountants over the years, or filed returns without examining the balance being carried forward, risk discovering the problem once the window has shut. On the self-invoice there is a mirror-image exposure running the other way: dropping it without putting the substitute documentation in order means arriving at an audit with neither.
What to do now
First, open the most recent VAT return and read the credit balance carried forward. If there is an amount, establish the period in which it arose. If it accrued before 2026, the refund claim must be filed by 31 December 2026 — that is under four months, and the authority's review calls for supporting documentation, so the file needs to be built now rather than in December. Second, confirm with whoever keeps the accounts that for reverse-charge transactions the contract and supplier invoice are being retained, now that the self-invoice has gone.
Sources
Published 1 September 2026 on the basis of public sources and official United Arab Emirates instruments. This is not legal or tax advice. Verify your position with a qualified professional before acting.