If your business has ever ended a VAT period owing less than it could reclaim, that excess normally just sat on the books, carried forward to set against future VAT bills whenever they came due. Nobody had to do anything about it. As of this year, that's no longer true — and for some businesses, the clock on old credits is already running out.
What's changing
Federal Decree-Law No. 16 of 2025, which amends the UAE's VAT law, took effect on 1 January 2026. Four changes matter most for a small or mid-sized business:
- Excess recoverable VAT now has a five-year shelf life. Previously, if your input VAT exceeded your output VAT in a given period, the surplus could be carried forward indefinitely until you used it. Under the amendment, that surplus can only be carried forward for five years from the end of the tax period in which it arose. After that, if you haven't used it to offset a VAT liability or submitted a refund request for it, the right to recover it lapses.
- Transitional relief has its own deadline: 31 December 2026. For businesses whose five-year window had already closed, or closes within a year of 1 January 2026, the Federal Tax Authority is allowing outstanding refund claims to be submitted by 31 December 2026. Submitting the claim by that date is what preserves the right to the money — the refund itself doesn't need to be paid out by then, just requested.
- Reverse charge no longer requires a self-issued tax invoice. Businesses that import goods or services used to have to raise a tax invoice to themselves to document the reverse charge. From 1 January 2026, that requirement is gone — but supplier invoices and import documentation now have to stand in as the evidence, so where that paperwork lives, and whether it's complete, matters more than it used to.
- The FTA has stronger grounds to deny input VAT. Where a supply is connected to a chain of transactions involved in tax evasion and the business knew or should have known that, input VAT recovery on it can now be refused outright.
The headline VAT rate hasn't moved — it's still 5%, and there's no change to exemptions or zero-rating. This is about how long a credit stays valid and what you need on file to support it, not about how much VAT you owe.
Why this matters if you've been sitting on old VAT credits
Most small businesses don't think of unclaimed input VAT as something with an expiry date, because until this year it didn't have one. A business that exports heavily, invests in capital equipment, or simply had a slow patch where output VAT didn't keep pace with input VAT could easily be carrying forward a credit that's five, six, seven years old without ever getting around to formally claiming it back. Under the old rules, that was fine — it would still be there next year.
Under the new rules, credits older than five years from the end of their originating tax period start to lapse, and the transitional window closing on 31 December 2026 is specifically for businesses in exactly that position: credits that are already past the five-year mark, or about to be. If nobody in your finance function has gone back through the VAT history and checked, there's a real chance money that was recoverable simply stops being recoverable, not because of anything wrong with the claim, but because nobody filed it in time.
The reverse charge change cuts the other way — it removes a paperwork step, which is a genuine simplification. But it shifts the burden onto having clean, retrievable supplier and import records, since that's now the only evidence the FTA will look at if a reverse charge transaction is ever queried.
Where Diadyn 360's finance tools actually help
This is fundamentally a record-keeping and deadline problem, and that's the part software can genuinely help with. Finance360 keeps a running ledger of input and output VAT by period, which makes it far easier to see at a glance whether there's an old, unclaimed excess sitting from several years back rather than having to reconstruct it from old filings.
To be clear about the limits here: Diadyn is not a tax advisor and does not file VAT returns or refund claims on your behalf. Using Diadyn 360 does not by itself make your VAT position compliant with the amended law, and it won't tell you whether a specific credit falls inside or outside the transitional relief window — that determination depends on your own filing history and is something only the Federal Tax Authority or a qualified tax advisor can confirm. What good record-keeping does is make sure the information your advisor needs is actually there, organised, and findable before 31 December.
What to do next
- Pull your VAT filing history and identify any tax periods where input VAT exceeded output VAT and the excess was carried forward rather than refunded.
- Check whether any of those excesses are already more than five years old, or will hit the five-year mark before the end of 2026 — those are the ones the transitional deadline applies to.
- If you find a credit in that position, talk to your tax advisor about filing a refund request before 31 December 2026, since a missed submission date means the credit lapses regardless of how legitimate it was.
- Stop generating self-issued reverse charge tax invoices from 1 January 2026 onward, and confirm that supplier invoices and import documentation for reverse charge transactions are being retained and are easy to retrieve.
- Confirm your specific situation, including how the five-year and transitional rules apply to your filing dates, directly with the Federal Tax Authority or your tax advisor — the deadline math depends on your own VAT period history.
None of this changes how VAT is calculated day to day, but it does change what happens to money you're already entitled to if it sits unclaimed. Finance360 exists to keep that history visible, so that when the question of an old credit does come up, the answer isn't buried in a filing cabinet somewhere.
