Effective 1 January 2026
Key Legal References:
- Article 38 of Federal Decree-Law No. 28 of 2022 (Tax Procedures Law) – Application for Refund of Credit Balance.
- Amended by Federal Decree-Law No. 17 of 2025 – introducing a 5-year limitation period and transitional relief until 31 December 2026.
- Article 74 of Federal Decree-Law No. 8 of 2017 (UAE VAT Law) – Excess Recoverable Tax.
Under Article 38(2) of the Tax Procedures Law, a taxpayer must apply for a refund within 5 years from the end of the relevant tax period.
Under the transitional provision introduced by Federal Decree-Law No.17 of 2025, taxpayers whose claims had already expired may still submit refund applications until 31 December 2026.
Under Article 38 of Federal Decree-Law No. 28 of 2022 (as amended by Federal Decree-Law No. 17 of 2025), taxpayers can apply for a refund of any credit balance only within a limited time period.
Key Rule-According to Article 38(2):
A taxpayer must submit a refund application within 5 years from the end of the tax period in which the credit balance arose.
If the application is not submitted within this timeframe, the right to claim the refund will lapse permanently.
Transitional Relief for Old VAT Credits
The amendment introduced transitional relief.
Where the 5-year period has already expired, taxpayers may still:
- Apply for a refund, or
- Use the credit to settle VAT liabilities
provided the application is submitted before 31 December 2026.
This relief was introduced through Article 3 of Federal Decree-Law No.17 of 2025.
Legal Basis for Excess Input VAT
The entitlement to claim excess input VAT originates from:
Article 74 of Federal Decree-Law No. 8 of 2017 (UAE VAT Law).
Under Article 74(1):
A taxable person may recover excess recoverable tax where:
- Input VAT exceeds Output VAT for the tax period, or
- Tax paid to the FTA exceeds the VAT liability.
After offsetting outstanding tax liabilities and administrative penalties (as per Article 74(2)), the remaining balance may be:
- Refunded, or
- Carried forward to future tax periods.
However, under the amended law, this credit cannot be carried forward indefinitely.
Practical Business Impact
Businesses that accumulated excess input VAT in earlier periods must review their VAT records urgently.
If the refund application is not submitted within the prescribed time limits, the credit balance will expire and cannot be recovered or offset against future liabilities.
This may directly impact cash flow and working capital.
Illustration 1 – Historical VAT Credit
Scenario
A company incurred significant capital expenditure in early 2018 and reported excess input VAT in its VAT return.
The credit balance continued to be carried forward in subsequent VAT returns and no refund application was submitted.
Application of Law
According to Article 38(2) of the Tax Procedures Law, the 5-year limitation period begins from the end of the relevant tax period.
If the tax period ended on 31 March 2018, the refund application should normally have been submitted before 31 March 2023.
However, because the amendment introduced transitional relief under Federal Decree-Law No.17 of 2025, the taxpayer can still submit a refund application until 31 December 2026.
If the application is not filed before this date, the excess VAT credit will permanently lapse.
Illustration 2 – VAT Group Credit
Scenario
A VAT Group reported excess input VAT in the VAT return for Q2 2022 due to significant purchases made by one group member.
The credit balance continued to be carried forward in subsequent returns.
Application of Law
Under Article 38(2) of the Tax Procedures Law, the limitation period begins from the end of the relevant tax period, which is 30 June 2022.
Therefore, the VAT group must either:
- utilize the credit balance, or
- submit a refund application
before 30 June 2027.
If no action is taken before this deadline, the excess VAT credit will expire and cannot be recovered.
Key Takeaway
Businesses should review their VAT returns and credit balances for the past several years, particularly periods between 2018 and 2022, to ensure that no recoverable VAT is lost due to the new limitation rules.
Failure to act before the applicable deadline may result in permanent loss of VAT credits.
How RMC Can Support You
RMC can assist businesses in reviewing historical VAT returns and identifying any unclaimed input VAT credits.
Our team can help assess eligibility under Article 38 of the Tax Procedures Law and Article 74 of the UAE VAT Law, ensuring refund applications are submitted within the prescribed timelines.
We also support in preparing refund documentation and liaising with the Federal Tax Authority (FTA) to maximize recovery of eligible VAT amounts before the applicable deadlines.