FTA clarifies recent amendments to the UAE VAT Law
The FTA has issued Public Clarification VATP046 on amendments made to the VAT Decree-Law by Federal Decree-Law No. 16 of 2024, effective from 30 October 2024, and Federal Decree-Law No. 16 of 2025, effective from 1 January 2026.
VATP046 does not introduce new rules. It explains the FTA’s interpretation of the amended provisions and their practical effect.
Key developments
1. Foreign businesses may have a UAE Fixed Establishment without owning premises
Article 1, effective from 30 October 2024, amended the definition of a Non-Resident by replacing the requirement that a person does not “own” a Place of Establishment or Fixed Establishment in the UAE with a requirement that the person does not “have” one.
VATP046 explains that a foreign business may therefore have a Fixed Establishment without owning the premises. The FTA gives the example of employees who regularly work from a client’s UAE premises using technological resources such as mobile phones or computers.
This may indicate a broader approach than the fixed-place Permanent Establishment analysis applied for UAE Corporate Tax. Foreign businesses should assess their VAT and Corporate Tax exposure separately.
See the latest article by our Partner, Andrey Nikonov, on this aspect of the clarification: UAE VAT Fixed Establishment: has VATP046 set a lower threshold than for Corporate Tax?.
2. Electronic invoices must also satisfy the VAT invoicing requirements
Article 1 introduced definitions of Electronic Invoicing System, Electronic Invoice and Electronic Credit Note. VATP046 confirms that an electronic document is not automatically a valid Tax Invoice or Tax Credit Note: it must also satisfy Articles 59 or 60 of the VAT Executive Regulation.
Under Article 55(1)(c), where an Electronic Invoice is required or has been issued through the Electronic Invoicing System, it must be retained in that format to recover the related input tax.
Articles 65(5) and 70(4) require registrants within the Electronic Invoicing System to issue and transmit Tax Invoices and Tax Credit Notes through that system. Failure to issue the required documents within the prescribed period may result in penalties under Article 76(4) and (5).
3. Self-invoicing is no longer required for reverse-charge imports
Under the amended Article 48(1), a taxable person is no longer required to issue a Tax Invoice to itself for Concerned Goods or Concerned Services imported on or after 1 January 2026.
The taxable person must still account for VAT under the reverse-charge mechanism and retain the supporting documents required by the VAT Executive Regulation.
Imports made before 1 January 2026 remain subject to the earlier requirements addressed in VATP044 and VATP045, discussed in our separate alert here.
4. VAT credit balances are subject to a five-year limit
The amended Article 74(3) gives a taxpayer five years from the end of the relevant Tax Period to request a refund of excess Recoverable Tax.
VATP046 explains that the credit must be refunded or used against Payable Tax or Administrative Penalties within that period. Any unused balance lapses when the five years expire, and using part of the credit does not extend the deadline for the remainder.
Businesses should therefore track each VAT credit by the Tax Period in which it arose.
5. Input tax may be denied where a supply chain is connected with tax evasion
Under Article 54 bis(1) and (2), the FTA may reject an input tax deduction where the relevant supply or supply chain is connected with tax evasion and the taxpayer knew or should have known of that connection.
Under Article 54 bis(3), a taxpayer is treated as having been required to know where it failed to verify the validity and integrity of the supplies before deducting input tax. VATP046 also confirms that the relevant supply chain is not limited to direct suppliers and customers.
The required verification measures, procedures and conditions are prescribed by FTA Decision No. 13 of 2026. Businesses should implement those measures and retain evidence of the checks performed. For a detailed analysis of FTA Decision No. 13 of 2026, see our Partner, Andrey Nikonov’s recent article: The Checklist Has Arrived: FTA Decision No. 13 of 2026 and the New UAE VAT Due Diligence Regime
6. Article 79 bis has been repealed
Article 79 bis, which separately addressed limitation periods under the VAT Decree-Law, has been repealed because limitation is already governed by the Tax Procedures Law and its amendments.
The text of VATP046 can be found here.