What Businesses Need to Know About the Amendments to the Tax Procedures Law

The UAE has continued to strengthen its federal tax framework through targeted legislative reform aimed at enhancing procedural certainty, administrative efficiency and taxpayer fairness. In this context, Federal Decree-Law No. 17 of 2025, amending Federal Decree-Law No. 28 of 2022 on Tax Procedures (the Tax Procedures Law), took effect on 1 January 2026.

While these amendments do not introduce new taxes or alter existing tax rates, they have material implications for how businesses manage tax refunds, credit balances, error corrections and audit exposure across all federal taxes administered by the Federal Tax Authority (FTA), including value added tax (VAT), corporate tax and excise tax.

These changes are particularly relevant for businesses with accumulated VAT credits, recurring refund positions or complex tax reporting histories, as failure to act within the new statutory timelines may result in the permanent loss of tax entitlements.

Five-Year Limitation Period for Refunds and Credit Balances

One of the most significant changes introduced by Federal Decree-Law No. 17 of 2025 is the introduction of a five-year statutory limitation period for claiming tax refunds and utilising credit balances.

Under the amended Tax Procedures Law, taxpayers must submit refund claims or apply credit balances within five years from the end of the relevant tax period in which the overpayment or credit arose. Once this period expires, the taxpayer’s right to claim the refund or utilise the credit balance lapses.

This rule applies broadly to:

• excess input VAT
• overpaid corporate tax
• other refundable federal taxes administered by the FTA

The introduction of a uniform limitation period aligns the UAE’s tax procedures with international best practices and provides greater legal certainty. At the same time, it places a clear obligation on taxpayers to actively monitor and manage credit balances rather than allowing them to remain dormant indefinitely.

Transitional Relief for Legacy Credit Balances

Recognising that many businesses may hold historic credit balances that would otherwise be time-barred under the new regime, the amended law provides transitional relief.

Where a taxpayer’s entitlement to a refund or credit balance expired before or would expire within one year after, 1 January 2026, the law grants a one-year grace period during which such claims may still be submitted. This transitional window remains open until 31 December 2026.

This relief is particularly important for businesses that have accumulated excess VAT recoverable positions over multiple years or have not previously prioritised refund claims. However, the relief is time-limited and should not be viewed as an indication of further extensions.

Simplified Correction of Non-Material Errors

The amendments also introduce a more pragmatic approach to correcting errors in tax returns.

Under the revised framework, non-material errors that is, errors that do not affect the amount of tax payable may be corrected directly in a subsequent tax return without the need to submit a formal Voluntary Disclosure. Such errors may include clerical, typographical or administrative mistakes.

This change reduces the administrative burden on taxpayers and allows the Voluntary Disclosure mechanism to be reserved for material errors that affect tax liability. However, taxpayers should exercise caution when relying on this simplified mechanism, as the FTA retains discretion to require a Voluntary Disclosure where it considers an error to be material in substance or indicative of broader compliance concerns.

Material errors or omissions that impact tax due remain subject to the Voluntary Disclosure requirements under the Tax Procedures Law.

Time Limits for Refund Applications

In addition to introducing a general five-year limitation period, the amended law clarifies the procedural timelines for submitting refund applications.

As a general rule, refund applications relating to credit balances must be filed within the same five-year period from the end of the relevant tax period. The law also recognises situations where credits arise late in the limitation period, such as during the final 90 days. In such cases, limited extensions may apply, allowing refund applications to be submitted within defined additional timeframes.

The same transitional relief period ending on 31 December 2026 applies to refund applications relating to eligible legacy credit balances.

These provisions reinforce the importance of ongoing reconciliation of tax accounts and timely action. Businesses that delay refund claims may now face irreversible loss of entitlements.

Extended Audit Powers in Refund and Disclosure Cases

The amendments also recalibrate the FTA’s audit limitation periods, particularly in the context of refund claims and Voluntary Disclosures.

While the general limitation period for the FTA to conduct audits or issue assessments remains five years from the end of the relevant tax period, the amended law allows this period to be extended in specific circumstances. Where a refund claim or a Voluntary Disclosure linked to a refund is submitted during the final year of the limitation period, the FTA may extend its review window by up to two additional years from the date of submission.

This extension is targeted and intended to give the FTA sufficient time to verify complex or high-value refund claims, while maintaining overall legal certainty for taxpayers. Nevertheless, businesses submitting late refund claims should expect enhanced scrutiny and ensure that supporting documentation is complete and readily available.

Practical Implications for Businesses

Taken together, these amendments signal a shift toward a more structured and time-bound tax administration regime in the UAE. From a practical perspective, businesses should consider the following actions:

• Review historical tax positions to identify unused credit balances or pending refund opportunities, particularly those eligible for transitional relief.
• Act before 31 December 2026 to preserve rights relating to legacy credits.
• Update internal compliance procedures to distinguish between non-material errors that may be corrected directly and material errors requiring Voluntary Disclosure.
• Strengthen documentation and audit readiness, especially where refund claims are filed late in the limitation period.
• Align VAT and corporate tax compliance processes, given the harmonised procedural framework across federal taxes.

From a governance perspective, these changes reinforce the importance of management oversight of tax positions. Passive accumulation of credits or delayed review may now carry permanent financial consequences.

Conclusion

Federal Decree-Law No. 17 of 2025 does not introduce new taxes, but it materially reshapes how taxpayers interact with the UAE tax system. By imposing clear limitation periods, simplifying the correction of non-material errors, structuring refund timelines and extending audit powers in defined cases, the amendments enhance transparency, efficiency and procedural fairness.

Businesses that proactively review their tax positions, leverage the transitional relief period and align their compliance frameworks with the amended Tax Procedures Law will be best placed to mitigate risk and preserve tax entitlements. Given the interaction between limitation periods, refund mechanics and audit exposure, early legal and tax review is advisable, particularly for businesses with multi-year credit positions or legacy VAT balances.

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