Taxes

From January 1, 2026: new rules for the return and correction of VAT declaration, enhanced due diligence when checking counterparties

The key tax legislative acts are amended:

• Federal Decree‑Law No. 8 of 2017 on VAT

• Federal Decree‑Law No. 28 of 2022 on Tax Procedures 

• Federal Decree‑Law No. 7 of 2017 on Excise Tax

FTA is tightening its controls over input VAT deductions. It may deny a deduction if a counterparty's transaction is linked to supply chain fraud, even if the counterparty did not initiate the scheme. Consequently, if a company fails to verify its counterparties, the risk of financial losses increases dramatically.

Taxpayers are now exempt from the obligation to issue self-invoices when using the reverse charge mechanism, although the requirement to retain supply documentation remains.

A five-year limitation period has been introduced for filing a request for a refund of overpaid or corrected VAT after reconciliation. After this period, the right to a refund is lost. This five-year limitation period has also been introduced for all taxes when requesting a refund of a credit balance from the FTA or for offsetting it against future tax liabilities.

If a taxpayer was entitled to a refund of the balance and the five-year limitation period expired before, the company will still be able to submit a request until the end of 2026.

(Federal Decree‑Law No. 16 of 2025 and Federal Decree‑Law No. 17 of 2025)

UAE and Russia: Double Taxation Agreement Comes into Force

The new agreement ratified by two countries in 2025 replaces the Agreement of 2011. 

The agreement now applies to all residents - both individuals and legal entities, including companies from UAE free zones with a 0% corporate tax rate.

The list of passive income categories has been significantly expanded: now this category includes not only dividends, interest and royalties, but also, for example, income from the distribution of additional capital, profit-sharing payments and payments to participants in collective investment structures, with the exception of those investing in real estate.

Dividends, interest, and royalties received by institutions (government or financial investment structures) may be completely exempt from tax under certain conditions.

The agreement initiates the automatic and on-demand exchange of tax information between the Russian Federation and the UAE in line with international transparency standards (including provisions to combat BEPS).

(Russia-UAE Agreement)

From January 1, FTA may deny tax refunds in certain cases

The UAE Federal Tax Authority has approved a list of cases in which a tax refund may be rejected if a company or individual is undergoing a tax audit:

• indications of a potential significant tax arrears;

• suspicion of tax evasion;

• connection of the refund with goods involved in supply chain fraud;

• failure to submit declarations;

• failure to provide documents or refusal to cooperate during the audit.

(FTA Decision No. 9 of 2025)

New Method for Calculating Excise Tax on Sugary Drinks New FTA services 

The new model which comes into effect on January 1, 2026 stipulates that excise tax is calculated not based on the price of the product, but on the amount of sugar in a given volume of the drink. The more sugar, the higher the tax.

Exceptions include:

• 100% natural juices (fruit and vegetable), without added sugar or sweeteners

• Milk and dairy products

• Infant formula and baby food

• Specialized drinks for medicinal and dietary purposes.

(Cabinet Decision No. 197 of 2025 and FTA Excise Tax Public Clarification No. EXTP012 of 2025)

New FTA services 

From January 1, 2026 the following services are added to the list of services provided by the FTA according to Cabinet Decision No. 65 of 2020 on the Fees for the Services Provided by the Federal Tax Authority:

• Service Certificate - AED 30,000 per application

• Application for renewal or amendment of a single pre-sale agreement - AED 15,000 per application.

(Cabinet Decision No. 174 of 2025)

Fines for tax violations change from April 14, 2026 

Penalties regime for tax violations (VAT, excise tax, tax procedures) is revised to form a unified, more predictable and simplified system. Examples of changes include:

• The penalty for failure to submit information/reports in Arabic is being reduced from AED 20,000 to AED 5,000.

• For late tax payments, the previous formula of "2% immediately + 4%/month" has been replaced with an annual fixed interest rate of 14%, calculated proportionally.

• Furthermore, penalties and consequences for failure to comply with reporting, recordkeeping, notifications, etc. have been brought into line with the standard corporate tax regime, i.e., a unified system for various taxes.

For businesses, this means that it is important to review internal tax processes, accounting systems, reporting and compliance policies in advance to avoid penalties under the new rules.

(Cabinet Decision No. 129 of 2025)

Small Business Relief benefit expires in 2026

For the purposes of the Small Business Relief referred to in Corporate Tax Law, the Taxable Person’s Revenue threshold for the relevant Tax Period and previous Tax Periods shall be AED 3,000,000 for each Tax Period.

This threshold shall apply to Tax Periods commencing on or after 1 June 2023 and such threshold shall only continue to apply to subsequent Tax Periods that end before or on 31 December 2026. 

(Ministerial Decision No. 73 of 2023)

Pilot implementation of the e-invoicing program is to be launched on July 1, 2026. 

What it means for businesses:

• Mandatory e-invoices and adjustment notes through a single system.

• Deadline: Issue no later than 14 days from the transaction date (for VAT registrants, within the deadlines stipulated by the VAT law).

• An accredited provider is mandatory (subject to a separate accreditation decision).

• Data is stored in the UAE; in the event of a failure, notify the FTA within 2 business days.

When the program is to be launched:

• Pilot: from July 1, 2026 (voluntary for everyone).

• Mandatory:

• Those with revenue ≥ AED 50 million must select a provider by July 31, 2026; the initial start is on January 1, 2027.

• Those with < AED 50 million must select a provider by March 31, 2027; the initial start is on July 1, 2027. 

• Government agencies must select a provider until March 31, 2027, the initial start is on October 1, 2027.

• B2C transactions are temporarily excluded from the system, the deadlines will be announced separately.

Exceptions:

• Transactions between government agencies.

• International passenger air transportation (e-tickets) and EMD services.

• International cargo transportation under the AWB - exemption for 24 months from the system launch date.

• Certain exempt financial services/zero-rated financial services.

(Ministry of Finance Decisions No. 243 of 2025 and No. 244 of 2025, Cabinet Decision No. 109 of 2025)

Other important updates

Single-use plastic is prohibited from January 1, 2026 

The UAE will introduce a nationwide ban on the import, production and trade of single-use plastic products. In Dubai, the following single-use items will be banned:

• Cups and lids

• Cutlery

• Food containers

• Plates.

The goal is to reduce waste, encourage the use of reusable alternatives and support the country's long-term environmental strategy.

(Executive Council Decision No. 124 of 2023)

Advertiser permit is required to be obtained till January 31, 2026

The UAE Media Council has extended the deadline for obtaining an advertising permit (Mu'lin) for all content creators, influencers and advertisers until January 31, 2026.

The requirement for influencers to obtain a permit for advertising on social media was enshrined at the state level in 2025.

(Chairman of the Board of Directors of the Emirates Media Council Decision No. 3 of 2025)

Dubai changes regulations for construction contractors from January 15, 2026

• Mandatory classification of construction contractors, registration in a registry, requirements for technical and administrative staff, restrictions on contracts/subcontracts, documentation and reporting obligations and new standards of conduct (Code of Ethics) are introduced.

• Penalties for non-compliance: fines from AED 1,000 to AED 100,000 for the first violation; up to AED 200,000 for repeat violations. Other penalties may include suspension of operations, deregistration, license revocation, loss of subcontracting rights, personnel disqualification, etc.

• Transition period: contractors operating at the time the law comes into effect must bring their operations into compliance within one year.

(Dubai Law No. 7 of 2025) 

From April 10, 2026 Dubai will introduce enhanced controls over engineering professions

The new rules cover all engineering professions (architectural, civil, electrical, mechanical, etc.) and apply to all zones of Dubai (mainland, free zones, special zones). Order No. 89 of 1994 is abrogated.

Mandatory registration and licensing of engineering consultants and firms is now required through a dedicated system administered by Dubai Municipality.

Strict restrictions apply: providing services without registration is prohibited, working outside of the licensed area is prohibited, hiring unregistered engineers is prohibited, and collaborating with unlicensed firms is prohibited.

Fines for violations range from AED 1,000 to AED 100,000; for repeat offenders, up to AED 200,000; suspension of activities, license revocation, removal from the register, etc. are possible.

Therefore, in 2026 Dubai will introduce a new formal licensing and oversight regime for engineering consulting activities, mandatory for all firms, even those operating in free zones.

(Dubai Law No. 14 of 2025)

From January 1, 2026 a new federal agency will be established - the Federal Administration for Emergency Medical Services and Civil Defense New Friday prayer time

Its main responsibilities will include coordination of emergency medical services, civil defense, fire safety, drafting laws/policies and strategies, emergency response, development of warning systems, evacuation plans, protective measures for buildings and facilities and risk monitoring (radiological, chemical, and biological threats).

Thus, starting from 2026, the responsibility for civil defense and emergency services will be centralized at the federal level. In 2026, unified standards, safety regulations, permits, and requirements for developers, building owners, and companies, particularly those whose activities affect safety (industrial companies, airports, gas/oil, etc.) are expected to be issued.

(Federal Decree‑Law No. 8 of 2025)