The five-year rule and why it matters

Old rule (pre-January 2026): Excess input VAT could be carried forward indefinitely. No deadline.

New rule (January 1, 2026 onwards): Five-year window from end of tax period. 2021 credits start expiring now.

Example: VAT period ending December 31, 2021, with AED 50,000 excess input VAT. Last day to claim: December 31, 2026. After that, it's forfeited — not deferred, not carried to 2027. Gone.

For businesses with healthy input VAT balances (import credits, service purchases, equipment), this is a six-figure problem if ignored.

The transition window is your only second chance

The FTA gave businesses one year (January 1 – December 31, 2026) to file refund claims for credits that already expired or will expire within one year.

If your 2021 credit is still sitting on the balance sheet, this is your only window to act. File a refund claim on EmaraTax by December 31, 2026, or lose the balance permanently.

After December 31, 2026, no refunds. No exceptions. No appeals based on "we didn't know."

What changed with reverse charge (and why your invoices matter now)

Old rule: Self-invoicing required for reverse charge (imports, cross-border services). Creates invoice duplication, complexity.

New rule (January 1, 2026): Self-invoicing no longer required. Simpler. But documentation standards went up.

The catch: If you can't prove the supply was legitimate, the FTA can deny your input VAT — even if it was charged to you. The test is "knew or should have known" — meaning you failed to vet the supplier.

A credible supplier with proper invoicing and business substance = input VAT passes. An unregistered supplier, no business address, inconsistent pricing, no documentation trail = FTA denial, even years later.

The supplier due diligence trap

You're now responsible for vetting. Accepting an invoice at face value isn't enough.

Red flags that trigger FTA denial:

  • Supplier not registered on EmaraTax
  • No consistent business address or registration info
  • Pricing inconsistent with market rates
  • No proper invoicing trail
  • Supplier has history of evasion-linked transactions

Get it wrong, and you're defending AED 100,000+ in denied input VAT in an audit. Vetting takes an hour per vendor. Losing a credit takes months of appeals.

The insight: This isn't just about old credits — it's about how you handle VAT going forward

The five-year rule was simplification for founders. The supplier due diligence rule is enforcement.

Businesses that tighten vendor vetting now (before audits) and claim their 2021–2023 credits by December 31, 2026 stay ahead. Those that don't will face denials of legitimate input VAT when the FTA audits. And they'll have lost the refund window.

We help audit your VAT balances, file refund claims before the deadline, and set up vendor vetting so you don't lose input VAT to FTA denials later. Book a free consultation and we'll map your VAT position for 2026.