The UAE retail sector continues to experience significant regulatory evolution, particularly in the areas of Value Added Tax (VAT) and Excise Tax. Recent legislative amendments and upcoming policy changes effective from 1 January 2026 introduce new compliance obligations, operational considerations, and strategic opportunities for retailers operating in the UAE.
This article provides a structured overview of the major UAE tax developments relevant to the retail industry, with a specific focus on VAT law amendments, changes to tax procedures, the new Excise Tax methodology for sweetened drinks, export of services, loyalty arrangements, and practical compliance challenges.
Amendments to UAE VAT Law Effective 1 January 2026
Federal Decree-Law No. 16 of 2025 introduces targeted amendments to Federal Decree-Law No. 8 of 2017 on VAT. These changes aim to reduce unnecessary compliance burdens while strengthening anti-evasion measures.
Removal of Self-Invoicing under Reverse Charge
Businesses will no longer be required to issue self-invoices for imports of goods and services acquired for business purposes under the reverse charge mechanism. This change simplifies cross-border transaction compliance and eliminates system-level complexities previously faced by businesses.
Time Limit on Excess Recoverable Input Tax
A five-year limit has been introduced for carrying forward and claiming excess recoverable input tax. Any unutilized balance after this period will no longer be eligible for offset or refund. This amendment has a notable impact on sectors with prolonged input tax accumulation, such as real estate, exporters operating in free zones, and large retailers with capital-intensive operations.
Strengthened Anti-Evasion Provisions
The Federal Tax Authority (FTA) is now empowered to deny input tax recovery where a supply is connected to tax evasion and the taxpayer knew or should have known about such connection. Retailers are therefore expected to enhance supplier due diligence procedures, validate transactional integrity, and implement internal controls to mitigate VAT recovery risks.
Alignment of Statute of Limitations
The VAT law statute of limitation provisions have been aligned with the revised Tax Procedures Law to ensure consistency across all federal taxes.
Key Amendments to the UAE Tax Procedures Law
Federal Decree-Law No. 17 of 2025 amends the Tax Procedures Law and introduces comprehensive procedural reforms affecting VAT and Excise Tax administration.
Five-Year Framework for Tax Credits and Refunds
The FTA is permitted to allocate excess credits and overpayments within a five-year period, providing greater clarity and transparency for both taxpayers and the authority.
Revised Voluntary Disclosure Requirements
Voluntary disclosures are now limited to FTA-specified categories. For non-specified cases, corrections may be made through tax returns, significantly reducing administrative burden for retailers, particularly those with high transaction volumes.
Refund Application Time Limits
Refund claims must generally be submitted within five years from the relevant tax period, with specific exceptions for FTA-driven credits and late-arising entitlements. This represents a shift from the earlier open-ended framework and introduces certainty for both taxpayers and auditors.
Unified Statute of Limitation for Excise Tax
Excise Tax now follows a unified limitation period of five years, extended to fifteen years in cases involving fraud. This change brings consistency across VAT, Excise Tax, and other federal taxes.
Introduction of Tiered Volumetric Excise Tax on Sweetened Drinks
From 1 January 2026, the UAE will transition to a tiered volumetric Excise Tax model for sweetened drinks, replacing the existing fixed-rate methodology.
Definition of Sweetened Drinks
Sweetened drinks include beverages to which sugar, artificial sweeteners, or other sweeteners are added for consumption, regardless of whether they are ready-to-drink or supplied as concentrates, powders, gels, or extracts.
Carbonated drinks will no longer be treated as a separate category and will instead be assessed based on sugar content.
Excise Tax Calculation Based on Sugar Content
The Excise Tax liability will be determined per liter, depending on the total sugar and sweetener content per 100 ml, rather than as a percentage of the excise price.
Low-sugar and artificial-sweetener-only beverages may attract a zero rate, while moderate and high sugar beverages will be subject to increasing excise rates. Natural sugars are disregarded when present alone, but are included in total sugar calculations if combined with added sugars or other sweeteners.
Exclusions from the New Model
Certain beverages are excluded from the definition of sweetened drinks, including:
Milk-based beverages meeting minimum content thresholds
Infant and follow-up formulas
Beverages for special dietary needs
Beverages prepared for personal or non-commercial use
Drinks prepared and served by restaurants in open containers for immediate consumption
Energy drinks, tobacco products, and electronic smoking devices remain unaffected by the new methodology.
With the above change, taxpayer should undertake calculation to determine the amount of refund , if applicable , due to the excess excise duty paid under the old methodology. Change in excise methodology is not only the technical or operational change it is a strategic matter for industry as it open discussions for pricing of the product. Given this change in methodology, Hotels remain in an interesting space as most of the Hotels are not registered for Excise and with the current change in rate, Hotels might be in refund position as well
Export of Services and the 30-Day Presence Rule
Clarifications to Article 31 of the VAT Law replace the reference to “one month” with a precise 30-day threshold when determining whether a non-resident recipient is considered outside the UAE.
The presence of a non-resident recipient in the UAE must be assessed over a rolling 12-month period. If the recipient exceeds 30 days of presence, the zero-rating of services may be denied, even where the presence is not directly connected with the supply. This clarification has significant implications for retailers providing management, consulting, or support services to overseas group entities.
VAT Treatment of Loyalty Schemes in the Retail Sector
Loyalty programs are widely used in the retail industry to enhance customer engagement. From a VAT perspective, loyalty points are generally outside the scope of VAT at the time of issuance.
The VAT impact arises at the redemption stage, where goods or services are supplied in exchange for points. In third-party funded arrangements, the retailer accounts for VAT on the full value of the supply, while receiving compensation from the loyalty program operator.
In self-funded loyalty schemes, alternative interpretations may arise, including potential treatment as discounts. However, such arrangements must be carefully assessed, as deemed supply rules may apply and incorrect treatment could lead to VAT exposure.
In the case of a self-funding mechanism from UAE vat point of view , redemption of points will not impact the actual sale of goods and services and the retailer will be required to discharge vat on the full value of goods and services as points are considered as mode of payment only. However, they were alternative discussions around if this can be considered as discounts and hence loyalty scheme arrangements needs to be analysed in detail in order to determine accurate VAT position
Practical Challenges for Retail Businesses
Retailers continue to face operational challenges in maintaining VAT and Excise compliance, including:
Updating trade license details on the EmaraTax portal
Managing POS reconciliations during system upgrades
Handling fragmented data across physical and online sales channels
Mapping reverse charge transactions for electronic devices
Ensuring staff across finance, operations, and procurement teams are adequately trained
Adapting ERP systems to frequent legislative changes
Effective data management, system integration, and internal training remain critical to ensuring ongoing compliance.
Conclusion
The upcoming VAT and Excise Tax changes represent a significant shift in the UAE tax landscape for the retail sector. While the amendments introduce tighter controls and defined limitation periods, they also provide clarity, reduced administrative burden, and opportunities for improved pricing strategies under the new Excise Tax model.
Retailers should proactively review product classifications, supply chains, contractual arrangements, and internal systems to ensure readiness ahead of 1 January 2026.
Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.Contributor
CA Sakshi Shukla, 14 years of professional experience in Indirect Tax in India and GCC. Having worked in consulting for 13 years , she is a leading an indirect tax department for a large family group based out of U.A.E. and managing GCC tax matters across Retail, property, entertainment and lifestyle division.
