UAE Tax Reforms to Accelerate in 2026 as VAT, Excise and Compliance Rules Tighten

The UAE’s tax framework is set for further evolution in 2026, with new VAT amendments, excise tax changes, stricter audit practices and the rollout of e-invoicing, as authorities align more closely with international standards.

Since introducing VAT at 5 per cent in 2018 and corporate tax at 9 per cent in 2023, the UAE has continued to expand its tax base. From January 2025, a 15 per cent Domestic Minimum Top-Up Tax (DMTT) applies to large multinationals under the OECD’s Pillar Two rules. Excise tax remains in place on products harmful to health, such as tobacco and sugary drinks.

Tax revenue for 2025 is forecast at Dh12.6 billion, up more than 12 per cent year-on-year, with VAT contributing Dh11.3 billion and excise tax Dh1.3 billion.

Key VAT changes from January 1

New VAT amendments aim to simplify compliance. Businesses will no longer need to issue self-invoices under the reverse charge mechanism, though supporting documents must be retained. A five-year deadline has been introduced for claiming VAT refunds, starting from the end of the tax period in which the credit arose. Older credits from 2018–2020 benefit from a grace period until December 31, 2026.

The Federal Tax Authority (FTA) will also have broader powers to deny input VAT deductions where transactions are linked to tax evasion, increasing the need for businesses to verify suppliers. VAT and excise penalties have been aligned with the corporate tax penalty regime, reducing most penalties but increasing those for voluntary disclosures.

Excise tax and sugar-based pricing

A new tiered excise tax model for sweetened drinks links tax per litre to sugar content, encouraging manufacturers to reduce sugar levels. Drinks with 5g to less than 8g of sugar per 100ml will be taxed at Dh0.79 per litre, while those with 8g or more will attract Dh1.09 per litre.

More audits and stronger enforcement

Authorities are expected to increase the use of data analytics, leading to more targeted tax audits. A default five-year limitation period applies to audits and assessments, extendable up to 15 years in cases of fraud or evasion. Transfer pricing enforcement and economic substance and Country-by-Country reporting will also remain areas of focus.

E-invoicing on the horizon

The UAE is preparing for mandatory e-invoicing, with a voluntary pilot expected in July 2026 and phased mandatory adoption from January 2027, starting with large businesses. Real-time reporting to the FTA will make accurate VAT treatment at transaction level critical, as non-compliance could affect businesses’ ability to issue valid invoices and receive payments.

Outlook

Experts say the UAE’s tax system has reached a new level of maturity. Businesses are advised to proactively manage compliance through stronger internal controls, regular reviews and close monitoring of regulatory updates as 2026 approaches.