The UAE is tightening its indirect tax framework on two fronts:
- a dedicated penalty regime for e-invoicing non-compliance, and
- amendments to the VAT Law that narrow refund windows effective 1 January 2026.
1. E-Invoicing: Core Penalties Under Cabinet Decision No. 106 of 2025
Cabinet Decision No. 106 of 2025 introduces a specific schedule of administrative fines for breaches of the Electronic Invoicing System. The regime applies only to persons who are legally required to use the system, voluntary users are carved out.
Key penalties include:
- Delayed implementation / no approved provider
- AED 5,000 per month where an in-scope business fails to implement the Electronic Invoicing System or does not appoint an approved service provider within the deadline set in the e-invoicing implementation decision.
- Late transmission of electronic invoices/credit notes
- AED 100 per e-invoice/ e-credit note not issued or sent within the prescribed timeframe,
- capped at AED 5,000 per month.
- Failure to report system malfunctions
- AED 1,000 for each day of delay, or part of a day, in notifying the FTA of any qualifying system failure within the required timeframe.
2. VAT Law Changes Relevant to Invoicing and Recovery
Federal Decree-Law No. 16 of 2025 amends the VAT Law from 1 January 2026, focusing on administrative simplification and tighter control over input tax recovery.
Key points include:
- Reverse charge and self-invoicing
- The Law clarifies that taxable persons do not need to issue self-invoices for certain reverse-charge transactions used for business purposes. Instead, they must retain standard supporting evidence (supplier invoices, contracts and other prescribed records).
- Five-year limit on excess input tax refunds
- Excess recoverable input tax can only be carried forward or reclaimed within five years from the end of the tax period in which it was recorded. After that, the right to offset or claim a refund lapses.
- Transitional relief allows businesses whose five-year period has already expired or will expire within one year after 1 January 2026 to submit outstanding refund claims by 31 December 2026.
- Anti-evasion conditions for input tax deduction
- New clauses empower the FTA to deny input tax recovery where a supply is linked to an evasion chain, and the taxpayer knew or should have known. A lack of appropriate supplier and transaction due diligence may be treated as constructive knowledge.
3. Combined Impact for UAE Businesses
Taken together, the e-invoicing penalty schedule and the VAT Law amendments point to a more structured and time-sensitive compliance environment:
- Delays in e-invoicing readiness or in issuing electronic documents now carry explicit, recurring financial penalties.
- VAT refunds and credit balances are subject to strict five-year time limits, with only narrow transitional or exceptional extensions.
- The FTA has clearer grounds to deny input tax where supply-chain risk checks are weak, and to focus audit resources within defined limitation periods.
For in-scope taxpayers, e-invoicing implementation, robust document trails and active monitoring of refund and credit timelines should now be treated as core elements of tax risk management in the UAE.
