Excess input VAT in the UAE can only be carried forward for five years from the end of the tax period in which it arose. After that it cannot be offset, refunded, or recovered in any form — it simply ceases to exist. For older balances there is a transitional window, and for most businesses it closes on 31 December 2026.
What is the five-year rule on excess input VAT?
If your input VAT in a period exceeds your output VAT, the difference is a credit. You can either request a refund or carry it forward against future liabilities. Most UAE businesses carry it forward, because a refund invites FTA review and the balance feels safe sitting on the return.
It is not safe indefinitely. Under Federal Decree-Law No. 16 of 2025, which amended the VAT Law with effect from 1 January 2026, excess recoverable tax that has been carried forward for five years from the end of the tax period in which it arose can no longer be used. Not offset, not refunded. The entitlement lapses.
The businesses this hurts most are the ones that have done nothing wrong. A construction company in a long build phase, an importer with heavy capital spend, a business that simply never got round to filing the refund claim — each can be carrying a substantial credit it assumed would always be there.
The 31 December 2026 transitional deadline
The amendment recognised that some balances were already five years old, or close to it, when the rule took effect. So a transitional window was provided: taxable persons whose five-year period had already expired, or would expire within one year of the law taking effect, may still request a refund or apply the credit against tax due or penalties — provided the request is submitted within one year from 1 January 2026.
In practice that means 31 December 2026 is the cut-off for the oldest balances, broadly those arising in the 2018 to 2020 periods. Miss it and the entitlement is gone permanently. There is no extension mechanism and no appeal on the basis that you did not know.
| Situation | What applies | Act by |
|---|---|---|
| Credit arose 2018–2020 | Transitional relief window | 31 December 2026 |
| Five-year period already expired before 2026 | Transitional relief window | 31 December 2026 |
| Credit arose 2021 onward | Standard five-year limit | Five years from end of the period |
| Credit arising now | Standard five-year limit | Rolling — review annually |
How to check whether you are affected
This is a twenty-minute exercise for most businesses and it is worth doing before year end rather than after.
- Open your most recent VAT return in EmaraTax and find the carried-forward credit balance.
- Trace when it arose. A credit balance is not a single lump — it is a stack of period balances. What matters is the age of the oldest layer, not the total.
- Flag anything from 2018 to 2020. That is the portion at immediate risk.
- Check your evidence. A refund claim needs supporting tax invoices that meet the FTA’s requirements. A credit you cannot evidence is one the FTA can decline, and reconstructing six-year-old records takes longer than people expect.
- Decide: refund or offset. Offsetting against an existing liability or penalty is often faster and attracts less scrutiny than a cash refund.
If your bookkeeping is not current enough to answer step two, that is the first job. Our backlog recovery process covers rebuilding records to the point where a VAT position can actually be evidenced, and our VAT health check is designed to surface exactly this kind of latent exposure.
Refund or carry forward: which to choose
A refund request puts your return in front of the FTA. That is not a reason to avoid it — it is a reason to make sure the return is defensible first. What we see go wrong is a business claiming a refund on records that do not support it, which converts a recoverable credit into an assessment and a penalty.
Two questions decide it. First, do you have upcoming output VAT liabilities that will absorb the credit naturally within the remaining window? If yes, carry forward is simpler. Second, would the cash matter? A six-figure credit sitting idle is working capital you have already paid for.
If you have made errors in earlier returns, correct them through a voluntary disclosure before claiming, not after. Disclosing first almost always costs less than being assessed.
The other 2026 VAT changes worth knowing
Federal Decree-Law No. 16 of 2025 was not a single-issue amendment, and the input credit limit sits alongside several changes taking effect from 1 January 2026. If you are reviewing your VAT position for the input credit deadline, it is efficient to look at the rest at the same time — particularly reverse charge scope, record-keeping obligations and the interaction with the e-invoicing mandate, which begins for large businesses on 1 January 2027.
There is also a reporting angle. A carried-forward VAT credit is an asset on your balance sheet. If it is about to lapse, it is impaired, and your auditor will expect to see that reflected. Businesses that discover the issue during the audit rather than before it tend to discover it too late to act.
Frequently asked questions
What is the five-year rule for VAT input credit in the UAE?
Excess recoverable input VAT can be carried forward for five years from the end of the tax period in which it arose. Beyond that it can no longer be offset against liabilities or refunded, and the entitlement is permanently lost.
What is the 31 December 2026 VAT deadline?
It is the end of the transitional window for older credit balances — broadly those from 2018 to 2020, and any whose five-year period had already expired or was about to. A refund or offset request must be submitted by that date.
Which law introduced the five-year limit?
Federal Decree-Law No. 16 of 2025, amending Federal Decree-Law No. 8 of 2017 on VAT, with effect from 1 January 2026. It was issued alongside Federal Decree-Law No. 17 of 2025 amending the Tax Procedures and Excise Tax laws.
Can I still recover VAT credits from 2018?
Only if you submit the request by 31 December 2026, and only if you can evidence the credit with compliant tax invoices. After that date the entitlement lapses with no appeal route.
Does the five-year clock run from the invoice date or the tax period?
From the end of the tax period in which the excess arose, not from the individual invoice date. This matters when tracing which layer of a rolling credit balance is oldest.
Is it better to request a refund or offset the credit?
Offsetting against an existing liability or penalty is generally faster and attracts less scrutiny. A cash refund is worth pursuing where the amount is material and your records are clean enough to withstand review.
What happens if my VAT records for 2018 to 2020 are incomplete?
You will struggle to evidence the claim, and the FTA can decline it. Reconstruct the records first — it takes longer than most businesses assume, which is why starting in December is usually too late.
Does this affect free zone companies?
Yes. The VAT rules apply regardless of whether you are in a free zone or on the mainland. Designated zone status affects the VAT treatment of goods, not your entitlement to recover input tax.