New Tax Procedures Law amendments have significantly transformed how the Federal Tax Authority (FTA) conducts audits and enforces tax compliance in the UAE. Federal Decree-Law No. 17 of 2025, which came into effect on January 1, 2026, introduces stricter timeframes, expanded audit powers, and enhanced compliance requirements for all taxpayers. These changes affect VAT, Corporate Tax, and Excise Tax procedures, marking a shift toward more active tax enforcement in the Emirates.
Extended Audit and Assessment Periods
The FTA can now conduct audits or issue assessments up to fifteen (15) years in certain cases, representing a substantial extension from previous limitations. The standard limitation period remains five years from the end of the relevant tax period, but specific circumstances trigger extended audit windows. If a taxpayer submits a refund claim in the final year of the five-year window, the FTA gains authority to audit that claim even after the limitation period would otherwise have closed.
Five-Year Refund Deadline Implementation
Taxpayers now have only five years from the end of the relevant tax period to request a refund or use credit balances to offset other liabilities. After this deadline, unused credits expire permanently, applying to Corporate Tax, VAT, and Excise Tax. For VAT credits accumulated since 2021, businesses must act quickly—credits from Q1 2021 must be claimed by Q1 2026 or they will be lost. Transitional provisions provide a one-year window starting January 1, 2026, for credits that already expired or will expire within one year after that date.
Expanded FTA Audit Authority
The FTA’s audit powers have been significantly strengthened under the amended law. The authority can now conduct comprehensive audits at taxpayer headquarters, business premises, or any location where records and inventory are maintained. FTA officers can examine and seize accounting books, invoices, and documents, with audits conducted either on-site or remotely. The amendments introduce precise deadlines for the FTA to notify assessments, creating a more structured legal framework.
Risk-Based Audit Selection Criteria
The FTA uses data analytics and cross-verification to identify audit targets based on specific risk factors. Unexplained discrepancies between corporate tax returns and VAT filings trigger scrutiny, as do sharp profit fluctuations without business justification. Large or unusual VAT refund claims, consistent loss reporting compared to sector peers, and frequent voluntary disclosures all attract FTA attention. High related-party transactions without proper transfer pricing documentation and delayed filings or payments also increase audit risk.
Binding Directions Authority
The FTA now possesses authority to issue official, binding directions on how specific tax provisions should be applied. These directions bind both taxpayers and the FTA itself, establishing consistency in tax interpretation across all cases. This structural change reduces interpretive disputes but limits flexibility for alternative readings of tax provisions once a direction is issued. Businesses must monitor FTA publications and update compliance approaches when relevant directions are released.
Enhanced Input Tax Recovery Requirements
The amendments give the FTA explicit power to deny input VAT recovery where a supply was connected to tax evasion and the recipient knew or should have known. This introduces a due diligence obligation—accepting VAT invoices at face value is no longer sufficient protection. Businesses must verify supplier VAT registration status and confirm correct VAT treatment before claiming input tax recovery. Situations involving reverse charge applications, VAT charged on exempt supplies, or suppliers not properly registered carry particular risk of denial.
Voluntary Disclosure Incentives
The penalty framework strongly incentivizes voluntary disclosure of errors before FTA discovery. If taxpayers identify and disclose errors voluntarily, penalties are substantially lower than if the FTA discovers the same error during an audit. FTA-discovered errors result in a 15% penalty on underpaid amounts plus monthly interest, making early disclosure significantly more cost-effective. A two-year window exists to file Voluntary Disclosures correcting errors related to refund claims, provided the FTA has not yet issued a decision.
Transfer Pricing Documentation Requirements
Transfer pricing documentation must be provided within 30 calendar days of an FTA request, leaving insufficient time to prepare documentation from scratch. This requirement applies to businesses with UAE revenue exceeding AED 200 million or members of multinational groups with consolidated revenue over AED 3.15 billion. Contemporaneous records demonstrating arm’s length pricing—including benchmarking studies, functional analyses, and intercompany agreements—must be maintained and current. The FTA focuses particularly on free zone structures where related-party transactions can shift income between qualifying and non-qualifying activities.
Compliance Recommendations
Businesses should immediately review VAT credit balances by originating tax period and calculate when each five-year window closes. Reconciling corporate tax returns with VAT filings ensures consistency and reduces audit triggers caused by discrepancies. Updating transfer pricing documentation before any FTA request, implementing supplier verification processes, and documenting due diligence on VAT treatment are essential steps. Companies should assess eligibility for transitional relief on older credits and evaluate whether Small Business Relief election makes strategic sense.
About My Taxman
Navigating the complexities of the New Tax Procedures Law requires expert guidance and proactive compliance management. My Taxman specializes in UAE tax consulting, helping businesses understand and adapt to the latest FTA audit powers and timeframe changes. Our experienced team provides comprehensive tax advisory services, including VAT compliance, Corporate Tax planning, FTA audit representation, and refund claim assistance. Whether you need to review credit balances, prepare for potential audits, or ensure full compliance with the amended Tax Procedures Law, My Taxman delivers tailored solutions that protect your business interests. Contact us today for professional tax consulting services that keep you ahead of regulatory changes and minimize compliance risks.
