Why UAE businesses can no longer afford to ignore their tax credits

Dubai: Ignore it at your own peril, you could lose it permanently if not redeemed. In simple terms, it is your tax credit, your VAT credit. Federal Decree-Law No. 17 of 2025 has introduced one of the most consequential changes to the UAE’s tax landscape since VAT was implemented in 2018, yet many businesses remain unaware: there is now an expiration date to claim your VAT refund. Ignore it, and you will lose it for good.

Shamma Al Falahi, Partner and Head of Tax at BSA Law in Dubai, explains how it works and what businesses must do.

Shamma Al Falahi: The single most critical change businesses must adapt to is that VAT input tax credits, along with credits arising under Corporate Tax and Excise Tax, now carry a hard expiration date. Under the new decree-law, taxpayers have five years from the date a tax credit arises to either offset it against future liabilities or claim a refund. Miss that window, and the credit is gone permanently.

Previously, there was ambiguity around how long these credits could sit on balance sheets. Many businesses treated them as indefinite assets to be dealt with eventually. That era is now over. The legislation has drawn a clear line, and the Federal Tax Authority (FTA) has a firm mandate to enforce it.

This is not a minor procedural change. Businesses with accumulated input tax, particularly those in sectors with long project cycles or refund delays, face a material financial risk.

Shamma Al Falahi: Certain sectors are significantly more exposed than others.

Real estate and construction are at the top of the list. Developers often accumulate substantial input VAT during long construction phases. If timelines stretch — as they frequently do — credits can quietly pass the five-year mark.

Free zone businesses are another concern. Companies operating under Corporate Tax regimes in qualifying free zones may generate credits that are difficult to utilise, especially when they do not create taxable VAT supplies.

Healthcare, education, and financial services providers are also highly exposed due to the complexity of dealing with exempt, zero-rated, and standard-rated supplies.

Start-ups and pre-revenue businesses face added risk. They often incur significant upfront VAT on setup costs long before generating taxable income, meaning those early credits may expire unnoticed.

Shamma Al Falahi: The most frequent mistake is failing to file refund claims proactively. Many businesses have substantial excess input tax sitting in their FTA accounts simply because claiming refunds was seen as cumbersome or lacked ownership internally. This inaction now leads directly to losses.

Misclassification of supplies is another issue. Incorrectly categorising transactions can result in unclaimed credits or adjustments during audits. The five-year clock does not pause for corrections.

There is also a lack of integration between VAT, Corporate Tax, and Excise Tax functions. Treating them as separate silos increases the risk of missed deadlines and lost credits.

Shamma Al Falahi: First, carry out a comprehensive credit reconciliation. Review FTA records against accounting systems and identify all outstanding credits.

Second, submit refund applications immediately for any recoverable input tax. Delaying even one cycle could be costly.

Third, review historical filings and consider voluntary disclosures where necessary. Correcting errors early is far less costly than losing credits entirely.

Shamma Al Falahi: The FTA is increasingly data-driven and sophisticated. It is expected to monitor credit ageing through its systems and automatically identify expired balances.

This rule will likely feature prominently in audits. Businesses will need to demonstrate that they actively managed credits within the allowed timeframe.

The message is clear: tax compliance in the UAE now demands greater discipline and oversight.

Shamma Al Falahi: Businesses must move to an integrated tax compliance framework that provides a consolidated view across VAT, Corporate Tax, and Excise.

Breaking down internal silos is essential. Tax must also be elevated to a strategic priority at board and C-suite level.

For multinational groups, alignment with international tax obligations adds another layer of complexity that must be actively managed.

The five-year rule marks a new phase in the UAE’s tax system. For prepared businesses, it is sound governance; for others, it is a wake-up call — and the clock is already ticking.