UAE unveils major tax rule changes from January 2026: What it means for Indians and businesses

The UAE is set to roll out one of its most wide-ranging tax overhauls from January 1, 2026, introducing changes to its Tax Procedures Law, VAT regime and excise framework—moves that signal a shift towards a more structured, technology-driven tax environment. For Indians living in the UAE, those planning to relocate, and India-linked businesses operating in the region, the new rules carry meaningful implications for compliance, planning and cross-border structuring.

At the heart of the reforms is a clear five-year statutory window for VAT refunds, corrections and utilisation of credit balances. Industry experts say this will require companies—especially Indian groups with multi-entity operations—to immediately reconcile legacy VAT credits and file pending refund claims before the limitation kicks in. Transitional relief has been provided for credit balances that would otherwise lapse around the 2026 rollout.

Geet Shah, Partner, Dhruva Advisors mentioned that the most important changes are threefold. First, the UAE has moved to tiered, sugar-content–based excise tax rates on sweetened drinks, replacing the earlier 50% flat rate. Beverages with lower sugar content will now attract lower excise rates, while high-sugar products will fall into higher rate brackets. This directly affects manufacturers, importers and retailers, who will need to reassess formulations, labelling, and pricing to align with the new thresholds.

Second, the UAE has confirmed that mandatory e-invoicing will go live from January 2027. Businesses will need to upgrade their ERP systems, ensure data standardisation, and be ready for real-time reporting to the Federal Tax Authority. Third, amendments to the VAT and Tax Procedures Law introducing a fixed five-year window for VAT refunds, corrections, and credit utilisation. This requires companies to take immediate action to apply for pending VAT refunds before the new rules take effect, as unclaimed credit balances could expire under the five-year limitation period, Shah added.

Indian and NRI-linked businesses should approach these changes the same way they manage GST compliance in India. The UAE has introduced a stringent rule allowing the FTA to deny input VAT if a transaction is connected to tax evasion and the buyer ‘knew or should have known’. This is very similar to India’s GST position where credits are blocked if the supplier has not reported or paid tax. Practically, this means strengthening vendor due diligence, tightening documentation, and more actively monitoring supplier compliance, Shah explained.

In addition, Shah says, groups should begin preparing their ERP and invoicing systems now for e-invoicing ahead of the 2027 rollout. The UAE has adopted a PEPPOL-based e-invoicing architecture — requiring structured electronic invoices (XML/JSON) transmitted through an Accredited Service Provider (ASP), and not simple PDFs or printouts. Implementation is being phased. Businesses with annual revenue of AED 50 million or more must appoint an accredited service provider (ASP) by 31 July 2026 and go live with e-invoicing by 1 January 2027, and smaller businesses (below AED 50 million) will need to appoint their ASP by 31 March 2027 and start e-invoicing by 1 July 2027.

The Federal Tax Authority (FTA) will also gain expanded audit powers, including limited exceptions allowing reviews beyond the five-year period. A new anti-evasion rule empowers the FTA to deny input VAT if a buyer “knew or should have known” that a transaction is linked to tax evasion—mirroring India’s GST framework where credits are blocked if the supplier has not reported or paid tax. For Indian and NRI-linked businesses, this means tighter vendor due diligence, contract-level tax warranties and closer monitoring of supplier compliance.

For individuals, the UAE continues to offer zero tax on personal income, but residency and treaty planning will require more careful navigation. A Tax Residency Certificate (TRC) can be obtained under several tests—including a 90-day presence test—though these may differ from India-UAE treaty thresholds. Experts say Indians relocating to or already in the UAE should align travel, documentation and financial ties to substantiate UAE tax residency, especially if seeking treaty benefits on global income.

Geet Shah also added “corporate tax at 9% applies to most businesses, while 15% applies to large multinational groups under Pillar Two. UAE’s appeal endures through tax reliefs such as participation exemption for investments, free-zone benefits for diverse businesses, and even small business relief for budding entrepreneurs. As such, for Indian family groups, early alignment with UAE framework and robust structuring of cross border transactions can prove to be a strategic edge.”

Another headline change is the introduction of a tiered, sugar-content–based excise tax on sweetened beverages, replacing the earlier 50% flat rate. Manufacturers, importers and retailers will need to reassess formulations, labelling and pricing as products with higher sugar content move into steeper excise brackets.

In a long-anticipated move, the UAE has confirmed that mandatory e-invoicing will go live from January 2027, using a PEPPOL-based, machine-readable format transmitted through Accredited Service Providers (ASPs). Large businesses—those with annual revenue of AED 50 million or more—must appoint their ASPs by 31 July 2026, with smaller firms following in early 2027. Indian-led groups, accustomed to India’s e-invoicing regime, are expected to transition faster but will still need substantial ERP upgrades, data standardisation and integration testing.

To promote innovation, the UAE has also introduced a refundable R&D tax credit (30–50%), aligned with OECD guidelines. For Indian family groups with regional headquarters in the UAE, this could offer planning opportunities if R&D functions are centralised in the Emirates.

Overall, the 2026–27 tax reforms mark a decisive shift for the UAE—towards stronger compliance, clearer timelines and digital infrastructure. For Indians and India-linked businesses, the message is clear: prepare early, reconcile old tax positions, strengthen documentation, and modernise systems to stay ahead of the changes.