The five-year clock on your VAT credit

What changed, in one paragraph

Where recoverable input tax exceeds output tax for a period, the difference sits as excess recoverable tax on your EmaraTax account. You could always either request it back or leave it to offset future liabilities.

Leaving it was free. Under the old Article 74 the carry-forward was open-ended, so a credit could roll from quarter to quarter for as long as you liked and nobody had a reason to act.

Federal Decree-Law No. 16 of 2025 amended Article 74 with effect from 1 January 2026. Excess recoverable tax may now be carried forward for a maximum of five years from the end of the tax period in which it arose. If, before that period expires, the excess has neither been used to settle a liability nor been the subject of a refund request, the right to recover it lapses and it may no longer be used to settle any VAT liability.

The credit does not shrink. It stops existing.

Who is actually holding a credit

Three kinds of business, all of them commoner than this rule's quiet arrival suggests.

Exporters. A business whose sales are largely zero-rated charges almost no output tax while recovering input tax on everything it buys. It is structurally in credit, every single period, and has been for years.

Businesses that bought something large. A fit-out, a fleet, a building, a plant. One quarter produces a credit big enough that the following two years of trading never quite absorbs it.

Pre-revenue and slow-revenue companies. Registered voluntarily on the expenses route, recovering VAT on rent and professional fees while waiting for the business to start properly.

In all three, nobody had a reason to check the balance. That is the problem the amendment creates: the businesses most exposed are the ones least likely to be watching.

A worked example of what expires when

Take an exporter that has accumulated credit steadily. Their balance at 30 June 2026 is AED 240,000, built up like this. The expiry column is five years from the end of the period in which each tranche arose.

The AED 55,000 tranche has weeks left, not years. Nobody in that business is thinking about it, because on the dashboard the balance reads as one number.

That single number is the trap. A credit balance is not one thing. It is a stack of dated tranches, and only the stack tells you what is at risk.

The ordering question, answered honestly

Here is where we stop stating and start flagging.

If part of your credit is consumed by a later liability, which tranche does it consume: the oldest or the newest? On a first-in, first-out reading the oldest credit is used first and the risk of anything lapsing is small for a business with regular liabilities. On any other reading, old tranches can sit underneath newer ones and quietly expire.

The amendment does not spell this out, and we are not aware of published FTA guidance settling it. Anyone telling you confidently which way it works is telling you their assumption.

So the sensible posture is the conservative one. Assume nothing about ordering, identify your oldest tranches by date, and deal with them on their own merits rather than trusting that routine offsets are quietly clearing them. Where the amount is material and the position genuinely turns on the answer, that is a proper candidate for a private clarification request.

Claim it, or use it deliberately

Two routes, and the choice is now a real one rather than a matter of preference.

Request a refund on Form VAT311. The claim is filed separately from the return that created the credit. Claims stall on evidence far more often than on eligibility, so it goes in with the invoice schedule attached: the underlying purchase invoices, tested against Article 59, with blocked input tax stripped out beforehand. Claiming entertainment or a private-use vehicle inside a refund request is the fastest way to convert a repayment into a review.

Use it deliberately. If a large liability is coming, letting the credit absorb it is perfectly sensible. What is no longer sensible is letting it sit with no plan, because doing nothing is now a decision with an expiry date attached to it.

One caution on timing: a refund request made before the five years expire preserves the position. Waiting until the final weeks to start assembling evidence does not, because incomplete claims attract questions and questions take time.

What about credits that arose before 2026?

This is the question every finance director asks, and it deserves a straight answer rather than a confident one.

The amended article is in force from 1 January 2026. How the five-year measure applies to balances that arose well before that date has not, to our knowledge, been addressed in published guidance. The conservative reading, and the one we work to, is that the five years runs from the end of the tax period in which the excess arose, including periods before 2026. On that reading, credits from 2021 are already at the edge.

The alternative reading, that the clock starts on 1 January 2026 for pre-existing balances, is more generous and may well turn out to be right.

Planning around the generous reading and being wrong costs you the credit. Planning around the strict one and being wrong costs you nothing except acting earlier than you had to. That asymmetry decides it.

Deregistration collides with this

The two rules interact, and the interaction is unforgiving.

A business winding down usually has a credit. It has stopped selling, so there is little output tax, while rent, professional fees and closing costs keep generating recoverable input tax. Meanwhile deregistration is due within 20 business days of supplies ceasing.

The final return is the last one there will ever be. Whatever credit is on the account at that point has no future period to offset against, so the only route left is a refund claim. If the claim is not made, the balance does not wait patiently for someone to remember it.

Two practical consequences.

First, sequence the refund before the bank account closes. Refunds are paid to the account registered on EmaraTax, and chasing a payment into a closed account is slow work that nobody has budgeted for by then.

Second, do the credit ageing exercise before the final return rather than after it. Old tranches that were quietly approaching their five-year limit become urgent the moment the account is closing, and the final return is where an unclaimed recovery is lost for good.

A company that spent three years accumulating a credit and then closed without claiming it has made an expensive administrative error, and it is one that will not show up in any set of accounts as a loss.

A one-hour exercise worth doing this quarter

Four steps, and it is genuinely an hour for most businesses.

1. Pull your current excess recoverable tax balance from EmaraTax.
2. Work backwards through your filed returns and age it. Which periods produced the credit, and in what amounts? A simple table of period, amount, and expiry date is the whole deliverable.
3. Flag anything arising in 2021 or 2022. Those tranches are inside the window now.
4. Decide, per tranche: claim it on VAT311, or point it at a known upcoming liability. Write the decision down.

Most businesses find nothing urgent. The ones that find something usually find a lot, and they find it while there is still time to do something about it.