The UAE is preparing for its biggest ever tax system overhaul, which will take effect from January 1, 2026. These changes will impact VAT, excise tax, and tax procedure laws.
They are especially important for Indians living in the UAE, those planning to move there, and businesses that have ties to India.
Overall, the tax system will become more strict, technology-driven, and time-bound.
Key VAT Changes
One of the most important updates is the introduction of a clear five-year statutory limit for VAT refunds, corrections, and credit utilization.
This means companies must settle any unclaimed past VAT credits before 2026.
Indian business groups with multiple companies in the UAE will need to reconcile all past VAT balances immediately. The UAE has also introduced some transitional provisions to prevent sudden loss of credits.
New Excise Tax on Drinks
The UAE is changing how sugary drinks are taxed. Earlier, all sugary drinks faced a 50% excise tax. Now, a slab-based excise system based on sugar content will be introduced:
Drinks with lower sugar will be taxed less
Drinks with higher sugar will be taxed more
Because of this, manufacturers, importers, and retailers will need to review their recipes, labels, and pricing.
Mandatory E-Invoicing and Stricter Compliance Rules
E-Invoicing from 2027
From January 2027, e-invoicing will be mandatory in the UAE.
It will be based on the PEPPOL system, which means:
PDF or printed invoices will not be accepted
Invoices must be created in XML or JSON format
They must be sent to the tax authority through an Accredited Service Provider (ASP)
Companies with annual revenue of AED 50 million or more need to appoint an ASP by July 31, 2026. Smaller companies must prepare by early 2027.
Indian companies may have some advantage because they already use GST e-invoicing, but they will still need ERP upgrades and data standardization.
New Anti-Evasion Rule (Similar to India)
The UAE has introduced a new rule to prevent tax evasion.
If a transaction involves tax evasion and the buyer knew or should have known, the input VAT credit can be denied.
This is similar to India’s GST rules, and businesses will need stronger vendor checks, documentation, and supplier compliance systems.
What This Means for Indians and NRIs
There is still no personal income tax in the UAE. However, tax residency rules and treaty planning have become more sensitive.
A Tax Residency Certificate (TRC) can be issued based on certain conditions, such as a 90-day stay requirement, which may differ from the India-UAE tax treaty.
Indians living in or planning to move to the UAE will need to carefully manage their travel records, documents, and financial arrangements.
Corporate Tax and R&D Incentives
Most UAE businesses now pay a 9% corporate tax, while large multinational groups are taxed at 15% (Pillar Two).
The UAE has also introduced refundable R&D tax credits of 30–50%.
This could be a major opportunity for Indian family-owned groups if they centralize their R&D operations in the UAE.
