Leaving a UAE VAT Group in 2026: The Adjustment Rules

• 14 July, 2026
• By Safwan, Managing Partner
• Tax Compliance

The VAT bill that follows you out of the group

The Federal Tax Authority has published Directive on Tax Transactions No. 2 of 2026 — “for Value Added Tax on Adjustments of Output Tax and Input Tax following a Registrant’s exit from a Tax Group” — on its official legislation register on 10 July 2026, taking effect from 1 August 2026. It is a binding directive, not mere guidance, and it settles a question that has quietly caught out restructured businesses: when a company leaves a VAT group but stays VAT-registered, who accounts for a VAT adjustment on a supply the group already reported? The answer is now explicit — the departing member reports the output-tax and input-tax adjustments in its own VAT return, even though the original transaction was declared under the group’s TRN. If you exited, are exiting, or are unwinding a VAT group this year, this is the rule that decides which return a later credit note, price cut or input-tax clawback lands in.

VAT does not end at the moment a supply is invoiced. Prices get renegotiated, goods come back, invoices go bad, and the use of an asset changes — and each of those events can force a later adjustment to the VAT you already declared. Inside a tax group that is simple: the group’s representative member files one return and every adjustment flows through it. The complication starts when a member walks out of the group while the tail of its old transactions is still live. Directive No. 2 of 2026 tells you exactly where those adjustments go.

What changed on 1 August 2026

The Directive does not invent a new tax. It directs how the existing VAT adjustment rules apply to one specific situation: a person who ceases to be a member of a VAT group but continues to be VAT-registered in their own right. And because it is a Directive on Tax Transactions — an instrument the FTA can issue under Federal Decree-Law No. 17 of 2025 (which amended the Tax Procedures Law from 1 January 2026) and FTA Decision No. 5 of 2021 — it is binding on both the FTA and taxpayers, not optional guidance. For the person leaving the group, any required output tax or input tax adjustment relating to taxable supplies or taxable expenses that arose before they left must be accounted for in their own VAT return — not the group’s — even though the original transactions were declared in the group’s returns.

First, how a VAT group actually works

Under Article 14 of Federal Decree-Law No. 8 of 2017, two or more related persons can register as a single tax group with one TRN. A nominated representative member deals with the FTA for everyone: it files the single consolidated VAT return, and every member’s external supply is treated as made by the representative member, while supplies between members are disregarded. The representative member’s role, and the fact that members are jointly and severally liable for the group’s VAT, are set out in the Executive Regulation and the FTA’s Tax Groups VAT Guide (VATGGR101). So while you are in the group, your sales and purchases legally sit inside the group’s return — not a return of your own. That is precisely why an adjustment after you leave needs a home.

Leaving is itself a formal step. Removing a member is a tax group amendment filed by the representative member through EmaraTax (the group carries on); dissolving the group is a deregistration. Since Cabinet Decision No. 100 of 2024, removing a member that has stopped making taxable supplies is mandatory, not optional. The FTA sets the effective date of the change — and that date is the hinge on which Directive No. 2 of 2026 turns.

The timing gap the Directive closes

Picture the sequence. In June, while you are still a member, you sell goods to a customer and the group reports the output tax. On 31 July you leave the group and pick up your own registration. In September the customer returns part of the order. The supply was the group’s on paper, but you are no longer in the group — and the group may have changed shape or dissolved entirely. Without a rule, the credit note has nowhere clean to go. The Directive removes the ambiguity: the adjustment belongs to you, in your own return, because you are the person who actually made and now unwinds the transaction.

What adjustments are covered

The Directive specifically brings two families of adjustment into the departing member’s own return:

1. A reduction in the value of taxable supplies previously reported by the tax group — e.g. a returned order, a post-sale discount, or a cancelled contract. This is a downward output tax adjustment.
2. A reduction in the value of taxable expenses for which input tax was recovered through the group’s returns — e.g. a supplier credit note on a cost you previously deducted. This is an input tax adjustment (a clawback).

In both cases the trigger is the same one that would have applied inside the group; only the return it is reported in has moved. The output-tax side runs on Article 61 (the instances that require an adjustment) and Article 62 (the mechanism — issue a tax credit note within 14 days); the input-tax side runs on the input-tax recovery and adjustment rules in the Decree-Law and its Executive Regulation.

Output tax adjustments — a worked example

Company B leaves Group A on 31 July 2026 and keeps its own VAT registration. In June, Group A’s return included B’s AED 800,000 sale of goods, with AED 40,000 of output tax. In September, the customer returns AED 200,000 of that order. Under Article 61, that return is an instance requiring an output-tax adjustment; under Article 62, B issues a tax credit note and reduces output tax by AED 10,000 (5% of AED 200,000). Because the Directive applies, B posts that AED 10,000 reduction in its own September return — not in whatever remains of Group A.

Input tax and the Capital Assets Scheme

The input-tax side is easy to forget because it works in the FTA’s favour. If a cost you deducted through the group is later reduced — a supplier credit note, a cancelled service, a renegotiated fee — you must repay the over-recovered input tax, and after exit that repayment sits in your return. The same logic reaches the Capital Assets Scheme (Executive Regulation Articles 57–58). A capital asset is a single item of expenditure of AED 5 million or more (excluding VAT); its input tax is re-tested against actual taxable use over an adjustment period of 10 years for a building and 5 years for other capital assets. If you carried such an asset out of the group, the remaining annual adjustments follow the asset to you — and land in your own return for the rest of the scheme period.

The record-keeping requirement

The Directive is explicit that a business must retain enough supporting documentation to demonstrate that each post-exit adjustment genuinely relates to taxable supplies or taxable expenses that were previously reported by the tax group. In practice that means keeping the paper trail that ties the two eras together:

These records must be kept under the normal UAE retention rules — broadly 5 years, extended to 15 years for real-estate records — and produced if the FTA reviews the treatment.

What to do at (and after) exit

1. Snapshot open items on the exit date: unpaid invoices, pending credit notes, prepayments and capital assets — these are the transactions whose adjustments will follow you.
2. Flag likely reversals: orders that may be returned, contracts that may be cut, costs that may be credited.
3. Map the capital assets: list every asset still inside its 5- or 10-year adjustment window and note the remaining years.
4. Fix the cut-off in writing: record the precise date you ceased to be a group member from the EmaraTax amendment.
5. Report adjustments in the right return: anything triggered before exit is the group’s; anything triggered after exit is yours.
6. Keep the bridge documents: retain the invoices, credit notes and group returns that prove the link.

Common mistakes

Where this sits in the 2026 VAT changes

Directive No. 2 of 2026 lands in a year of wider VAT reform. Federal Decree-Law No. 16 of 2025 amended the VAT law from 1 January 2026: excess recoverable VAT can now be carried forward for a maximum of 5 years before the right to recover it lapses (amended Article 74), the obligation to raise a self-invoice under the reverse-charge mechanism was removed (keep the supporting documents instead), and the FTA must deny input tax on supplies connected to tax evasion the recipient knew or should have known about. Separately, the administrative-penalty framework was refreshed by Cabinet Decision No. 129 of 2025, effective 14 April 2026 — which is why getting a post-exit adjustment into the right return, on time, matters more than ever. The authoritative reference for group mechanics remains the FTA’s Tax Groups VAT Guide (VATGGR101).

The legal basis

The Directive sits on top of Federal Decree-Law No. 8 of 2017 on VAT — the tax group (Article 14, including the FTA’s power to add or remove members), deregistration (Article 21), the instances requiring an output tax adjustment (Article 61), the mechanism and the 14-day tax credit note (Article 62), and the credit note’s required contents (Article 70) — read with Cabinet Decision No. 52 of 2017 (the Executive Regulation, as amended by Cabinet Decision No. 100 of 2024): tax-group conditions (Article 9), tax-group amendment and deregistration (Article 15) and the Capital Assets Scheme (Articles 57–58). The representative member and joint & several liability are governed by the Executive Regulation and the Tax Groups VAT Guide (VATGGR101), and the Directive itself is listed on the FTA legislation register. If your business is unwinding or reshaping a VAT group this year, our VAT consultants in Dubai reconcile the open items at exit and post each adjustment to the correct return — and our guide to the UAE corporate tax group covers the parallel grouping rules on the corporate-tax side.

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