10 October 2026 · Refund Limit
The Five-Year VAT Refund Limit
Federal Decree-Law No. 16 of 2025 puts a five-year limit on VAT refund claims and on carrying forward excess recoverable input tax, measured from the end of the tax period in which the amount arose. It aligns with the refund limit in the tax-procedures framework. From 1 January 2026, an old VAT credit you have been holding can lapse, so age your recoverable-VAT balance and claim or use anything nearing the five-year mark.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
An excess VAT balance now has a five-year working life
Federal Decree-Law No. 16 of 2025 amended Article 74 of the UAE VAT Law with effect from 1 January 2026. After the Authority offsets excess recoverable tax against payable tax or administrative penalties, the remaining excess can be carried forward for no more than five years from the end of the tax period in which it arose. If it is not claimed or used before that period ends, the right lapses.
The rule is about a reconciled excess, not a number copied from an accounting dashboard. The Ministry of Finance describes a five-year limit for requests to reclaim excess refundable tax after reconciliation. That means the finance team must identify the period, rebuild the amount and decide whether the correct route is a refund request, a later offset or a correction.
The reader's first action is to replace one brought-forward total with an age schedule. Start with the oldest contributing tax period. Show opening balance, movements, amount already used, supported amount remaining and the next decision. A credit with no period owner is a deadline risk.
- The clock runs from the end of the tax period.
- Offsetting comes before the open balance is aged.
- The right can lapse after five years.
- A refund decision needs period-level reconciliation.
| Balance position | Action | Evidence |
|---|---|---|
| Current excess | Reconcile and carry forward | Return, ledger and invoices |
| Older unused excess | Age and decide on a claim | Period history and support |
| Amount already offset | Remove from the open balance | Later return and offset working |
| Unsupported difference | Hold out until explained | Reconciliation note and source |
Old credits need evidence, not optimism
The exposed business is one that has built credits over several returns and has never claimed them or used them against later output tax. Exporters, zero-rated businesses and companies with pre-trading costs may have a sound commercial reason for the balance. That reason does not remove the need to show when each amount arose, what supports it and whether it is still open.
Separate three questions in the working. Is the amount genuinely recoverable input tax? Has part of it already been used to settle a later liability? Is the remaining amount inside the five-year period? The return history, purchase ledger, refund correspondence and source invoices should answer them. One total from the general ledger cannot do that work.
The mistake we see most is ageing the balance from the date someone noticed it. The legal clock is tied to the end of the relevant tax period. A credit discovered in a new year may already be old. If the schedule does not show the contributing periods, the team cannot identify which documents need attention first.
- Refund positions need period-by-period ageing.
- Used credits must leave the open balance.
- Export and pre-trading evidence needs a clear link.
- The dashboard date is not the legal starting point.
Rebuild the balance from returns and source records
Export the VAT returns for every period contributing to the credit. Match the carried-forward amount to the purchase ledger, input-tax working and source invoices. Add customs and export documents where they support the recovery position, plus payment evidence and any refund request. Keep FTA correspondence with the exact period and amount it discusses.
Adjustments need their own trail. An invoice correction, denied input claim, later offset or period correction can change the balance without changing the old dashboard label. The schedule should show the movement and the reason. A clean spreadsheet that ignores those changes is easier to read and harder to trust.
The client should supply the period returns, ledger extracts, invoices, customs or export records, payment evidence and correspondence. The review should return a supported amount, an unsupported amount and a route decision for each period. It should not present every carried-forward figure as cash available for refund.
- VAT returns by contributing period.
- Purchase ledger and input-tax working.
- Invoices, customs and export records.
- Refund requests, offsets and FTA correspondence.
Claim, use or correct the oldest period first
Begin with the oldest contributing period, not the largest current balance. Rebuild the amount from the return and ledger, remove any amount already used, and mark each missing invoice or export record. The result should be a known supported amount and a list of questions that can be answered by a named person.
If the amount is ready, choose the route and prepare the working that supports it. If it is not ready, record the missing object and the date by which it must be found. A later offset may be the right answer for a supported balance. A correction may be the right answer for a posting error. The file should say which route was chosen and why.
Finish with a decision register that follows the balance into the next return or refund request. Keep the ageing schedule with the tax period files. Do not let a claim submission become the only record of how the amount was calculated. Tie the request to the period. If a later return changes the balance, update the register and keep both workings. Record the reason for each movement while the source file is available. The next reviewer needs the reconciliation behind the request, not just its reference or filename.
- Start with the oldest tax period.
- Remove prior offsets before deciding the amount.
- Assign every missing document to an owner.
- Record claim, use or correction as the route.
The arithmetic shows the balance; the file proves it
Example: a VAT reconciliation shows an opening credit of AED 75,000. The business uses AED 25,000 against later output tax, leaving AED 50,000, calculated as AED 75,000 - AED 25,000 = AED 50,000. The remaining AED 50,000 still needs to be tied to its contributing tax periods and source documents. Arithmetic identifies the amount. It does not establish eligibility.
If the business leaves the AED 25,000 offset in the open balance, it overstates the amount that can be claimed or carried forward. If it misses an old period, the supported amount may outlive the right to use it. The cost is not only a spreadsheet correction. It can be a lost recovery opportunity when the five-year period expires.
Article 74 states the five-year rule but does not prescribe a spreadsheet method for mixed balances containing several periods, corrections and prior offsets. That allocation remains a working judgement for the business. We would preserve the period-level calculation and supporting documents, then obtain a tax view for a balance whose history cannot be reconstructed cleanly.
- The worked balance remaining is AED 50,000.
- An offset must be removed from the open claim.
- The five-year limit is measured by tax period.
- Mixed balances need a documented allocation method.
Frequently Asked Questions
For managing VAT credits.
How long do I have to claim a VAT refund?
Refund claims and carried-forward excess recoverable input tax sit inside a five-year limit, measured from the end of the tax period in which the amount arose. After that window the amount can lapse.
When does the five-year clock start?
From the end of the tax period in which the refundable or excess amount arose, not from when you notice it. That is why aging your balance by period matters.
What happens to a credit I never claimed?
If it passes the five-year limit it can lapse and become unrecoverable. Old VAT credits held for a rainy day now carry a deadline, so review and act on them.
Does this align with other tax deadlines?
Yes. The five-year limit lines up with the refund limit already set in the tax-procedures framework, which brings VAT refunds into step with the wider statute of limitations.
Who should worry most about this?
Businesses that regularly sit in a refund position, such as exporters and zero-rated suppliers, and newer companies holding pre-trading input tax. Those balances are the ones most likely to age out.
Can Exiloz manage our VAT credits?
Yes. We age your recoverable-VAT balance by period, flag anything nearing five years, and file claims before the limit lets them lapse.
Beat the five-year clock
Exiloz ages your recoverable-VAT balance and files claims before the five-year limit lets them lapse.