UAE VAT Amendments 2026: Key Changes for Hotels, Travel Agents, and Hospitality Compliance

UAE VAT Amendments 2026: Key Changes for Hotels, Travel Agents, and Hospitality Compliance

A technical compliance framework for UAE hospitality and travel businesses

Effective 1 January 2026, the UAE introduces a coordinated set of VAT and tax-procedure reforms that materially affect hospitality and travel businesses. These changes are enacted through:

• Federal Decree-Law No. (16) of 2025, amending the UAE VAT Law

• Federal Decree-Law No. (17) of 2025, amending the Tax Procedures Law

In addition, the administrative penalties framework is updated via Cabinet Decision No. (129) of 2025, effective 14 April 2026, replacing and expanding elements of the prior penalties regime.

While none of these amendments alter the VAT rate itself, they significantly change how VAT is administered, corrected, refunded, audited, and enforced. For hotels, travel agents, tour operators, and destination management companies, the practical impact is concentrated in three areas:

• Reverse charge mechanics and documentation

• Time limits for VAT recovery and credit balances

• Audit exposure, penalties, and data access

These changes arrive in a sector characterized by advance bookings, deferred revenue, OTA settlement delays, bundled supplies, and cross-border procurement. The result is a materially higher compliance burden if accounting systems and VAT controls are not adapted in advance.

This article analyses the amendments from a practical compliance and accounting architecture perspective, not a theoretical VAT overview.

1. Reverse charge mechanism

1.1 What actually changes from 1 January 2026

The most widely discussed VAT amendment is the removal of the mandatory self-invoicing requirement in certain reverse charge scenarios.

Historically, UAE VAT rules required businesses applying the reverse charge mechanism to issue a self-invoice to support VAT accounting and input tax recovery. From 1 January 2026, the legislation allows reverse-charged VAT to be accounted for without mandatory self-invoicing, provided the recipient holds sufficient documentation to substantiate the transaction.

This is a procedural simplification, not a change to when or why the reverse charge applies.

The reverse charge mechanism itself continues to apply in relevant scenarios, particularly for:

• Imports of goods or services from non-UAE suppliers

• Certain cross-border services used in the UAE

1.2 Practical implications for hospitality businesses

For UAE hotels and hospitality groups, reverse charge exposure typically arises in areas such as:

• Imported professional services (marketing, design, IT platforms, reservation systems)

• Overseas procurement of FF&E, spa equipment, or specialized F&B items

• Global OTA, technology, and distribution arrangements

The removal of mandatory self-invoicing reduces administrative friction but raises the evidentiary standard during audits. The FTA is expected to focus on whether businesses can demonstrate:

• That the supply qualifies for reverse charge

• That the supply was used for taxable business activities

• That VAT has been correctly self-assessed and reported

Hotels that previously relied on mechanically generated self-invoices without robust underlying documentation will need to strengthen supplier contracts, invoices, and internal approval trails.

1.3 Travel agents and DMC considerations

For travel agents and DMCs, the change does not eliminate reverse charge obligations on:

• Overseas ground handlers

• International marketing services

• Certain technology and booking platforms

What changes is how those obligations are evidenced. Importantly, the amendment does not create a blanket simplification for domestic commission arrangements or inter-agent transactions. Those still require careful classification to avoid misapplication of reverse charge or incorrect VAT recovery.

2. Five-year limitation on VAT refunds and credit balances

2.1 Introduction of a statutory time limit

One of the most consequential amendments for hospitality businesses is the introduction of a five-year statutory limitation period for claiming VAT refunds and using excess recoverable input tax.

From 1 January 2026, VAT refunds and credit balances must be claimed within five years from the end of the relevant tax period. Amounts outside this window become irrecoverable.

Previously, UAE VAT legislation did not impose a clearly defined statutory deadline of this nature, which led many businesses to carry VAT credits forward indefinitely.

2.2 Transitional relief and timing

To avoid immediate forfeiture of historical balances, transitional rules allow businesses additional time to claim VAT where the five-year period expired, or would expire, close to the introduction date.

However, this relief is time-bound and should not be treated as open-ended. Hospitality businesses holding long-standing VAT credits should assume that 2026 is the final opportunity to regularize legacy positions.

2.3 Sector-specific risks for hotels

Hotels are structurally exposed to VAT credit accumulation due to:

• Advance deposits and deferred revenue

• OTA settlement delays

• Capital expenditure cycles (renovations, FF&E refreshes)

Common high-risk areas include:

• Input VAT linked to pre-opening or refurbishment phases

• VAT on cancelled or disputed OTA bookings

• Incorrect allocation of VAT in bundled room and F&B packages

Without an active VAT credit review process, hotels risk losing recoverable VAT simply due to time lapse rather than technical ineligibility.

2.4 Implications for travel agents and tour operators

Travel agents frequently carry VAT credits arising from:

• Marketing and promotional spend

• Overseas supplier invoices

• Timing mismatches between commission income and expenses

Under the five-year rule, credit balances can no longer be treated as permanent working capital buffers. This necessitates:

• Regular VAT balance reviews

• Clear ownership of refund versus carry-forward decisions

• Alignment between VAT reporting and general ledger aging

3. Error correction and voluntary disclosure under the revised framework

3.1 Shift in approach, but not elimination of penalties

The amended Tax Procedures Law introduces more graduated and proportionate penalties, particularly where errors are corrected voluntarily and promptly.

However, this should not be interpreted as leniency. The framework still distinguishes sharply between:

• Inadvertent errors corrected in good faith

• Errors discovered during audits

• Deliberate or negligent misstatements

The key operational change is that timely correction now materially affects penalty exposure.

3.2 Practical impact on hospitality accounting

Hotels and travel businesses should expect increased emphasis on:

• Period-end VAT reconciliations

• Early detection of misallocations (for example, room vs F&B VAT)

• Prompt voluntary disclosures where errors are identified

The amendments make it economically irrational to defer corrections until audit, particularly for high-volume operators.

4. Enhanced anti-evasion provisions and audit powers

4.1 Input tax denial

The amendments reinforce the FTA’s ability to deny input VAT recovery where a transaction is linked to tax evasion and the taxpayer knew or should have known of the irregularity.

For hospitality businesses, this places greater emphasis on:

• Supplier due diligence

• Contractual clarity with OTAs and intermediaries

• Internal approval processes for high-value or unusual transactions

Reliance on supplier invoices alone is no longer sufficient protection.

4.2 Expanded audit focus

While the legislation does not enumerate every data source available to the FTA, the direction of travel is clear: audits will increasingly triangulate VAT filings against:

• Bank movements

• OTA settlement reports

• PMS and booking data

Hotels with weak reconciliation between operational systems and VAT returns face heightened exposure.

5. E-invoicing: timeline and relevance to hospitality

5.1 Confirmed UAE roadmap

The UAE e-invoicing framework is progressing on a phased basis:

• 1 July 2026: pilot and voluntary adoption phase

• 1 January 2027: expected mandatory phase for large businesses (commonly cited threshold: AED 50 million annual revenue)

Further phases are expected to expand coverage over time.

5.2 Hospitality-specific considerations

While hotels are not traditionally invoice-driven businesses, e-invoicing will affect:

• Corporate and long-stay clients

• Travel agent and OTA settlements

• Intercompany and group recharges

Hotels operating multiple legal entities or mixed free zone and mainland structures should begin system impact assessments during 2026.

6. Bundled supplies, packages, and allocation discipline

The amendments reinforce the importance of correctly characterizing:

• Composite supplies

• Multiple supplies

This is particularly relevant for hospitality packages combining accommodation with meals, transfers, or activities.

Hotels and tour operators should expect increased scrutiny on:

• Allocation methodologies

• Consistency between contracts, pricing, and VAT treatment

• Alignment between accounting and VAT reporting

Over-simplified “one-line” VAT treatment of packages remains a recurring audit issue.

7. Alignment with the wider tax ecosystem

Although these amendments focus on VAT and procedures, they sit alongside:

• UAE Corporate Tax implementation

• Increased documentation expectations

• Greater integration between tax types during audits

For hospitality groups, this reinforces the need for coherent tax and accounting architecture, rather than siloed VAT compliance.

8. Operational roadmap for hospitality businesses

Q1 2026

• Review reverse charge documentation standards

• Identify VAT credits approaching the five-year limit

• Map VAT reporting to PMS and OTA data

Q2 2026

• Update ERP and VAT workflows for revised procedures

• Implement VAT credit aging and monitoring

• Begin e-invoicing impact assessments

Ongoing

• Regular internal VAT health checks

• Voluntary disclosures where required

• Training for finance teams on revised penalties and audit expectations

How Antravia UAE supports UAE hospitality compliance

Antravia AE works with finance leaders in hotels, travel agencies, DMCs, and hospitality groups to translate legislative change into operationally workable compliance frameworks.

Our work focuses on:

• VAT control design aligned to hospitality revenue flows

• Reverse charge and OTA risk reviews

• VAT credit recovery strategies

• Audit-ready documentation and reconciliation processes

References

1. Implementation of Amendments to Certain Provisions of the Federal Tax Authority's Service Fees, effective from 1 January 2026 www.tax.gov.ae/en/media.centre/news/implementation.of.amendments.to.certain.provisions.of.the.federal.tax.authoritys.service.fees.effective.from.1.january.2026.aspx

2. Federal Tax Authority - Guides, References & Public Clarifications www.tax.gov.ae/en/taxes/vat/guides.references.aspx

3. Federal Tax Authority - Announcements www.tax.gov.ae/en/announcements.aspx

Disclaimer

This article is provided for general informational purposes only and does not constitute accounting, tax, or legal advice. Regulations and requirements in the United Arab Emirates change frequently, and their application can vary depending on business structure, free zone, or activity type. Antravia AE provides strategic financial and business advisory guidance.
Readers should always verify details directly with the relevant UAE authorities or consult a licensed local professional before making business or financial decisions.