The UAE Federal Tax Authority has updated its Policy on Issuing Clarifications and Directives under FTA Decision No. 5 of 2021, effective 1 March 2026. Key changes cover service fees, input tax apportionment, advance pricing agreements, and administrative exceptions.
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The United Arab Emirates continues to refine and strengthen its tax administration framework at a pace that matches its ambition as a global business hub. In its latest move to enhance transparency and support voluntary tax compliance, the Federal Tax Authority (FTA) has announced a significant update to its Policy on Issuing Clarifications and Directives — formally governed by Federal Tax Authority Decision No. 5 of 2021. This updated policy came into effect on 1 March 2026 and carries important implications for businesses, tax agents, accounting firms, and compliance professionals operating in the UAE.
Whether you are a multinational corporation navigating the UAE’s Value Added Tax (VAT) and Corporate Tax frameworks, a free zone entity evaluating your input tax recovery position, or an SME seeking clarity on your tax obligations, understanding this policy update is not optional — it is essential to staying compliant, avoiding penalties, and making informed business decisions.
This article provides a detailed, research-backed analysis of what the updated FTA policy covers, how each mechanism works, what has changed, and what action your business should take based on UAE FTA Decision No 5 of 2021 before and after the 1 March 2026 effective date.
Background: What Is FTA Decision No. 5 of 2021?
The Federal Tax Authority Decision No. 5 of 2021 was originally issued to establish the legal and procedural framework under which the FTA issues clarifications and directives to taxpayers in the UAE. This decision is grounded in the FTA’s mandate under Article 4 of the Federal Decree-Law No. 13 of 2016 on the Establishment of the Federal Tax Authority, which empowers the Authority to administer, collect, and enforce federal taxes and related penalties — including the issuance of directives and clarifications necessary for taxpayers to understand the limits of their obligations.
Over the years, the UAE’s tax landscape has grown considerably more complex with the introduction of Corporate Tax in June 2023 (at 9%), successive amendments to the VAT Law, updates to the Tax Procedures Law, and the UAE’s increasing alignment with OECD standards including BEPS (Base Erosion and Profit Shifting) Action Plans. The original decision needed updating to reflect this expanded tax environment and to introduce greater procedural certainty.
“As part of its ongoing efforts to enhance transparency and support voluntary tax compliance, the Federal Tax Authority (FTA) announces updates to the Authority’s Policy on Issuing Clarifications and Directives, in accordance with Federal Tax Authority Decision No. 5 of 2021, which will come into effect as of 1 March 2026.” — FTA Official Announcement
The updated policy supersedes and consolidates prior versions, including amendments made under FTA Decision No. 4 of 2024 (effective 1 July 2024), and incorporates the framework from FTA Decision No. 2 of 2025 (effective 1 March 2025). The March 2026 update represents the most comprehensive revision to date.
The Six Key Updates in the FTA’s Updated Policy
The updated FTA policy covers six critical areas. Each area is designed to address gaps or ambiguities that existed under previous versions and to align UAE tax administration with international best practices.
1. Update on Fees for Services Provided by the Federal Tax Authority Revisions to the fee schedule under Cabinet Decision No. 65 of 2020, including new fees introduced from 1 January 2026 for Advance Pricing Agreement applications.
2. Update on Issuing Clarifications and Directives Revised procedures for private clarifications, public clarifications, guides, and e-learning programmes — with updated timelines, submission requirements, and review mechanisms.
3. Update on Special Methods of Input Tax Apportionment Revised framework for taxpayers proposing alternative input VAT recovery methods where the standard apportionment formula does not yield a fair and reasonable result.
4. Procedures of Issuing Administrative Exceptions Clearer rules on when and how the FTA may grant exceptions to standard administrative obligations under VAT and Excise Tax — including tax invoices, credit notes, and export evidence.
5. Input Tax Apportionment (General Framework) Updated general rules on how businesses with mixed taxable and exempt supplies must calculate the recoverable portion of input VAT — a critical area for banks, financial institutions, and real estate businesses.
6. Advance Pricing Agreements (APAs) Formalisation of the APA framework, including new fee structures for first-time applications and renewals — a key development for multinationals and businesses engaged in related-party cross-border transactions.
Deep Dive: How Each Mechanism Works Based on UAE FTA Decision No 5 of 2021
1. Tax Clarifications — Private and Public
The FTA issues clarifications in two forms: private clarifications and public clarifications. Understanding the distinction is crucial for businesses seeking certainty on their tax positions.
A private clarification is issued in response to a specific request submitted by a taxpayer through the FTA’s EmaraTax portal. It addresses the tax treatment applicable to that taxpayer’s specific facts and circumstances. Under the updated policy, if the FTA issues a private clarification, the taxpayer has the right to rely on it to ascertain their tax obligations and the FTA is administratively bound to implement it. Importantly, private clarifications are binding only on the requesting taxpayer — they do not create precedent for third parties.
The procedural timelines have been updated as follows: when the FTA receives a clarification request, it must communicate a specific timeline for response. If additional information is required from the taxpayer, the FTA may request it, and the taxpayer has 40 business days to provide the information. If a taxpayer initiates a request without completing the submission, the FTA will send an automated reminder and the taxpayer has 20 business days to finalise the request (within an overall window of 40 business days).
Public clarifications, guides, and e-learning programmes are issued at the FTA’s discretion and apply broadly across the taxpayer population. However, the updated policy requires that all public clarifications be reviewed by the Ministry of Finance (MoF) prior to publication, to ensure alignment with the UAE’s broader tax policy objectives — a critical check that ensures consistency between legislative intent and administrative guidance.
2. Directives — Administrative Exceptions
Administrative exceptions represent one of the three directive mechanisms available to the FTA. These allow the Authority to grant exceptions to standard administrative requirements under VAT and Excise Tax where strict compliance is impractical or unreasonably burdensome. Examples include exceptions on tax invoice requirements, credit note procedures, or the form of evidence required to prove the export of goods.
Under the updated policy, administrative exceptions are subject to strict conditions. If an exception is granted, it becomes effective from the date of issuance and remains valid for 3 years, unless the underlying legislation is amended. It is important to note that an administrative exception does not constitute a ruling on the correct tax treatment — it is purely a procedural accommodation.
Key points to remember about Administrative Exceptions:
- Validity Period: Administrative exceptions are valid for 3 years from issuance unless tax legislation changes.
- Not a Tax Ruling: Exceptions do not determine correct tax treatment — only procedural relief.
- Business-Specific: Each exception applies only to the requesting taxpayer and their specific circumstances.
3. Input Tax Apportionment — Standard and Special Methods
Input tax apportionment is one of the most technically complex areas of UAE VAT compliance, particularly for businesses that make both taxable and exempt supplies — such as banks and financial institutions, insurance companies, real estate developers, and mixed-use businesses. The UAE VAT Law establishes standard mechanisms for calculating how much input VAT can be recovered, but it also allows taxpayers to propose special alternative methods where the standard approach does not yield a fair and reasonable result.
Under the updated policy, a taxpayer who wishes to use a special method must submit a formal request to the FTA. The FTA will review the proposed method against defined criteria and either approve, modify, or reject it. The updated decision provides clearer parameters for what constitutes an acceptable alternative method, reducing ambiguity and making the approval process more predictable for businesses.
This is particularly significant given the broader UAE tax changes effective 2026, including the fact that VAT credits from 2021 are now subject to a 5-year expiry rule under the amended Tax Procedures Law. Businesses with outstanding input VAT recovery positions must act urgently to assess and formalise their apportionment methods before their credit windows close.
4. Advance Pricing Agreements (APAs) — A New Era for Transfer Pricing in the UAE
Perhaps the most significant development in the updated FTA policy is the formalisation of the Advance Pricing Agreement (APA) framework. An APA is an agreement between a taxpayer and the tax authority that determines, in advance, the transfer pricing methodology to be applied to a specific controlled transaction or arrangement over a defined period.
APAs are particularly relevant for multinationals operating in the UAE that engage in related-party transactions — such as intercompany loans, management fees, intellectual property licensing, or cross-border services. With the UAE’s Corporate Tax Law now in full effect and UAE entities required to comply with OECD transfer pricing guidelines, APAs provide an invaluable layer of certainty and protection from double taxation and penalties.
Under the updated policy and effective from 1 January 2026, new service fees have been introduced for APA applications:
| APA Service | Fee Type | Effective Date | Applicable To |
|---|---|---|---|
| Unilateral APA — First-Time Application | New service fee (per Cabinet Decision No. 174 of 2025) | 1 January 2026 | All UAE taxable persons seeking transfer pricing certainty |
| Unilateral APA — Renewal or Amendment | New service fee (per Cabinet Decision No. 174 of 2025) | 1 January 2026 | Existing APA holders seeking renewal or modification |
The introduction of formal APA fees reflects the maturation of the UAE’s transfer pricing infrastructure and signals that the FTA expects significantly higher volumes of APA applications as multinational businesses seek certainty in their UAE corporate tax compliance positions.
Why This Update Matters: The Bigger Picture
The FTA’s policy update does not exist in isolation. It is part of a sweeping transformation of the UAE’s tax administration landscape that has accelerated dramatically in 2025 and 2026. Several interconnected developments amplify the significance of this update:
First, the amended Tax Procedures Law (Federal Decree-Law No. 17 of 2025, effective 1 January 2026) has introduced tighter deadlines for refund claims, expanded FTA audit powers, and new provisions for binding FTA directions that standardise tax interpretation across the taxpayer population. The FTA’s updated clarification policy directly underpins how these binding directions will be issued and communicated.
Second, the UAE Corporate Tax framework, which came into effect from financial years starting on or after 1 June 2023, has created a new class of compliance obligations — including transfer pricing documentation, related-party disclosures, and potential APA requirements — that did not exist under VAT alone. The FTA’s updated policy addresses this expanded scope explicitly.
Third, the UAE’s continued integration into the OECD’s global tax architecture — including automatic exchange of information under the Common Reporting Standard (CRS) and BEPS Action 5 requirements for the exchange of private tax rulings — means that clarifications issued by the FTA are now subject to international transparency standards. The updated policy acknowledges this by requiring that Corporate Tax clarifications related to BEPS Action 5 be shared with the Ministry of Finance every two months in a prescribed format.
What Businesses in the UAE Should Do Now
Given the breadth and depth of this policy update, businesses operating in the UAE — whether domestic or foreign-owned — should take concrete steps to align with the new framework. The following action points are recommended:
Review Your Outstanding Clarification Requests
If your business has submitted clarification requests to the FTA that are still pending, review them in light of the updated procedural timelines. Ensure all required information has been submitted and respond promptly to any FTA requests for additional documentation. Remember, failure to respond within 40 business days could result in the FTA closing your request.
Assess Your Input Tax Apportionment Method
Businesses making mixed supplies should conduct a thorough review of their current input tax apportionment methodology. If your business has been using the standard method but believes an alternative approach would yield a fairer result, now is the time to prepare and submit a formal application to the FTA for a special method approval. This is especially urgent given that VAT credit balances from 2021 are approaching the end of the 5-year refund window.
Evaluate Whether an APA Is Right for Your Business
Multinationals and businesses engaged in significant related-party transactions should consider whether entering into a Unilateral APA with the UAE FTA would provide valuable certainty. While the new fees represent an additional cost, the certainty and protection an APA offers — combined with the potential to avoid costly audits and penalties — typically justifies the investment for businesses with material intercompany transactions.
Engage a Qualified Tax Advisor
The complexity of the updated policy — spanning VAT, Excise Tax, and Corporate Tax — makes it essential to engage experienced tax advisors who are familiar with UAE tax law and FTA procedures. Whether you need help drafting a private clarification request, preparing an APA application, or restructuring your input tax apportionment methodology, qualified professional support is indispensable.
How EXLPRO Can Help Your Business Stay Compliant
EXLPRO’s accounting and bookkeeping specialists support UAE and USA-based businesses in navigating FTA regulations, VAT compliance, Corporate Tax obligations, and transfer pricing requirements. Our team assists with private clarification requests, input tax apportionment reviews, and coordination with UAE tax advisors for APA applications. Contact us to discuss how we can support your business ahead of the 1 March 2026 effective date and beyond.
Summary Table: Key Provisions of the Updated FTA Policy
| Area | What Changed | Who Is Affected | Action Required |
|---|---|---|---|
| Service Fees | New APA application and renewal fees from Jan 2026 | Multinationals, related-party transaction businesses | Budget for APA fees; evaluate APA necessity |
| Private Clarifications | Updated timelines: 40-day info deadline, 20-day completion window | All UAE taxpayers seeking clarification | Review pending requests; submit missing information |
| Public Clarifications | MoF review required before publication | All UAE taxpayers | Monitor FTA and MoF publications for new guidance |
| Administrative Exceptions | 3-year validity; exception ≠ tax ruling | VAT and Excise Tax registrants | Review existing exceptions for upcoming expiry |
| Input Tax Apportionment | Clearer criteria for special method approval | Banks, insurers, real estate, mixed supply businesses | Review apportionment method; file if alternative needed |
| Advance Pricing Agreements | Formalised APA framework with new fee schedule | Multinationals with intercompany transactions | Assess transfer pricing risk; consider APA application |
Conclusion
The UAE Federal Tax Authority’s updated Policy on Issuing Clarifications and Directives, effective 1 March 2026 under Decision No. 5 of 2021, is a landmark development in the UAE’s tax administration journey. It reflects the FTA’s commitment to enhancing transparency, procedural predictability, and alignment with global tax standards — while giving taxpayers clearer pathways to resolve uncertainty and manage compliance risk.
For businesses operating in the UAE, this is not merely a regulatory update to note and file away. It is a call to action: to review your current tax positions, formalise your clarification and apportionment strategies, evaluate your transfer pricing arrangements, and ensure your accounting and compliance frameworks are ready for the heightened expectations of the UAE tax authority in 2026 and beyond.
The UAE’s tax system is maturing rapidly. The businesses that thrive will be those that stay ahead of regulatory changes — not those that react after the fact.
Disclaimer: This article is prepared for informational purposes only and does not constitute legal or tax advice. While every effort has been made to ensure accuracy based on publicly available FTA announcements and official UAE tax legislation as of April 2026, readers should consult a qualified UAE tax advisor before making compliance decisions. Prices, timelines, and regulatory provisions are subject to change.
Sources: UAE Federal Tax Authority (tax.gov.ae) | FTA Decision No. 5 of 2021 | FTA Decision No. 2 of 2025 | Cabinet Decision No. 174 of 2025 | Federal Decree-Law No. 17 of 2025 | DLA Piper Gulf Tax Insights | UAE Ministry of Finance (mof.gov.ae)
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