The VAT Guide | Tax alert | 8 September 2026
Cabinet Decision No. 149 of 2026 amends the UAE VAT Executive Regulation, introducing changes to input tax recovery, composite supplies and several sector-specific provisions. Most amendments take effect on 1 October 2026, while the input tax apportionment changes follow a separate timetable.
The Ministry of Finance announced the decision on 8 September 2026. This alert analyses the English text of the decision dated 1 September 2026.
Does this affect your business?
Start here if your business: pays suppliers in cash; provides employee benefits or accommodation; sells bundled goods and services; or has both taxable and exempt activities.
The commercial question: could your current contracts, payment practices or recovery calculations put input VAT at risk? Use the points below to identify what needs attention and who should own the next step.
Request a VAT impact review →
The dates businesses need to know
General amendments, including cash-payment recovery restrictions, employee benefits and composite supplies
1 October 2026
Input tax apportionment: Article 55(6), (7) and new (19)
First tax year commencing after 1 October 2027
The apportionment start date must be assessed against the taxable person's VAT tax year. Businesses should not automatically treat 1 October 2027 as the changeover date or assume that their financial year is their VAT tax year.
1. Cash payments: a new restriction on input VAT recovery
New Article 54(3) provides that input tax cannot be recovered on a supply whose value exceeds an amount specified by the Minister where the consideration is paid, or intended to be paid, in cash. The restriction is subject to controls to be set out in the Minister's decision.
Cabinet Decision No. 149 does not itself specify a monetary threshold or the detailed controls. It should not be read as a general prohibition on cash payments or as an automatic denial of VAT recovery on every cash purchase. The relevant Ministerial decision must be checked before applying a numerical limit.
Practical action: Identify cash-funded purchases, review approval and payment procedures, and prepare to incorporate the prescribed threshold and controls into accounts payable processes. Planned cash settlement is also relevant under the wording of the provision.
2. Employee benefits and accommodation: review the recovery basis
The revised Article 53(1)(c)(1) addresses goods and services that employers must provide under UAE or free-zone labour legislation, expressly including financial and non-financial free zones.
For that statutory-obligation exception, employer-provided accommodation is excluded unless providing it is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation.
Separately, revised Article 53(1)(c)(2) addresses benefits provided under a contractual obligation or documented policy, subject to cases and conditions specified by the Federal Tax Authority. A contract or policy alone should therefore not be treated as establishing an unconditional right to recover VAT.
Practical action: Review benefit categories, employment terms, policies and the applicable legal requirements. Assess accommodation under the relevant recovery route and implementing conditions; the amendment should not be presented as a blanket denial of all employee-accommodation input VAT.
3. Input tax apportionment: a supplies-based calculation
Revised Article 55 preserves the distinction between input tax directly attributable to recoverable activities, input tax that is not recoverable, and mixed-use input tax requiring apportionment.
For the mixed-use input tax addressed by Article 55(6)(c), revised Article 55(7) calculates the recovery percentage using the value of supplies specified in Article 54(1) of the VAT Decree-Law as a proportion of the total value of supplies.
The calculation excludes supplies of the taxable person's capital assets and receipts of Concerned Goods and Concerned Services under Article 48 of the Decree-Law. The percentage is rounded to the nearest whole number and applied to the relevant mixed-use input tax.
Government entities and charities have a separate calculation under new Article 55(19), based on recoverable input tax as a proportion of recoverable and non-recoverable input tax, with the prescribed rounding and allocation steps.
Practical action: Businesses with both recoverable and non-recoverable activities should model the financial impact and assess how systems classify supplies and residual costs. Existing special-method approvals and annual adjustment procedures should be reviewed alongside the amended rules and further FTA guidance.
Timing: These amendments apply from the first tax year commencing after 1 October 2027, not from 1 October 2026.
4. Composite supplies: economic substance determines the treatment
New Article 4(6) prevents a taxable person from treating a transaction as multiple supplies where its nature and economic substance show that the components are interconnected and cannot be separated. In that case, the transaction is a single composite supply and follows the VAT treatment of its principal component.
Practical action: Review bundled contracts and pricing arrangements, particularly where components have been assigned different VAT treatments. Separate invoice lines should not be relied on as sufficient evidence that supplies are economically separable.
Other amendments to check
Profit margin scheme
Article 29(5): purchase price includes acquisition costs or fees where the associated input tax, if incurred, is not recoverable under Article 54 of the Decree-Law. Review margin calculations and cost classification.
Healthcare goods
Article 41(4): zero-rating covers medical products specified by Cabinet decision and other necessary goods supplied in the course of zero-rated healthcare services. Check product eligibility against the relevant Cabinet decision.
Recovery linked to supplies outside the UAE
Article 52(2): for Article 52(1), presence in the UAE for fewer than 30 days is treated as being outside the State only where that presence is not effectively connected with the supply. This is a provision-specific test, not a general residence rule.
Capital Assets Scheme
Article 57(1): the definition covers a business asset costing at least AED 5 million excluding VAT, on which tax is payable, with an estimated useful life of at least ten years for buildings or parts of buildings, or five years for other assets. Review which assets fall within the scheme.
Tax credit notes
Article 60(1)(a): the words “Tax Credit Note” must be clearly displayed. Check document templates.
What businesses should do now
Know what to change. Give your team a clear plan.
We can help assess which amendments affect your business, review the supporting documents and turn the findings into practical actions for your finance team.
Request your VAT impact review →
To get started: tell us your sector and the issue you want to review. We will discuss the appropriate scope and next steps with you.
Looking to organise supplier due-diligence records? Explore VAT Guard, our tool for managing supplier verification workflows and supporting evidence.
Sources: Cabinet Decision No. 149 of 2026, Articles 1–3 (English copy reviewed, dated 1 September 2026); Ministry of Finance announcement reported by Emirates News Agency, 8 September 2026. Official legislation and subsequent implementing decisions should be checked through the Federal Tax Authority legislation portal.
This alert provides general information based on the materials reviewed as at 8 September 2026. Application depends on the relevant facts, legislation and implementing decisions.
Cabinet Decision No. 149 of 2026 amends the UAE VAT Executive Regulation, introducing changes to input tax recovery, composite supplies and several sector-specific provisions. Most amendments take effect on 1 October 2026, while the input tax apportionment changes follow a separate timetable.
The Ministry of Finance announced the decision on 8 September 2026. This alert analyses the English text of the decision dated 1 September 2026.
Does this affect your business?
Start here if your business: pays suppliers in cash; provides employee benefits or accommodation; sells bundled goods and services; or has both taxable and exempt activities.
The commercial question: could your current contracts, payment practices or recovery calculations put input VAT at risk? Use the points below to identify what needs attention and who should own the next step.
Request a VAT impact review →
The dates businesses need to know
General amendments, including cash-payment recovery restrictions, employee benefits and composite supplies
1 October 2026
Input tax apportionment: Article 55(6), (7) and new (19)
First tax year commencing after 1 October 2027
The apportionment start date must be assessed against the taxable person's VAT tax year. Businesses should not automatically treat 1 October 2027 as the changeover date or assume that their financial year is their VAT tax year.
1. Cash payments: a new restriction on input VAT recovery
New Article 54(3) provides that input tax cannot be recovered on a supply whose value exceeds an amount specified by the Minister where the consideration is paid, or intended to be paid, in cash. The restriction is subject to controls to be set out in the Minister's decision.
Cabinet Decision No. 149 does not itself specify a monetary threshold or the detailed controls. It should not be read as a general prohibition on cash payments or as an automatic denial of VAT recovery on every cash purchase. The relevant Ministerial decision must be checked before applying a numerical limit.
Practical action: Identify cash-funded purchases, review approval and payment procedures, and prepare to incorporate the prescribed threshold and controls into accounts payable processes. Planned cash settlement is also relevant under the wording of the provision.
2. Employee benefits and accommodation: review the recovery basis
The revised Article 53(1)(c)(1) addresses goods and services that employers must provide under UAE or free-zone labour legislation, expressly including financial and non-financial free zones.
For that statutory-obligation exception, employer-provided accommodation is excluded unless providing it is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation.
Separately, revised Article 53(1)(c)(2) addresses benefits provided under a contractual obligation or documented policy, subject to cases and conditions specified by the Federal Tax Authority. A contract or policy alone should therefore not be treated as establishing an unconditional right to recover VAT.
Practical action: Review benefit categories, employment terms, policies and the applicable legal requirements. Assess accommodation under the relevant recovery route and implementing conditions; the amendment should not be presented as a blanket denial of all employee-accommodation input VAT.
3. Input tax apportionment: a supplies-based calculation
Revised Article 55 preserves the distinction between input tax directly attributable to recoverable activities, input tax that is not recoverable, and mixed-use input tax requiring apportionment.
For the mixed-use input tax addressed by Article 55(6)(c), revised Article 55(7) calculates the recovery percentage using the value of supplies specified in Article 54(1) of the VAT Decree-Law as a proportion of the total value of supplies.
The calculation excludes supplies of the taxable person's capital assets and receipts of Concerned Goods and Concerned Services under Article 48 of the Decree-Law. The percentage is rounded to the nearest whole number and applied to the relevant mixed-use input tax.
Government entities and charities have a separate calculation under new Article 55(19), based on recoverable input tax as a proportion of recoverable and non-recoverable input tax, with the prescribed rounding and allocation steps.
Practical action: Businesses with both recoverable and non-recoverable activities should model the financial impact and assess how systems classify supplies and residual costs. Existing special-method approvals and annual adjustment procedures should be reviewed alongside the amended rules and further FTA guidance.
Timing: These amendments apply from the first tax year commencing after 1 October 2027, not from 1 October 2026.
4. Composite supplies: economic substance determines the treatment
New Article 4(6) prevents a taxable person from treating a transaction as multiple supplies where its nature and economic substance show that the components are interconnected and cannot be separated. In that case, the transaction is a single composite supply and follows the VAT treatment of its principal component.
Practical action: Review bundled contracts and pricing arrangements, particularly where components have been assigned different VAT treatments. Separate invoice lines should not be relied on as sufficient evidence that supplies are economically separable.
Other amendments to check
Profit margin scheme
Article 29(5): purchase price includes acquisition costs or fees where the associated input tax, if incurred, is not recoverable under Article 54 of the Decree-Law. Review margin calculations and cost classification.
Healthcare goods
Article 41(4): zero-rating covers medical products specified by Cabinet decision and other necessary goods supplied in the course of zero-rated healthcare services. Check product eligibility against the relevant Cabinet decision.
Recovery linked to supplies outside the UAE
Article 52(2): for Article 52(1), presence in the UAE for fewer than 30 days is treated as being outside the State only where that presence is not effectively connected with the supply. This is a provision-specific test, not a general residence rule.
Capital Assets Scheme
Article 57(1): the definition covers a business asset costing at least AED 5 million excluding VAT, on which tax is payable, with an estimated useful life of at least ten years for buildings or parts of buildings, or five years for other assets. Review which assets fall within the scheme.
Tax credit notes
Article 60(1)(a): the words “Tax Credit Note” must be clearly displayed. Check document templates.
What businesses should do now
- Assign responsibility for implementing the amendments taking effect on 1 October 2026.
- Review cash payments, employee benefits, accommodation and bundled supplies against the revised provisions.
- Check relevant Ministerial, Cabinet and FTA decisions for thresholds, eligibility and implementing conditions.
- Confirm the applicable VAT tax year and model the future apportionment calculation before changing live recovery processes.
- Retain documented technical conclusions and update accounting procedures, contracts and templates where needed.
Know what to change. Give your team a clear plan.
We can help assess which amendments affect your business, review the supporting documents and turn the findings into practical actions for your finance team.
- Recovery review: cash purchases, employee benefits and accommodation.
- Contract review: bundled supplies and the basis for their VAT treatment.
- Readiness planning: responsibilities, controls and future apportionment modelling.
Request your VAT impact review →
To get started: tell us your sector and the issue you want to review. We will discuss the appropriate scope and next steps with you.
Looking to organise supplier due-diligence records? Explore VAT Guard, our tool for managing supplier verification workflows and supporting evidence.
Sources: Cabinet Decision No. 149 of 2026, Articles 1–3 (English copy reviewed, dated 1 September 2026); Ministry of Finance announcement reported by Emirates News Agency, 8 September 2026. Official legislation and subsequent implementing decisions should be checked through the Federal Tax Authority legislation portal.
This alert provides general information based on the materials reviewed as at 8 September 2026. Application depends on the relevant facts, legislation and implementing decisions.