UAE VAT Amendments 2026: 9 Key Changes Under Cabinet Decision No. 149 of 2026

The UAE has introduced important amendments to its VAT Executive Regulation through Cabinet Decision No. 149 of 2026.

The Decision amends several provisions of Cabinet Decision No. 52 of 2017 concerning the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax.

Most of the amendments became effective on 1 October 2026. They affect input VAT recovery, cash payments, composite supplies, employee benefits, healthcare supplies, capital assets, cross-border transactions, Profit Margin Scheme calculations and Tax Credit Notes.

One important exception is the revised input tax apportionment methodology under Article 55. These provisions take effect from the first Tax Year commencing after 1 October 2027.

Businesses should assess how the amendments affect their VAT positions, accounting procedures, employee policies, contracts and ERP configurations. Companies that require a detailed review can obtain support through Daxin Global UAE’s VAT and Excise Tax Advisory Services.

UAE VAT Amendments 2026 at a Glance

1. New Input VAT Restriction for Cash Payments

A significant new provision has been added to Article 54 of the VAT Executive Regulation. Under the new rule, input VAT may not be recovered on a supply where:

• the value of the supply exceeds an amount to be specified by the Minister; and
• the consideration is paid or intended to be paid in cash.

An important point is that Cabinet Decision No. 149 does not itself specify the monetary threshold. The applicable amount and related controls are to be prescribed separately through a decision issued by the Minister.

Businesses should therefore avoid relying on unofficial threshold figures until the relevant decision is issued.

The wording also extends beyond transactions already paid in cash. A transaction intended to be paid in cash may also fall within the restriction.

Businesses should review:

• cash-payment procedures;
• petty-cash controls;
• supplier payment policies;
• procurement approvals;
• purchase orders;
• supporting documentation; and
• accounting treatment of material cash transactions.

Strong financial controls and clear transaction records will become increasingly important. Businesses can strengthen these processes through professional Accounting Services in the UAE.

2. Economic Substance Determines Composite Supplies

Cabinet Decision No. 149 introduces a new Clause 6 to Article 4 dealing with composite supplies.

A taxable person cannot treat a transaction consisting of several components as multiple supplies when the nature and economic substance of the transaction show that the components are interconnected and cannot be separated.

In such cases, the transaction must be treated as a single composite supply, and its VAT treatment will follow the principal component.

This is particularly important for businesses selling:

• bundled goods and services;
• combined service packages;
• maintenance arrangements;
• technology packages;
• hospitality packages;
• bundled subscriptions; or
• other transactions containing multiple commercial elements.

Businesses should not assume that separate pricing automatically results in separate supplies for VAT purposes.

Contracts, quotations, invoices and product structures should be reviewed based on the commercial substance of the overall transaction.

3. Healthcare Zero-Rating Provisions Have Been Updated

Article 41(4) has been amended in relation to zero-rated healthcare supplies.

The updated wording provides for zero-rating of:

• medical products specified in a Cabinet Decision; and
• other goods supplied in the course of providing zero-rated healthcare services where those goods are necessary for the provision of those healthcare services.

The amendment updates the terminology used within the Executive Regulation and aligns the VAT treatment with the wider regulatory framework applicable to medical products.

Healthcare providers, pharmaceutical companies, medical suppliers and distributors should review:

• product classifications;
• VAT codes;
• invoicing treatment;
• zero-rated supplies; and
• goods supplied together with healthcare services.

Incorrect classification can result in under-declared output VAT or incorrectly applied zero-rating.

4. Employee Benefits and Staff Accommodation Require a Fresh VAT Review

Cabinet Decision No. 149 also changes the input VAT recovery rules for goods and services provided to employees.

Input VAT may qualify for recovery where the provision of goods or services to employees is mandatory under applicable UAE labour legislation, including legislation applying in financial and non-financial free zones.

However, the amended rule specifically addresses employee accommodation.

Employer-provided accommodation is not covered by the general labour-law exception unless the provision of that accommodation is mandatory under a decision or directive issued by the Ministry of Human Resources and Emiratisation (MOHRE).

The rules also allow recovery in certain circumstances where providing goods or services is a contractual obligation or documented company policy, but only in accordance with cases and conditions specified by the Federal Tax Authority.

FTA Decision No. 17 of 2026 provides detailed conditions covering certain employee expenses, including:

• employee transportation;
• food and beverages in qualifying remote or isolated locations;
• accommodation required by operational circumstances;
• temporary accommodation for new employees for up to 30 days;
• work-related mobile phones, airtime, data and internet access; and
• qualifying employee parking expenses.

A contractual clause or general HR policy does not automatically make input VAT recoverable. The specific conditions applicable to the expense must also be met.

Businesses should review employee-benefit policies, employment contracts and supporting records. Where internal policies require updating, Daxin Global UAE’s HR Policies and Procedures Services can help businesses establish clear and properly documented frameworks.

5. Input VAT Apportionment Is Moving to a Supply-Value-Based Method

The changes to Article 55 are particularly important for businesses carrying out both activities that allow input VAT recovery and activities that do not.

Residual input VAT is generally input VAT that cannot be attributed exclusively to either recoverable or non-recoverable activities.

Under the revised methodology, the recoverable percentage will be determined by calculating the value of supplies that permit input VAT recovery as a percentage of the total value of supplies.

Certain transactions are excluded from the calculation, including specified Capital Asset supplies and certain reverse-charge transactions involving Concerned Goods and Concerned Services.

Government Entities and Charities are subject to a separate calculation methodology.

When does the new input VAT apportionment method apply?

Unlike most of the amendments under Cabinet Decision No. 149, the revised Article 55 provisions do not take effect from 1 October 2026.

Clauses 6, 7 and 19 of Article 55 apply from the:

First Tax Year commencing after 1 October 2027.

Businesses with mixed taxable and exempt activities should use the transition period to:

• assess the financial impact;
• review residual input VAT calculations;
• identify required system changes;
• update accounting procedures;
• reconsider VAT coding; and
• test the revised calculation methodology.

Businesses using automated accounting systems may also need to modify VAT configuration and reporting logic. Daxin Global UAE’s Technology and ERP Solutions can support companies that need their systems aligned with changing VAT requirements.

6. Capital Asset Scheme Criteria Have Been Clarified

Article 57 has also been amended.

For purposes of the Capital Asset Scheme, a Capital Asset is a business asset:

• with a cost of AED 5 million or more, excluding VAT;
• on which VAT is payable; and
• with an estimated useful life of at least:
  • 10 years for a building or part of a building; or
  • 5 years for other Capital Assets.

Businesses holding significant property, plant, machinery, equipment or other high-value assets should review their fixed-asset registers and confirm that relevant assets are correctly identified and monitored for VAT purposes.

The Capital Asset Scheme can affect input VAT adjustments over an extended period, making accurate asset records essential.

7. “Outside the State” Test Now Uses a 30-Day Rule

Article 52(2) now contains a specific day-based test.

For purposes of the relevant provision, a person is considered outside the State where the person is present in the UAE for less than 30 days and that presence is not effectively connected with the supply.

This replaces less precise wording referring to presence for less than a month.

The change is relevant to businesses assessing the VAT treatment of certain cross-border services.

Businesses dealing with overseas customers should retain appropriate documentation showing:

• the customer’s presence in the UAE;
• the duration of that presence; and
• whether that presence is effectively connected with the supply.

The 30-day test should not be considered in isolation. Both the duration of presence and its connection with the relevant supply must be assessed.

8. Purchase Price Now Includes Certain Acquisition Costs and Fees

Article 29(5), which is relevant to the Profit Margin Scheme, has been amended.

The purchase price can include costs or fees incurred when purchasing the goods, provided the input VAT relating to those costs or fees is not recoverable under the relevant provisions of the VAT legislation.

This is important because the purchase price can affect the profit margin used for VAT purposes under the Profit Margin Scheme.

Businesses applying the scheme should review the treatment of:

• acquisition costs;
• commissions;
• transaction fees;
• other purchase-related charges; and
• related input VAT.

Accounting records should clearly demonstrate which costs have been included in the purchase price and whether VAT associated with those costs was recoverable.

9. Tax Credit Notes Must Be Clearly Identified

Article 60 has been amended to clarify the required particulars of a Tax Credit Note.

A Tax Credit Note must clearly display the words:

“Tax Credit Note”

Businesses should review their:

• ERP templates;
• accounting-software templates;
• invoice systems;
• credit-note formats; and
• manually generated documentation.

For companies processing a large volume of invoices and credit notes, updating the system centrally is preferable to relying on manual changes.

What Should UAE Businesses Do Now?

Cabinet Decision No. 149 affects more than VAT return preparation. It may require changes across finance, procurement, HR, sales, contracts and technology.

Businesses should prioritise the following actions:

1. Review cash-payment controls and monitor the issuance of the Ministerial Decision specifying the applicable threshold.
2. Identify bundled transactions and reassess whether they constitute single composite supplies.
3. Review employee benefits and accommodation against the amended Article 53 requirements and FTA Decision No. 17 of 2026.
4. Check healthcare classifications where the business supplies medical products or healthcare-related goods.
5. Review Capital Asset Scheme records and fixed-asset registers.
6. Assess Profit Margin Scheme calculations and treatment of acquisition costs and fees.
7. Update Tax Credit Note templates to ensure the required wording appears clearly.
8. Review cross-border customer arrangements where the outside-the-State test may be relevant.
9. Prepare for the revised input tax apportionment methodology before the first applicable Tax Year commencing after 1 October 2027.

Businesses requiring a broader assessment of their VAT compliance can review Daxin Global UAE’s Taxation Services to identify potential VAT risks before they affect tax returns or lead to disputes.

How Daxin Global UAE Can Help

The 2026 VAT amendments require businesses to consider more than the figures reported in a VAT return. Procurement practices, employee benefits, contracts, accounting records, fixed assets and ERP configurations can all affect VAT compliance.

Daxin Global UAE can assist businesses with:

• VAT impact assessments;
• input VAT recovery reviews;
• employee-expense VAT assessments;
• composite-supply reviews;
• VAT documentation and invoicing checks;
• input tax apportionment assessments;
• accounting and transaction reviews; and
• VAT-related system and process improvements.

Businesses that want to assess how Cabinet Decision No. 149 of 2026 affects their operations can contact Daxin Global UAE for professional tax support.