New rules. New VAT considerations. Two different effective dates.

Quick Take

The UAE has introduced Cabinet Decision No. 149 of 2026, amending key provisions of the VAT Executive Regulation.

According to the UAE Ministry of Finance, the amendments are intended to simplify procedures, provide greater clarity, strengthen compliance and further align the UAE VAT framework with international best practices.

For businesses, finance teams and accounting departments, there is one important implementation point to understand:

Most of the amendments take effect from 1 October 2026, while certain changes relating to input VAT apportionment will apply at a later date.

This distinction matters.

Businesses should therefore avoid treating the Decision as a single implementation exercise. Some procedures may require attention now, while others will need to be incorporated into future VAT planning.

Here are the key changes businesses should have on their radar.

1. Employee Expenses: Documentation Matters More

The amendments provide further clarity around the VAT treatment of goods and services provided to employees.

The rules address situations where providing a benefit is:

• mandatory under applicable UAE or free-zone labor legislation; or
• a contractual obligation or part of a documented company policy, subject to the cases and conditions specified by the Federal Tax Authority.

Employee accommodation is specifically excluded from the first category unless the provision of such accommodation is mandatory under relevant MOHRE decisions or directives.

What does this mean in practice?

Consider a company that incurs an employee-related expense carrying AED 500 of VAT.

Before automatically treating the AED 500 as recoverable input VAT, the accounting team should consider why the expense was incurred.

Was the benefit required by law? Was it included in the employee’s contract? Is it supported by a documented company policy? Does it satisfy the relevant VAT conditions?

The documentation behind the expense may therefore be just as important as the invoice itself.

DFO practical takeaway: Businesses should review how employee benefits and related expenses are documented across HR policies, employment contracts and accounting records. A clear paper trail can help support the VAT position taken.

2. Significant Cash Payments: A New Restriction to Watch

One of the more notable amendments concerns cash payments.

Under the new provision, input VAT may not be recoverable where:

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

subject to the controls that will be specified in the relevant Ministerial Decision.

Why does this matter?

Imagine a business purchasing high-value equipment and settling the supplier entirely in cash.

Even if the business receives a valid tax invoice, input VAT recovery could potentially be restricted if the transaction exceeds the prescribed threshold and falls within the applicable controls.

There is, however, an important point businesses should not overlook:

Cabinet Decision No. 149 of 2026 does not itself specify the cash threshold.

The threshold and detailed controls are expected to be prescribed separately by the Minister.

DFO practical takeaway: Businesses making significant cash payments should begin reviewing their payment practices and watch for the relevant Ministerial Decision before assuming that VAT on large cash purchases will remain recoverable.

3. Bundled Transactions: One Commercial Package May Be One VAT Supply

The amendments introduce an express rule addressing a single composite supply.

Where several components of a transaction are interconnected and cannot be separated when considering the nature and economic substance of the transaction, they should be treated as one composite supply.

The VAT treatment then follows the principal component.

Why is this important?

Consider a company selling an integrated event package consisting of event management, equipment and technical support.

The invoice may show three separate lines. But that does not necessarily mean there are three separate supplies for VAT purposes.

If the components are economically interconnected and form one inseparable commercial supply, the transaction may need to be treated as a single composite supply.

DFO practical takeaway: Businesses offering packages, bundled services or integrated solutions should look beyond how individual items appear on an invoice. The economic substance of the overall transaction matters.

4. Overseas Customers Visiting the UAE: Understanding the 30-Day Rule

The amendments also provide further clarity on when a person may be considered “outside the State.”

A person who is physically present in the UAE for less than 30 days may still be regarded as being outside the UAE where that presence is not effectively connected with the supply.

A practical example

Suppose a foreign customer visits Dubai for 10 days for personal reasons or for business activities unrelated to a service being supplied by a UAE company.

That temporary physical presence in the UAE does not, by itself, necessarily prevent the customer from being considered outside the UAE for the purposes of this provision.

The reason for the person’s presence is important.

If the UAE visit is effectively connected with the supply, the analysis may be different.

DFO practical takeaway: Businesses providing services to overseas customers should not look only at whether the customer happened to be physically present in the UAE. The duration and purpose of that presence should also be considered.

5. Healthcare Zero-Rating: The Connection With the Service Matters

The amended rules address zero-rating for specified medical products and other goods supplied as necessary components of zero-rated healthcare services.

Where qualifying goods are necessarily supplied as part of a qualifying zero-rated healthcare service, those goods may fall within the zero-rating provision.

However, this should not be interpreted to mean that every product sold or supplied by a healthcare provider automatically qualifies for zero-rating.

The nature of the product and its relationship with the qualifying healthcare service remain important.

DFO practical takeaway: Healthcare providers should assess the VAT treatment of goods in the context of the underlying healthcare service rather than applying zero-rating simply because the supplier operates in the healthcare sector.

6. Capital Assets: Keep the AED 5 Million Threshold in Mind

The amended provision defines a qualifying Capital Asset for the Capital Asset Scheme as a business asset costing AED 5 million or more, excluding VAT, on which VAT is payable and which has an estimated useful life of at least:

• 10 years for a building or part of a building; or
• 5 years for other Capital Assets.

For example, a commercial building acquired for AED 8 million excluding VAT, with an estimated useful life of 20 years, may fall within the Capital Asset Scheme.

For businesses making significant investments in property, equipment or other long-term assets, this is an area that should be considered from the acquisition stage rather than only during a later VAT review.

DFO practical takeaway: Finance teams should identify qualifying capital expenditure early and ensure that appropriate records are maintained for assets potentially falling within the Capital Asset Scheme.

7. Tax Credit Notes: Check the Document Itself

Some VAT changes are technical. Others are remarkably practical.

Under the amended rules, a Tax Credit Note must clearly display the words:

“Tax Credit Note”

This may sound straightforward, but businesses using automated accounting, ERP or invoicing systems should confirm that their templates satisfy the requirement.

DFO practical takeaway: Review credit-note templates before 1 October 2026 and ensure the required wording is clearly displayed.

One Decision, Two Implementation Timelines

This is perhaps the most important practical point arising from the amendments.

Businesses should distinguish between the provisions becoming effective in October 2026 and the later changes affecting input VAT apportionment.

From 1 October 2026

Cabinet Decision No. 149 of 2026 generally becomes effective from 1 October 2026.

This includes amendments relating to areas such as:

• employee benefits;
• healthcare;
• persons outside the UAE;
• capital assets;
• Tax Credit Notes;
• composite supplies; and
• the new cash-payment provision.

Businesses should therefore use September to identify whether internal procedures, accounting controls, payment practices or documentation need to be updated.

Later: Changes to Input VAT Apportionment

The amended Article 55, Clauses 6 and 7, together with the new Clause 19, follow a different implementation timetable.

These provisions apply from the:

“first Tax year commencing after 1 October 2027.”

They principally concern the allocation and apportionment of input VAT, including the calculation of mixed input VAT. Clause 19 specifically addresses Government Entities and Charities.

What does that date mean?

For a business whose relevant Tax Year runs from 1 January to 31 December, the first Tax Year commencing after 1 October 2027 would begin on:

1 January 2028.

Under the amended methodology, a taxable person calculates the percentage of qualifying supplies to total supplies, subject to the specified exclusions, rounds that percentage to the nearest whole number and applies it to the relevant mixed input VAT.

Businesses affected by input VAT apportionment should therefore treat this as a separate implementation project rather than applying the revised methodology from October 2026.

What Should Businesses Do Before 1 October 2026?

The amendments provide businesses with an opportunity to review VAT controls before the new provisions take effect.

In practical terms, businesses may wish to review:

• employee-related expenditure and the supporting HR documentation;
• significant transactions settled in cash;
• bundled products and services that could constitute composite supplies;
• transactions involving overseas customers who are temporarily present in the UAE;
• healthcare supplies where zero-rating is applied;
• high-value assets potentially falling within the Capital Asset Scheme; and
• Tax Credit Note templates within accounting and invoicing systems.

Finance teams should also clearly separate the 1 October 2026 changes from the later Article 55 input VAT apportionment changes when preparing internal implementation plans.

The Bigger Picture

VAT compliance is increasingly about more than applying the correct percentage to an invoice.

The treatment of a transaction may depend on its commercial substance, the reason an expense was incurred, how a payment was made, where a customer is considered to be located, and whether the supporting documentation reflects the underlying arrangement.

For businesses, this makes coordination between finance, accounting, HR, procurement and management increasingly important.

The Ministry of Finance has positioned these amendments as part of the UAE’s continuing efforts to improve tax transparency, implementation efficiency and voluntary compliance while reducing tax disputes.

For businesses operating in the UAE, the practical priority is therefore not simply to know that the rules are changing.

It is to understand which changes affect the business, when they take effect, and what needs to be adjusted before they do.

Source

Cabinet Decision No. 149 of 2026 – Amending Certain Provisions of Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax. Issued 1 September 2026.

UAE Ministry of Finance – Ministry of Finance announcement on amendments to the VAT Executive Regulation.