UAE VAT Alert

UAE VAT rules evolve: key changes under Cabinet Decision No. 149 of 2026

Cabinet Decision No. 149 of 2026 introduces a focused package of amendments to the UAE VAT Executive Regulation. The Decision is effective from 1 October 2026, except for the revised input tax apportionment provisions, which apply from the first Tax year commencing after 1 October 2027. The changes affect supply classification, margin-scheme calculations, healthcare zero-rating, exempt-supply recovery, employee benefits, cash-paid purchases, apportionment, capital assets and Tax Credit Notes.

1. Composite supplies - Article 4(6)

Before the amendment, Article 4 already contained tests for identifying a single composite supply and required separate treatment where a multi-component supply did not qualify as composite. Decision 149 adds an economic-substance override: a taxpayer may not treat a multi-component supply as multiple supplies where the nature and economic substance show that the components are interconnected and cannot be separated. In that case, the supply is deemed to be a single composite supply and follows the VAT treatment of its principal component.

Practical impact: businesses should review bundled contracts, packages and invoice-line structures, particularly where standard-rated, zero-rated and exempt elements are combined. Separate line items or pricing will not, by themselves, determine the VAT outcome where the components are economically inseparable.

2. Profit Margin Scheme - Article 29(5)

The purchase price used to calculate the profit margin continues to include costs and fees incurred to purchase the relevant goods, but the amended wording adds an important limitation: those costs and fees are included only where the related input tax is not recoverable under Article 54 of the VAT Law.

Practical impact: dealers applying the Profit Margin Scheme should revisit how acquisition-related fees and costs are included in the margin calculation and ensure the VAT recoverability of each cost is considered before it is added to purchase price.

3. Zero-rated healthcare goods - Article 41(4)

The wording is streamlined from separate references to Cabinet-specified pharmaceutical products and medical equipment to “medical products” specified by Cabinet decision. Goods that are necessary to the provision of zero-rated healthcare services remain potentially zero-rated under the separate limb of the Article.

Practical impact: healthcare providers and suppliers should align product master data and tax coding with the relevant Cabinet list and avoid relying on legacy product labels alone.

4. Input tax recovery for exempt supplies - Article 52(2)

For the exempt financial-services recovery rule, a recipient is considered “outside the State” where its presence in the UAE is for less than 30 days and is not effectively connected with the supply. The previous wording referred to a presence of less than one month.

Practical impact: the amendment removes ambiguity caused by calendar-month length and should be reflected in day-counting controls for relevant cross-border financial-services positions.

5. Employee benefits - Article 53(1)(c)

The mandatory benefit exception now expressly covers applicable labour legislation in the UAE and any free zone, including financial and non-financial free zones. Employer-provided accommodation is specifically excluded from this route unless the accommodation is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation. The contractual obligation/documented policy route is also recast so that recovery is subject to cases and conditions specified by the FTA.

Practical impact: employers should separate mandatory benefits, accommodation, contractual/policy benefits, health insurance and deemed supplies in their VAT recovery analysis. HR policy wording alone should not be treated as sufficient for the amended contractual/policy route.

6. Cash-paid supplies - Article 54(3)

A new restriction provides that input tax may not be recovered on a supply exceeding an amount to be specified by Ministerial decision where the consideration is paid or intended to be paid in cash, subject to the controls set out in that decision.

Practical impact: finance and procurement teams should prepare to build payment-mode and threshold checks into AP and input-tax recovery controls once the Ministerial parameters are issued.

7. Input tax apportionment - Article 55

This is the most substantive systems and data change. Under the current standard method, residual input tax is apportioned using an input-tax based recovery percentage. Under the amended Article 55(7), most taxpayers will instead calculate the percentage by reference to the value of supplies allowing recovery under Article 54(1) of the VAT Law divided by the total value of all supplies. Capital asset supplies and reverse-charge receipts of Concerned Goods and Concerned Services are excluded from that percentage calculation.

Government Entities and Charities are treated separately under new Article 55(19), which retains an input-tax based percentage for mixed-use input tax falling within the specific rule.

Effective date: Apply from the first Tax year commencing after 1 October 2027. Accordingly, taxpayers should determine their tax year based on appropriate VAT stagger issued by the Authority.

Illustrative change in formula

8. Capital Asset Scheme - Article 57(1)

The definition of a Capital Asset is revised from a “single item of expenditure of the Business” of AED 5 million or more to a “business asset with a cost” of AED 5 million or more, while the useful-life conditions remain 10 years for buildings or parts of buildings and five years for other Capital Assets.

Practical impact: businesses should review fixed-asset registers, project capitalization and the identification of assets potentially falling within the Capital Asset Scheme.

9. Tax Credit Notes - Article 60(1)(a)

The wording is corrected so that the words “Tax Credit Note” must be clearly displayed on the credit note. The previous consolidated wording referred to those words being displayed on the “invoice”.

Practical impact: this is principally a drafting correction, but businesses should confirm credit-note templates and ERP document labels are correct.

Practical implications for businesses

Recommended next step: perform an article-by-article impact assessment before 1 October 2026, with a separate apportionment readiness workstream covering Tax year commencement, supply value data and ERP reporting. Where implementation depends on a future FTA or Ministerial decision, document the open item and update the control once the relevant parameters are issued.