Guide · updated 29.09.2026 · 14 min read · Lucent Legal team

UAE VAT Changes from 1 October 2026: What Cabinet Decision No. 149 Means for Your Business

A new version of the UAE VAT Executive Regulation applies from 1 October 2026. It restricts input VAT recovery on cash purchases and staff accommodation, and stops splitting supplies to reach a better rate. Below: each change, old wording against new, and what to fix in payments, contracts, invoices and credit notes.

Short answer

• Cabinet Decision No. 149 of 2026 was issued on 1 September 2026 and takes effect on 1 October 2026. It amends the VAT Executive Regulation, Cabinet Decision No. 52 of 2017.
• Cash payments. New Article 54(3) denies input VAT recovery on any supply above a threshold if the consideration is paid, or intended to be paid, in cash. The Minister of Finance sets the threshold. As of 29 September 2026 no amount has been published.
• Staff accommodation no longer qualifies under the "mandatory under labour law" exception, unless decisions or directives of MOHRE make it mandatory.
• FTA Decision No. 17 of 2026, effective 1 October 2026, lists 6 cases in which input VAT on free employee benefits can be recovered. Temporary housing for new joiners is capped at 30 days.
• Apportionment. The new partial exemption formula in Article 55 applies from the first tax year starting after 1 October 2027. For most businesses that means a date between 1 January and 1 April 2028.
• Capital assets. The threshold stays at AED 5,000,000; only the wording changed.

What was actually adopted

Cabinet Decision No. 149 touches nine articles of the Executive Regulation and adds three new clauses: Article 4(6), Article 54(3) and Article 55(19).

The English text on the Ministry of Finance website is a translation; the Arabic text is official.

The general effective date is 1 October 2026. There is one exception. New Clauses 6, 7 and 19 of Article 55, which govern apportionment, apply from the first tax year commencing after 1 October 2027.

Two FTA decisions take effect on the same day. FTA Decision No. 13 of 2026 requires supplier verification before claiming input tax, covered in UAE VAT supplier verification. FTA Decision No. 17 of 2026, issued on 9 September 2026, sets the rules for employee expenses and is covered below.

Old rule vs new rule

Input VAT on cash payments

New Clause 3 of Article 54 reads: input tax may not be recovered on any supply with a value above the amount specified in a decision issued by the Minister, where the consideration is paid or intended to be paid in cash. The same ministerial decision will set the controls for applying the rule.

Before 1 October 2026 the method of payment did not affect recovery.

As of 29 September 2026 the ministerial decision has not been published. The threshold amount is unknown. So is the method of measuring it, including whether the supply value is counted with or without VAT.

The words "intended to be paid" reach contracts where cash settlement is only planned. The payment clause in a supplier contract therefore affects recovery.

The rule links to FTA Decision No. 13 of 2026. Article 4 of that decision says consideration should be paid by electronic means. Cash is acceptable only with a documented commercial reason, within the thresholds set by tax legislation, and when the payment is easy to verify. Article 54(3) is the provision that brings such a threshold into the VAT Executive Regulation.

Staff accommodation and other employee benefits

Article 53 blocks input tax recovery on goods and services that employees receive free of charge for their personal benefit. The exceptions to that block are what changed.

The first exception covers benefits that are mandatory under labour legislation. The old text referred to labour law in the State or a Designated Zone. The new text refers to labour legislation in the State or any free zone, financial and non-financial alike. It then carves out accommodation. Housing provided by an employer qualifies only where decisions or directives of the Ministry of Human Resources and Emiratisation make it mandatory.

The second exception covers benefits provided under a contractual obligation or documented policy. Previously you had to show the benefit helped employees do their job and was normal business practice. Now the FTA sets the cases and conditions.

The FTA did so in Decision No. 17 of 2026, in force from 1 October 2026. It lists six cases:

1. Transport. Only between home and work, to client premises, or for other purposes directly related to the job. The employee cannot opt for a cash allowance instead.
2. Food and beverages. The employee lives in a remote area with no kitchen facilities or nearby restaurants. Meals are tied to the work period, with no cash alternative.
3. Accommodation. The job requires living near the workplace, site or client, and housing is not part of ordinary compensation. No cash alternative, no significant recreational fittings. Family may live there only where the employee must reside permanently near the workplace.
4. Temporary accommodation for new joiners. No longer than 30 days, and proportionate to job requirements and basic needs.
5. Mobile phones, airtime, data and home internet. The services are necessary for the job, and personal use is incidental and insignificant. The employer has a documented usage policy and reasonable monitoring.
6. Parking. Incurred solely for business purposes, reimbursed under a documented policy with an approval process, and supported by receipts showing date, time, amount and VAT.

Each case requires "all the following conditions". Miss one and the input VAT is not recoverable.

For transport, food and accommodation, there is no recovery if the employee can take an allowance instead.

Composite supplies: no more splitting

New Clause 6 of Article 4 prevents a taxable person from treating a supply with several components as multiple supplies. The test is the nature of the supply and its economic substance. Where the components are interconnected and cannot be separated, the supply is a single composite supply. It then takes the VAT treatment of its principal component.

The previous Article 4 did not expressly forbid splitting. The new clause matters for anyone selling bundles where some invoice lines carry zero rate or no VAT. If one part makes no sense without the other, separate lines on the invoice will not change the rate.

Credit notes, profit margin scheme, healthcare

Tax credit notes. Article 60 already required the words "Tax Credit Note". The old text said they had to be displayed "on the invoice"; the new text says "on the credit note". Check that your accounting system prints that exact heading and not "Invoice" or "Credit Memo".

Profit margin scheme. Under Article 29, purchase costs and fees now count toward the purchase price only where their input tax is not recoverable. Second-hand car and goods dealers should recheck margins.

Healthcare goods. Article 41 replaces two Cabinet lists, pharmaceutical products and medical equipment, with a single "medical product" list set by Cabinet decision.

Capital assets. The AED 5,000,000 threshold, excluding VAT, is unchanged. So are the useful lives: 10 years for buildings and 5 years for other assets. The definition now speaks of a business asset and its cost rather than a single item of expenditure.

New input tax apportionment from 2028

Apportionment applies to businesses that make both taxable and exempt supplies. A typical small case is a landlord renting out commercial and residential units.

Under the current Article 55(7), the recovery percentage compares recoverable input tax with total input tax for the period. The new Clause 7 compares the value of taxable supplies under Article 54(1) of the VAT law with the value of all supplies. Supplies of capital assets are excluded from the calculation. So are goods and services received under the reverse charge in Article 48. The percentage is rounded to the nearest whole number.

Illustration: taxable supplies of AED 6,000,000 and exempt supplies of AED 2,000,000 give 75%, applied to input VAT on overheads serving both.

Government entities and charities keep an input-tax-based calculation under new Clause 19.

Timing is the first tax year commencing after 1 October 2027. Article 55 defines the VAT tax year. Monthly filers use the calendar year, so the new formula starts on 1 January 2028. For quarterly filers the tax year ends on 31 January, the last day of February, or 31 March. The new formula then starts on 1 February, 1 March or 1 April 2028.

Checklist for 1 October 2026 and after

Now and in the first weeks after 1 October:

• List every cash payment to suppliers over the last 12 months. Move the larger ones to bank transfer or company card.
• Update supplier contracts so that bank transfer is the stated payment method.
• Map every free employee benefit against the six cases in FTA Decision No. 17. Remove the cash allowance option where you want to recover VAT.
• Put the phone, internet and parking policies in writing, with a named approver.
• Check the credit note template.
• Review bundled offers and orders invoiced at more than one VAT rate.

Later:

• Watch for the Minister's decision on the cash threshold and update petty cash rules when it appears.
• If you make exempt supplies, model your recovery percentage under the new formula before the end of 2027.

For an overview of the taxes a UAE company pays, see taxes in the UAE for Russian nationals. Other legal changes this year are collected in new UAE laws in 2026. Corporate tax is covered in UAE corporate tax.

When to bring in a lawyer

Staff housing required by MOHRE is the grey zone: Decision No. 149 does not list which MOHRE decisions or directives count. If you run staff accommodation or rent flats for employees, agree the basis for recovery with a tax lawyer before filing the first return covering October 2026.

This material is for information only and is not legal advice. UAE law changes — a lawyer will assess how it applies to your situation.