UAE VAT Update: Cabinet Decision No. 149 of 2026 Amends the Executive Regulation
The UAE Cabinet has issued Cabinet Decision No. 149 of 2026, introducing a number of amendments to Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT).
The amendments cover several important areas of the UAE VAT framework, including composite supplies, healthcare-related zero-rating, the treatment of employees’ benefits, input tax recovery and apportionment, the Capital Asset Scheme, cash payments, and tax credit notes.
The Decision was issued on 1 September 2026 and will generally take effect from 1 October 2026. However, the revised input tax apportionment provisions under Article 55 will apply from the first Tax Year commencing after 1 October 2027.
Key Amendments at a Glance
The principal changes introduced by Cabinet Decision No. 149 of 2026 include:
- Clarification of when a supply comprising multiple components is treated as a single composite supply.
- Expansion and clarification of the zero-rating provisions for healthcare-related supplies.
- Revised rules concerning when a person is regarded as being outside the UAE for VAT purposes.
- Clarification of circumstances in which employee-related goods and services may qualify for input tax recovery.
- Significant changes to the input tax apportionment methodology.
- Introduction of a separate apportionment mechanism for Government Entities and Charities.
- Changes to the definition of a Capital Asset for purposes of the Capital Asset Scheme.
- Introduction of restrictions on input tax recovery for certain cash payments, subject to a future Ministerial decision.
- A specific requirement for a Tax Credit Note to be clearly identified as such.
The key amendments are discussed below.
1. Purchase Price of Goods – Article 29
Article 29 has been amended to clarify the meaning of “purchase price” for the purposes of the relevant VAT provisions.
The purchase price of a Good will include not only the price paid for the Good itself, but also costs or fees incurred in purchasing the Good, provided that the input tax on those costs or fees is not recoverable under Article 54 of the VAT Decree-Law.
This amendment provides greater clarity on the costs that may be included when determining the purchase price for VAT purposes.
Businesses should therefore review the components included in their purchase price calculations and distinguish between costs on which input tax is recoverable and those on which input tax is not recoverable.
2. Healthcare Supplies – Article 41
The amended Article 41 expands and clarifies the circumstances in which supplies of Goods may qualify for zero-rating in connection with healthcare services.
A supply of Goods or an import of Concerned Goods will be zero-rated where it relates to:
- A medical product specified in a Cabinet decision; or
- Other Goods that are supplied as part of providing a Person with zero-rated Healthcare Services and are necessary for the provision of those Healthcare Services.
The amendment is particularly relevant to healthcare providers and businesses supplying goods in connection with healthcare services.
Businesses operating in the healthcare sector should assess whether their existing VAT treatment continues to align with the revised conditions, particularly where goods are supplied alongside healthcare services.
3. Definition of a Person “Outside the State” – Article 52
Article 52 has been amended to provide a clearer test for determining when a Person is considered to be outside the UAE.
Under the revised provision, a Person will be considered outside the State if they are present in the UAE for less than 30 days, provided that their presence is not effectively connected with the supply.
This amendment may be relevant when determining the VAT treatment of certain cross-border supplies and services where the location of the recipient is a determining factor.
Businesses should therefore consider both the duration of a customer’s presence in the UAE and whether that presence is effectively connected with the relevant supply.
4. Employee Benefits and Input Tax Recovery – Article 53
The amendments to Article 53 provide additional clarity regarding goods and services provided by employers to their employees.
Input tax treatment may be affected where the provision of such goods or services is:
- Mandatory under applicable labour legislation in the UAE or in a free zone, including financial and non-financial free zones; or
- A contractual obligation or provided pursuant to a documented company policy, subject to the cases and conditions specified by the Federal Tax Authority.
Importantly, accommodation provided by an employer to employees is excluded from the first category unless the provision of such accommodation is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation.
Employers should review their employee benefit policies, employment contracts and internal documentation to determine whether the relevant conditions are met.
Proper documentation will be particularly important where input tax recovery is being claimed based on a contractual obligation or documented company policy.
5. Major Changes to Input Tax Apportionment – Article 55
One of the most significant amendments introduced by Cabinet Decision No. 149 of 2026 relates to the calculation and apportionment of recoverable input tax.
The amended Article 55 establishes a more detailed framework for determining the amount of input tax that may be recovered.
Fully recoverable input tax
Input tax relating to supplies specified under Article 54(1) and Article 57 of the VAT Decree-Law may be recovered in full, subject to the applicable provisions.
However, input tax that is specifically non-recoverable under Article 53, or input tax that does not relate to the relevant supplies under Article 54(1) and Article 57, will generally not be recoverable unless otherwise permitted under the VAT legislation.
Input tax relating to both recoverable and other supplies
Where input tax relates partly to recoverable supplies and partly to other supplies, the recoverable portion will be determined using the apportionment mechanism set out in the amended Article 55.
The percentage is calculated based on:
Value of relevant recoverable supplies ÷ Total value of supplies
The resulting percentage is then rounded to the nearest whole number and applied to the relevant input tax to determine the recoverable amount.
Exclusions from the calculation
Certain amounts are excluded from the calculation of the apportionment percentage, including:
- Supplies of Capital Assets attributable to the Taxable Person; and
- Receipt of Concerned Goods and Concerned Services in accordance with Article 48 of the VAT Decree-Law.
These amendments are likely to require businesses with mixed taxable and other supplies to review their existing VAT recovery methodologies, systems and calculations.
6. Special Apportionment Rules for Government Entities and Charities
A new Clause 19 has been introduced into Article 55 specifically for Government Entities and Charities.
Under the new mechanism, these entities will calculate the percentage of recoverable input tax by comparing:
Recoverable input tax relating to relevant supplies ÷ Total recoverable and non-recoverable input tax
The resulting percentage will be rounded to the nearest whole number and applied to the relevant input tax to determine the recoverable portion.
This represents a specific apportionment methodology for Government Entities and Charities and should be considered separately from the general methodology applicable to other Taxable Persons.
7. Composite Supplies – New Article 4(6)
A new Clause 6 has been added to Article 4 to clarify the VAT treatment of supplies consisting of multiple components.
A supply containing more than one component will not automatically be treated as multiple separate supplies where the nature of the supply and its economic substance demonstrate that the components are interconnected and cannot be separated.
In such circumstances, the transaction will be treated as a single composite supply and will receive the VAT treatment applicable to its principal component.
This provision reinforces the importance of considering the economic substance and interconnectedness of the components of a transaction rather than simply analysing each component in isolation.
Businesses with bundled products or services should therefore review their contractual arrangements and VAT treatment to determine whether transactions should be treated as single composite supplies.
8. Cash Payments and Input Tax Recovery – New Article 54(3)
A new Clause 3 has been added to Article 54.
Under the new provision, input tax may not be recoverable on a supply exceeding an amount to be specified in a Ministerial decision, where the consideration is paid or intended to be paid in cash, subject to the controls set out in that decision.
The amendment introduces an additional compliance consideration for businesses making significant cash payments.
As the relevant monetary threshold and controls will be established through a separate Ministerial decision, businesses should monitor further guidance and ensure that their payment procedures are updated once the detailed requirements are issued.
9. Capital Asset Scheme – Article 57
The definition of a Capital Asset has been amended.
For purposes of the Capital Asset Scheme, a Capital Asset is now a business asset:
- Costing AED 5 million or more, excluding VAT;
- On which VAT is payable; and
- Having an estimated useful life of:
- 10 years or more for a building or part of a building; or
- 5 years or more for other Capital Assets.
Businesses should assess their fixed asset registers and Capital Asset Scheme calculations against the revised definition.
The amendment may also affect the identification of assets subject to adjustment under the Capital Asset Scheme.
10. Tax Credit Notes – Article 60
Article 60 has been amended to expressly require the words “Tax Credit Note” to be clearly displayed on the document.
Businesses issuing tax credit notes should therefore review their invoicing and accounting systems to ensure that the required wording appears prominently and consistently on relevant documents.
This is a relatively straightforward amendment but is an important documentation requirement for VAT compliance.
11. Effective Dates
Cabinet Decision No. 149 of 2026 establishes two different effective dates.
From 1 October 2026
The amendments generally take effect from 1 October 2026.
These include the changes relating to:
- Purchase price;
- Healthcare-related supplies;
- Persons outside the State;
- Employee benefits;
- Composite supplies;
- Cash payments;
- Capital Assets; and
- Tax Credit Notes.
From the first Tax Year commencing after 1 October 2027
The amendments to Article 55, including Clauses 6, 7 and the newly introduced Clause 19, will take effect from the first Tax Year commencing after 1 October 2027.
This delayed effective date provides businesses with additional time to assess and implement the revised input tax apportionment methodology.
Taxable Persons should nevertheless begin reviewing their current calculations and systems well in advance of the applicable Tax Year.
What Businesses Should Do Now
The amendments introduced by Cabinet Decision No. 149 of 2026 contain several changes that may require businesses to revisit their VAT policies, systems and documentation.
Businesses should consider the following actions:
- Review VAT treatment of bundled transactions to determine whether any arrangements should be treated as composite supplies.
- Assess healthcare-related supplies where zero-rating is currently applied.
- Review employee benefit arrangements, including employment contracts, HR policies and mandatory benefits, to substantiate input tax recovery where applicable.
- Review input tax apportionment calculations and prepare for the revised methodology under Article 55.
- Identify Capital Assets that may fall within the revised AED 5 million threshold and assess the impact on Capital Asset Scheme adjustments.
- Review tax credit note templates to ensure they clearly display the required wording.
- Monitor forthcoming Ministerial decisions concerning cash payments and the applicable threshold and controls.
- Update VAT manuals, accounting systems and internal controls to reflect the amendments and their respective effective dates.
- Train relevant finance, tax and accounting personnel on the changes.
Conclusion
Cabinet Decision No. 149 of 2026 represents a significant update to the UAE VAT Executive Regulation. While several amendments provide clarification or formalise existing principles, the changes to input tax recovery and apportionment, particularly for mixed-use expenditure and Government Entities and Charities, warrant careful attention.
With most provisions becoming effective from 1 October 2026 and the revised Article 55 methodology applying from the first Tax Year commencing after 1 October 2027, businesses should use the transition period to assess the impact on their VAT positions and make the necessary changes to their systems, processes and documentation.
Taxable Persons should also continue to monitor further decisions and guidance issued by the relevant UAE authorities, particularly in relation to the new cash-payment restriction and the detailed application of the revised provisions.
Need support assessing how these UAE VAT changes may affect your business? Contact XB4 for practical guidance on VAT compliance, input tax recovery, and preparing your systems and processes for the new requirements.
