Our practical view
What the development means
- The Decision was issued on 1 September 2026 and generally takes effect from 1 October 2026.
- The revised input-tax apportionment provisions in Article 55 Clauses 6 and 7, together with new Clause 19 for Government Entities and Charities, have a later commencement date: the first Tax Year beginning after 1 October 2027.
- A new cash-payment restriction may deny input VAT above a threshold, but the threshold and detailed controls must be specified in a separate Ministerial Decision.
- The Capital Asset Scheme threshold is expressly AED 5 million or more, excluding VAT, together with the relevant useful-life test.
- Closely interconnected components that cannot be separated economically must be treated as one composite supply according to the principal component.
1. Profit Margin Scheme: expanded purchase price
For Article 29, purchase price now includes not only the price of the good but also costs or fees incurred to purchase it, provided the input VAT on those costs or fees is not recoverable under Article 54 of the VAT Decree-Law.
2. Healthcare goods: wider zero-rating language
A supply or import of specified medical products is zero-rated. Other goods may also be zero-rated when supplied in the course of providing zero-rated healthcare services and when they are necessary for those services. The connection and necessity should be documented; the amendment does not make every product sold by a healthcare provider zero-rated.
3. When a person is outside the UAE
For the relevant place-of-supply rule, a person is considered outside the State where their presence in the UAE is for less than 30 days and that presence is not effectively connected with the supply. Both conditions must be satisfied.
4. Employee benefits and accommodation
Input VAT may be recoverable where goods or services for employees are mandatory under UAE or applicable Free Zone labour legislation. Employer-provided accommodation is excluded unless it is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation.
Recovery may also apply where the benefit is a contractual obligation or documented policy, subject to cases and conditions specified by the FTA. Businesses should not rely on an informal or undocumented practice.
5. Revised input-tax apportionment
Directly attributable recoverable input VAT remains fully recoverable, while directly attributable blocked or non-business input VAT is not recoverable. Residual input VAT relating partly to recoverable and other supplies is apportioned.
The revised standard method uses the value of recoverable supplies as a percentage of total supplies, excludes supplies of capital assets and reverse-charge receipts, rounds the percentage to the nearest whole number, and applies it to residual input VAT. Government Entities and Charities receive a separate input-tax-based calculation under new Clause 19.
- Later effective date: the first Tax Year commencing after 1 October 2027.
- Businesses should preserve transaction classifications and test the system impact well before commencement.
6. Capital Asset Scheme threshold
A Capital Asset is a business asset costing AED 5 million or more excluding VAT, on which VAT is payable, with an estimated useful life of at least ten years for buildings or parts of buildings and at least five years for other assets.
7. Composite supplies
A taxable person cannot artificially divide a supply into multiple supplies where the components are interconnected and cannot be separated based on the nature and economic substance of the transaction. The single composite supply follows the VAT treatment of its principal component.
8. Input VAT restriction for cash payments
Input VAT may not be recovered on a supply exceeding an amount specified by the Minister where the consideration is paid or intended to be paid in cash, subject to controls in that Ministerial Decision.
Cabinet Decision No. 149 of 2026 does not itself state the monetary threshold. Businesses should monitor the implementing Ministerial Decision before concluding that a particular cash payment is disallowed.
9. Tax Credit Note wording
A Tax Credit Note must clearly display the words “Tax Credit Note”. Businesses should update templates and ensure system-generated documents use the required wording prominently.
Practical application
Examples
Profit Margin Scheme
Facts: A dealer buys an eligible used vehicle for AED 100,000 and pays an AED 5,000 auction fee whose input VAT is not recoverable. It sells the vehicle for AED 120,000 under the Profit Margin Scheme.
VAT result: The revised purchase price is AED 105,000, producing a margin of AED 15,000. If the sale price is VAT-inclusive, VAT on the margin is approximately AED 714.29 (AED 15,000 × 5/105), subject to all Profit Margin Scheme conditions.
Necessary healthcare goods
Facts: A zero-rated medical procedure includes a specialised implant that is necessary to perform the treatment and is supplied to the patient as part of that healthcare service.
VAT result: The implant may qualify for zero-rating under the amended wording. A separate retail sale of a non-specified product would not qualify merely because it is sold by a clinic.
Presence in the UAE for fewer than 30 days
Facts: An overseas customer is in the UAE for 20 days on holiday, and the visit is not connected with the consultancy service being supplied.
VAT result: For the relevant Article 52 test, the customer may be treated as outside the UAE. If the customer was present to supervise or receive the service, the result could differ because the presence may be effectively connected with the supply.
Employee accommodation
Facts: A company voluntarily provides apartments to senior employees under an internal practice, but the accommodation is not mandated by a MOHRE decision or directive.
VAT result: The labour-law limb does not make the accommodation input VAT recoverable. The company must separately test whether a contractual obligation or documented policy qualifies under cases and conditions specified by the FTA.
Residual input-tax apportionment
Facts: A business has AED 800,000 of recoverable supplies, AED 200,000 of other supplies and AED 50,000 of residual input VAT. There are no capital-asset supplies or reverse-charge receipts affecting the denominator.
VAT result: The recovery percentage is 80%, so AED 40,000 of residual input VAT is recoverable. This simplified example relates to the revised method that starts from the applicable later effective date.
Capital Asset Scheme
Facts: A machine costs AED 5.2 million excluding VAT and has an expected useful life of seven years. Another machine costs AED 4.8 million excluding VAT and has the same life.
VAT result: The AED 5.2 million machine meets both the value and useful-life thresholds. The AED 4.8 million machine falls below the AED 5 million value threshold.
Composite supply
Facts: A hospital charges one amount for a surgical procedure together with inseparable theatre services and necessary consumables, all economically centred on the surgery.
VAT result: The components may constitute one composite supply whose VAT treatment follows the principal surgical service. Labels or separate invoice lines alone do not override economic substance.
Future cash-payment restriction
Facts: A business proposes to pay a high-value supplier invoice entirely in cash after 1 October 2026.
VAT result: The business must check the separate Ministerial Decision for the prescribed amount and controls. No numerical limit should be assumed from Cabinet Decision No. 149 alone.
Tax Credit Note
Facts: A supplier reduces an earlier taxable invoice but issues a document headed only “Credit Adjustment”.
VAT result: The template should be corrected so the words “Tax Credit Note” are clearly displayed, together with all other required particulars.
Recommended actions
What UAE businesses should do now
- Update VAT manuals and transaction tax codes before 1 October 2026.
- Review employee benefit and accommodation policies against UAE or Free Zone labour requirements, employment contracts, documented policies and future FTA conditions.
- Identify mixed-use input VAT and prepare systems for the revised supplies-based apportionment calculation before its later effective date.
- Flag assets costing AED 5 million or more excluding VAT and assess the five-year or ten-year useful-life requirement.
- Review bundled contracts to determine whether they represent one composite supply based on economic substance and the principal component.
- Monitor the separate Ministerial Decision that will prescribe the cash-payment threshold and controls before applying the new restriction.
- Update tax credit-note templates so the words “Tax Credit Note” are clearly displayed.
Frequently asked questions
When does Cabinet Decision No. 149 of 2026 take effect?
Most amendments take effect from 1 October 2026. Article 55 Clauses 6 and 7 and new Clause 19 take effect from the first Tax Year commencing after 1 October 2027.
Does the Decision specify the cash-payment limit for input VAT?
No. The amount and controls must be prescribed in a separate Ministerial Decision.
Is every employee benefit now eligible for input VAT recovery?
No. The benefit must meet the amended labour-law, contractual-obligation or documented-policy conditions, and accommodation receives specific restricted treatment.
What is the UAE VAT Capital Asset Scheme threshold?
AED 5 million or more excluding VAT, together with a useful life of at least ten years for buildings or five years for other capital assets.
How will residual input VAT be apportioned under the revised standard method?
The percentage of recoverable supplies to total supplies is calculated, specified capital-asset supplies and reverse-charge receipts are excluded, the result is rounded to the nearest whole number and applied to residual input VAT. The revised method has a later commencement date.
Always refer to the full source text and its effective-date and transitional provisions.
Cabinet Decision No. 149 of 2026 amending the UAE VAT Executive RegulationThis article provides general information and does not constitute tax advice. Eligibility and treatment should be assessed against the enacted legislation and the facts of each case.