Regulatory Updates

UAE VAT Executive Regulation Amendments 2026: What Cabinet Decision No. 149 Changes From 1 October

13 min read

Published: 20 September 2026

Quick Answer

The UAE Ministry of Finance issued Cabinet Decision No. 149 of 2026 on 1 September 2026, amending Cabinet Decision No. 52 of 2017 (the VAT Executive Regulation). Most changes take effect from 1 October 2026, covering a new restriction on recovering input tax for cash-paid supplies above a threshold, clearer rules on employee accommodation input tax recovery, an updated scope for the Capital Assets Scheme, and new treatment for composite supplies. One change, the revised input tax apportionment methodology under Article 55, is delayed to the first Tax Year starting after 1 October 2027, giving businesses extra time to adjust.

If your business handles cash transactions, provides staff accommodation, claims input tax under the Capital Assets Scheme, or bundles multiple goods and services into one supply, this decision changes how you calculate and support your input tax claims starting next month.

Why the Ministry of Finance Amended the VAT Executive Regulation

The Ministry of Finance stated the amendments are meant to simplify procedures, provide greater clarity for taxable persons, support voluntary compliance, and reduce tax disputes. The Ministry framed the changes as part of the UAE’s continuing effort to develop its tax system, strengthen tax transparency, improve how the law is implemented in practice, and keep the VAT framework aligned with international best practice.

This is not a full rewrite of the VAT Executive Regulation. It is a targeted set of amendments to specific articles of Cabinet Decision No. 52 of 2017, which remains the core regulation. Businesses already registered and filing under the existing rules do not need to re-register or restart compliance; they need to update how they apply a handful of specific provisions from 1 October 2026 onward.

Key Changes at a Glance

Area	What changes	Effective date
Cash payments and input tax (Article 54(3))	Input tax cannot be recovered where a supply’s value exceeds a threshold set by the Minister of Finance and payment is made, or intended to be made, in cash	1 October 2026
Employee accommodation	Clarified conditions for recovering input tax on staff accommodation, covering both legally mandatory provision and contractual/policy-based provision	1 October 2026
Capital Assets Scheme	Updated scope to keep the scheme consistent with the VAT Law	1 October 2026
Composite supplies	New rules requiring VAT treatment to follow the real economic substance of a bundled supply	1 October 2026
Input tax apportionment (Article 55)	Refined methodology for taxable persons’ general activities; government entities and charities keep their existing methodology	First Tax Year after 1 October 2027
Medical products	Updated provisions on the supply and import of medical products, aligned with UAE healthcare legislation	1 October 2026

New Restriction on Input Tax for Cash Payments (Article 54(3))

The most immediately practical change for many businesses is the new cash-payment restriction. Under the amended Article 54(3), a taxable person cannot recover input tax on a supply once its value exceeds a threshold to be set separately by the Minister of Finance, if the consideration for that supply is paid, or is intended to be paid, in cash.

The exact AED threshold has not been published inside Cabinet Decision No. 149 of 2026 itself; it is left to a future Ministerial Decision. Until that threshold is published and confirmed, businesses that regularly pay suppliers in cash for higher-value purchases should not assume today’s cash-payment habits will still support input tax recovery after 1 October 2026.

What this means in practice:
– Review any recurring supplier relationships settled partly or fully in cash.
– Move higher-value payments to bank transfer, cheque, or card wherever operationally possible, ahead of the effective date.
– Keep full supporting documentation (tax invoices, proof of payment) for every input tax claim, since cash-paid claims above the future threshold will not be recoverable regardless of documentation quality.
– Watch for the Ministerial Decision that sets the actual cash threshold, and update your accounts payable process the moment it is published.

Employee Accommodation: What Now Qualifies for Input Tax Recovery

Employee accommodation has long been a source of dispute between businesses and the FTA over whether input tax on staff housing costs is recoverable. Cabinet Decision No. 149 of 2026 clarifies this.

Under the amended rules, input tax recovery on employee accommodation continues to be allowed where:
– The provision of accommodation is mandatory under UAE labour legislation, or under the rules of the applicable Free Zone the employer operates in; or
– The provision of accommodation arises from a contractual obligation with the employee, or from a documented company policy, subject to specific cases and conditions to be applied.

This is a meaningful clarification for employers in sectors such as construction, hospitality, and free zone manufacturing, where staff accommodation is common and previously carried real uncertainty over recoverability. Businesses should review their employment contracts and HR policies now to confirm accommodation obligations are documented clearly enough to support a recovery position from 1 October 2026.

Capital Assets Scheme: Updated Scope

The amendments also update the scope of the Capital Assets Scheme, the mechanism that requires businesses to adjust input tax recovered on high-value capital assets over the asset’s useful life, based on actual use for taxable versus exempt purposes. Cabinet Decision No. 149 of 2026 clarifies the scheme’s application to ensure it stays consistent with the underlying VAT Law.

Businesses that hold capital assets under this scheme, typically real estate and other significant capital expenditure items, should review their existing capital asset registers against the amended scope once the Federal Tax Authority issues implementation guidance, to confirm whether any assets move in or out of scope.

Composite Supplies: Taxed on Economic Substance

A composite supply is a single supply made up of more than one component, for example a service bundled with goods, or multiple services sold as one package. Historically, determining whether to tax a composite supply as a single supply (using the tax treatment of the main component) or as multiple separate supplies has caused disagreement.

Cabinet Decision No. 149 of 2026 introduces provisions requiring that composite supplies be treated in line with the real economic substance of what is being supplied, rather than how the transaction happens to be structured or invoiced. Businesses that sell bundled offerings, for example a free zone company offering registration plus visa processing plus office space as one package, should reassess how those bundles are currently taxed and documented ahead of 1 October 2026.

Input Tax Apportionment: The Delayed Change (Article 55)

Unlike the other amendments, the revised input tax apportionment methodology under Article 55 does not take effect on 1 October 2026. It applies only from the first Tax Year commencing after 1 October 2027, giving businesses that make both taxable and exempt supplies over a year of lead time.

The refined methodology is designed to more accurately reflect the real nature of a taxable person’s economic activities when apportioning recoverable input tax between taxable and exempt supplies. Government entities and charities are excluded from this change and continue applying their existing methodology. Because this change has a long runway, businesses affected by input tax apportionment should treat the extra time as an opportunity to model the new methodology against historical data before it becomes mandatory, not as a reason to ignore it until 2027.

Medical Products: Alignment With UAE Healthcare Legislation

Cabinet Decision No. 149 of 2026 also updates the provisions governing the supply and import of medical products, bringing the VAT Executive Regulation in line with the UAE’s updated legislative framework for the healthcare sector. Historically, the VAT treatment of medical equipment and medicines has depended on whether a specific product appears on an approved list maintained jointly by the Ministry of Health and Prevention and the Federal Tax Authority. Businesses that import, distribute, or supply medical products, including hospitals, pharmacies, and medical equipment distributors, should review whether the products they handle remain correctly classified once the FTA issues implementation guidance on this specific amendment.

Other Areas Covered by the Amendments

Beyond the headline changes above, the Ministry of Finance’s announcement referenced further adjustments affecting the Profit Margin Scheme and provisions relating to tax credit notes. Detailed technical wording for these specific provisions had not been fully published in secondary commentary at the time of writing. Businesses using the Profit Margin Scheme, commonly relevant to dealers in second-hand goods, antiques, and collectors’ items, or businesses that regularly issue tax credit notes to correct earlier supplies, should watch for the Federal Tax Authority’s implementation guidance once it is released, rather than assume no change applies to their sector.

Why This Matters More Than a Routine Update

VAT Executive Regulation amendments in the UAE are relatively infrequent compared to guidance updates or public clarifications, so when the Ministry of Finance amends the regulation itself rather than issuing interpretive guidance, it signals a firmer, more binding change in how specific provisions are applied. Unlike a public clarification, which explains the FTA’s interpretation of existing law, an Executive Regulation amendment changes the underlying legal text businesses are required to follow.

This distinction matters for compliance risk. A business that continues applying the pre-amendment treatment to cash payments, employee accommodation, capital assets, or composite supplies after 1 October 2026 is not merely working from outdated interpretive guidance; it risks applying an input tax position that no longer has a legal basis, which can expose the business to input tax disallowance, penalties, and interest on any resulting VAT shortfall if the Federal Tax Authority reviews the relevant tax periods.

Sector Impact: Who Should Pay Closest Attention

Construction and contracting firms, due to the employee accommodation clarification and frequent cash-based supplier payments on site.
Hospitality and hotel groups, for the same employee accommodation reasons, plus composite supply treatment on bundled room and service packages.
Free zone company formation and business setup providers, because bundled packages (licence, visa processing, office space) fall squarely under the new composite supply rules.
Real estate and property investment businesses, given the Capital Assets Scheme scope update.
Retailers and traders using cash-heavy payment models, because of the new Article 54(3) restriction.
Healthcare distributors and importers of medical products, due to the updated medical products provisions.
Businesses making both taxable and exempt supplies, who should begin preparing for the Article 55 apportionment change even though it does not apply until the first Tax Year after 1 October 2027.

What Businesses Should Do Before 1 October 2026

Identify every input tax claim currently based on cash-paid supplies and assess exposure once the cash threshold is published.
Review employee accommodation arrangements and confirm the legal, contractual, or policy basis is properly documented.
Audit capital assets currently tracked under the Capital Assets Scheme against the amended scope.
Reassess how composite/bundled supplies are currently taxed and invoiced.
Update VAT manuals, ERP tax codes, and accounting system rules to reflect the amendments and their correct effective dates.
Brief finance, tax, and accounting staff on the specific changes relevant to your business before 1 October 2026.
Start modelling the Article 55 apportionment change now, even though it does not apply until the first Tax Year after 1 October 2027.

Frequently Asked Questions

What is Cabinet Decision No. 149 of 2026?
It is a Cabinet Decision issued on 1 September 2026 by the UAE Ministry of Finance, amending Cabinet Decision No. 52 of 2017, the Executive Regulation of the UAE VAT Law (Federal Decree-Law No. 8 of 2017).

When do the changes take effect?
Most amendments take effect from 1 October 2026. The revised input tax apportionment methodology under Article 55 is delayed until the first Tax Year commencing after 1 October 2027.

Does this change the UAE VAT rate?
No. Cabinet Decision No. 149 of 2026 amends specific administrative and input-tax-recovery provisions of the Executive Regulation. It does not change the 5% standard VAT rate.

What is the new cash payment restriction under Article 54(3)?
From 1 October 2026, input tax cannot be recovered on a supply whose value exceeds a threshold set by a future Ministerial Decision, where payment is made, or intended to be made, in cash. The exact AED threshold had not been published at the time of writing and will be set separately.

Can businesses still recover input tax on employee accommodation?
Yes, where accommodation is legally mandatory under UAE labour law or applicable Free Zone rules, or where it arises from a documented contractual obligation or company policy, subject to conditions the FTA will apply case by case.

Does the Capital Assets Scheme still work the same way?
The mechanism is unchanged, but its scope has been clarified to stay consistent with the VAT Law. Businesses with capital assets under the scheme should reassess their registers once FTA guidance is issued.

What changes for composite supplies?
Composite supplies must now be taxed based on the real economic substance of what is supplied, rather than purely on how the transaction is structured or invoiced.

Do these changes apply to free zone companies?
Yes. The amendments apply across the UAE VAT system, including free zone-registered taxable persons, though Designated Zone rules for goods continue to apply separately where relevant.

Do I need to re-register for VAT because of this decision?
No. This is an amendment to existing Executive Regulation provisions, not a new registration requirement. Registered businesses continue filing under their existing VAT registration.

Where can businesses read the official text of Cabinet Decision No. 149 of 2026?
The Ministry of Finance and the Federal Tax Authority publish official Cabinet Decisions and their accompanying Executive Regulation text on their respective government websites. Businesses should confirm final article wording against the official gazetted text once published, and monitor for the separate Ministerial Decision setting the cash payment threshold.

What happens if a business keeps applying the old rules after 1 October 2026?
Continuing to apply pre-amendment treatment after the effective date risks claiming input tax on a basis that no longer has legal support. If the Federal Tax Authority later reviews the relevant tax period, this can lead to disallowed input tax, penalties, and interest on any resulting shortfall.

Is this the first VAT Executive Regulation amendment in 2026?
No. The UAE has issued several VAT-related updates throughout 2026, including changes to input tax credit expiry deadlines and other Executive Regulation provisions. Cabinet Decision No. 149 of 2026 is the latest and most substantial amendment, touching several distinct areas of input tax recovery and supply treatment at once.

Timeline Summary

Date	Event
1 September 2026	Cabinet Decision No. 149 of 2026 issued by the Ministry of Finance
1 October 2026	Most amendments take effect: cash payment restriction, employee accommodation, Capital Assets Scheme scope, composite supplies, medical products
First Tax Year after 1 October 2027	Revised input tax apportionment methodology (Article 55) takes effect