UAE VAT Executive Regulation Amended: Key Changes, Practical Scenarios and Business Actions

The UAE Cabinet has issued Cabinet Decision No. 149 of 2026, amending selected provisions of the VAT Executive Regulation. Most changes become effective from 1 October 2026. The amendments to Article 55 concerning input-tax apportionment have a separate implementation timeline and will apply from the first Tax Year commencing after 1 October 2027.

The amendments are technical, but many have direct implications for everyday transactions.

1. Composite supplies: substance matters

A new provision prevents a taxable person from treating interconnected components as separate supplies where the nature and economic substance demonstrate that they cannot be separated. The transaction is instead treated as a single composite supply, with VAT treatment following its principal component.

Scenario:

A technology company sells software, implementation, configuration and mandatory onboarding as one integrated commercial package. If these elements are economically interconnected and the customer cannot realistically obtain the principal solution without the supporting components, separately describing them on an invoice may not automatically make them separate supplies. The business should examine whether the package is, in substance, one composite supply.

ICB approach:

Map the commercial agreement → identify the principal component → review invoice presentation → confirm the appropriate VAT treatment → document the reasoning.

2. Employee benefits and input tax

The amendments clarify situations in which employee-related goods or services may fall within permitted business-use recovery. This includes items that are mandatory under applicable labour legislation and certain contractual or documented-policy obligations, subject to Authority conditions. Accommodation has a specific limitation unless its provision is mandatory under relevant Ministry decisions or directives.

Scenario: A company pays for an employee benefit because its HR policy says the benefit is provided to a defined category of employees. The existence of the expense alone does not determine recoverability. The company should establish the contractual or documented-policy basis and confirm that applicable FTA conditions are met.

ICB approach:

Review HR policy → identify business purpose → verify supporting documents → classify recoverable and non-recoverable VAT consistently.

3. When is a customer considered outside the UAE?

For the relevant rule, a person can be considered outside the State where their UAE presence is less than 30 days and that presence is not effectively connected with the supply.

Scenario: An overseas customer’s representative spends two weeks in Dubai while a UAE service provider performs a project. The key question is not simply whether someone entered the UAE; the business must also determine whether that UAE presence was effectively connected with the relevant supply.

4. Capital Asset Scheme threshold

The amended rule specifies a business asset costing AED 5 million or more, excluding VAT, provided tax is payable and the asset has the required useful life: at least 10 years for buildings or parts of buildings and five years for other assets.

Scenario: A business acquires specialised machinery costing AED 5.4 million excluding VAT and expects to use it for eight years. The asset meets the stated cost threshold and useful-life condition for non-building assets, so the Capital Asset Scheme should be considered.

5. Input-tax apportionment

The amended rules distinguish directly attributable recoverable input tax, blocked/non-qualifying input tax and residual input tax. For residual input tax, the recoverable percentage is based on qualifying supplies as a percentage of total supplies, after specified exclusions, rounded to the nearest whole number.

Scenario: A business makes both taxable and exempt supplies and incurs common office costs that cannot be attributed entirely to either activity. These residual costs require apportionment. Finance teams should ensure their methodology, ERP configuration and year-end adjustment process are ready before the later Article 55 implementation date.

6. Cash payments and future input-tax restrictions

The Decision introduces a rule under which input tax may not be recovered where a supply exceeds an amount to be specified by a Ministerial Decision and the consideration is paid or intended to be paid in cash. The threshold itself is not stated in Cabinet Decision No. 149.

Practical implication: Businesses should avoid inventing a threshold now. Instead, monitor the relevant Ministerial Decision and ensure payment-method information is captured accurately.

7. Healthcare goods

The zero-rating provision now covers medical products specified by Cabinet decision and certain other goods supplied in the course of providing zero-rated healthcare services where those goods are necessary for the healthcare service.

8. Tax credit notes

The amended provision explicitly requires the words “Tax Credit Note” to be clearly displayed.

9. Purchase price

For the relevant Article 29 calculation, “purchase price” includes costs or fees incurred to purchase the good where input tax on those costs or fees is not recoverable under the Decree-Law.

ICB readiness approach

For businesses, the best response is not simply to circulate the new Cabinet Decision. The practical work is to translate it into process changes:

Identify → Assess → Configure → Document → Test → Monitor

ICB can support businesses in reviewing transaction structures, VAT coding, contracts, employee-benefit policies, input-tax recovery, tax-credit-note templates, capital assets and internal VAT controls.

The goal is simple: compliance should support the business—not interrupt it.

This content is a general summary of Cabinet Decision No. 149 of 2026 and is not a substitute for advice based on the facts of a specific transaction.