Major UAE VAT Rule Changes Take Effect from 1 October 2026

A significant package of amendments to the UAE Value Added Tax framework will take effect from 1 October 2026. The changes were introduced through Cabinet Decision No. 149 of 2026, which amends the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax.

The Ministry of Finance said the amendments are intended to provide greater clarity for taxable persons, simplify procedures, strengthen compliance and reduce the potential for tax disputes.

Most of the amendments become effective on 1 October 2026. A revised methodology for input-tax apportionment will apply later, from the first Tax Year commencing after 1 October 2027.

The amendments strengthen the rules governing transactions containing multiple components.

Where the nature and economic substance of a transaction indicate that its components are interconnected and cannot genuinely be separated, businesses cannot artificially split the transaction into multiple supplies for different VAT treatment.

The change makes the commercial substance of the transaction increasingly important when determining the correct VAT treatment of bundled products and services. This may be relevant to businesses offering combined products and services, packages, bundled contracts or other arrangements containing elements that could otherwise have different VAT treatments.

One of the more significant amendments concerns input VAT recovery where payments are made in cash. The revised regulation provides that input tax cannot be recovered where the value of a supply exceeds a threshold prescribed by the Minister of Finance and the consideration is paid, or is intended to be paid, in cash.

Businesses should note an important distinction: Cabinet Decision No. 149 does not itself specify the monetary threshold. That threshold is to be established through a separate Ministerial Decision.

Companies should therefore monitor further Ministry of Finance and Federal Tax Authority guidance rather than assuming that every cash transaction is affected.

The amendments also clarify when input VAT relating to employee accommodation and certain employee-related costs may be recovered. The changes place greater emphasis on whether accommodation is provided because the employer is legally required to provide it, rather than simply because it forms part of an employee benefits package.

Employers providing accommodation or other significant benefits to employees should therefore review whether their existing VAT treatment remains appropriate from 1 October.

The VAT rules governing the supply and import of medical products have also been updated to align them with the UAE's revised healthcare legislative framework. Businesses operating in pharmaceutical, medical-device, healthcare distribution and related sectors should review whether products currently treated as zero-rated continue to satisfy the applicable requirements under the revised framework.

Cabinet Decision No. 149 also clarifies the scope of the Capital Assets Scheme, which governs the recovery and subsequent adjustment of input VAT relating to qualifying long-term capital assets.

The Ministry of Finance said the amendments are intended to ensure that the scheme operates consistently with the underlying VAT Law. Businesses holding significant real estate, machinery, equipment or other qualifying capital assets should review how the revised provisions affect their VAT records and adjustment calculations.

Businesses making both taxable and exempt supplies are also affected by amendments to the input-tax apportionment methodology. However, these provisions do not take effect on 1 October 2026.

The revised methodology will apply from the first Tax Year commencing after 1 October 2027, giving affected businesses additional time to prepare their accounting systems and allocation methodology.

This is particularly relevant to businesses in sectors such as financial services and real estate where taxable and exempt activities may coexist.

Professional reviews of Cabinet Decision No. 149 identify additional amendments affecting areas including the Profit Margin Scheme, Tax Credit Notes and certain input-tax recovery rules. KPMG

Businesses should therefore avoid assessing the October changes solely through one headline provision. The impact depends on the company's activities, transaction structure and existing VAT processes.

NUR Advisory Note

The 1 October changes warrant a practical VAT review rather than simply an update to the company's tax file. VAT-registered businesses should consider reviewing:

• bundled or multi-component products and services;

• significant purchases settled in cash;

• employee accommodation and employee-related expenditure;

• medical-product classifications where relevant;

• Capital Assets Scheme records;

• Tax Credit Note procedures; and

• the preparation required for the later input-tax apportionment changes.

Finance and accounting teams should also monitor further guidance from the Ministry of Finance and Federal Tax Authority, particularly regarding the monetary threshold that will determine when the new cash-payment restriction on input VAT recovery applies.

The amendments do not affect every business in the same way. Their practical impact depends on the nature of the company's transactions and VAT profile.