Cabinet Decision No. 149 of 2026: Ten Changes to the UAE VAT Executive Regulation

The Syndicate Advisors and Consultants LLC (TSAC) | UAE VAT Advisory | September 2026

The Cabinet has issued Decision No. 149 of 2026 (issued 1 September 2026), amending the VAT Executive Regulation across ten provisions — seven texts replaced, three added. Most changes take effect on 1 October 2026, the same day FTA Decision No. 13 of 2026 (supplier verification) comes into force — and that is no coincidence: the two instruments converge on the same enforcement theme, with the Regulation now carrying a hard input tax block on cash-paid supplies above a ministerial threshold. The quieter headline sits at the back of the Decision: from tax years commencing after 1 October 2027, the standard input tax apportionment method changes from an input-based ratio to an outputs-based (turnover) ratio — a recalculation event for every partially exempt business in the country.

Effective dates: The Decision is effective 1 October 2026 — except the apportionment provisions (Article 55, Clauses 6, 7 and the new 19), which apply from the first tax year commencing after 1 October 2027 (for calendar-year businesses, FY2028). One Decision, two clocks.

The map

The cash purchase block (new Article 54(3)) — the enforcement pincer closes

The new clause is short and severe: input tax may not be recovered on any supply above a value to be specified by the Minister where the consideration is paid, or intended to be paid, in cash, subject to controls in that ministerial decision. Read alongside FTA Decision No. 13 of 2026 — which from the same date requires electronic payment as part of supply verification, tolerating cash only with documented commercial reasons — the design is a pincer: Decision 13 makes cash a verification risk; Article 54(3) makes it, above the threshold, an absolute recovery bar. Note the phrase “or intended to be paid”: structuring a cash deal and papering it as something else does not escape the block. The ministerial decision setting the value and controls is now the awaited piece — but businesses should not wait for it to migrate supplier payments to bank channels, because Decision 13’s electronic-payment expectation bites on 1 October regardless.

Free zone labour laws finally count — with an accommodation sting (Article 53(1)(c))

The blocked-input-tax rules have always allowed recovery on employee goods and services where their provision is mandatory under applicable labour legislation. The amended text now says expressly that this includes the labour legislation of any free zone — financial and non-financial — resolving years of uncertainty for DIFC and ADGM employers whose obligations arise under their own employment laws rather than the federal Labour Law. Benefits mandated by DIFC or ADGM employment law now stand on the same recovery footing as federally mandated ones.

The sting is in the carve-out: the mandatory-benefit gateway does not extend to employer-provided accommodation, unless the accommodation is mandatory pursuant to decisions or directives of the Ministry of Human Resources and Emiratisation. Employers who have recovered input tax on staff accommodation on the strength of contractual or licence-condition obligations should reassess: from 1 October, the recovery case must trace to a MOHRE mandate — a test that will matter most to construction, facilities management, hospitality, and other labour-accommodation-intensive sectors. The second limb (contractual obligation or documented policy) survives, but is now expressly subject to cases and conditions to be specified by the FTA — expect an FTA decision narrowing what a qualifying “policy” looks like, and tighten benefit policies into signed, dated documents in anticipation.

The apportionment rewrite (Article 55(6)–(7) and new (19)) — the 2028 recalculation

Under the current Regulation, partially exempt businesses recover residual input tax using an input-based ratio: recoverable input tax over total (recoverable plus non-recoverable) input tax. The amended Clauses 6 and 7 replace this, for tax years commencing after 1 October 2027, with an outputs-based method:

1. Compute the percentage of supplies with recovery entitlement (Article 54(1) supplies) to the total value of all supplies;
2. Exclude from the ratio: supplies of the Taxable Person’s Capital Assets, and Concerned Goods and Concerned Services received under the Article 48 reverse charge — the standard distortion-removers;
3. Round to the nearest whole number;
4. Apply the percentage to the residual (mixed-use) input tax.

Fully attributable input tax is untouched — direct attribution first, as always; the new method governs only the residual pot. Government Entities and Charities are carved out into the new Clause 19, which preserves an input-based ratio for them — a sensible concession, since their output profile (grants, sovereign activity) makes turnover a poor proxy for use.

The commercial point: an outputs-based ratio and an input-based ratio can produce materially different recovery rates for the same business. A bank with modest exempt-margin income but heavy exempt-side costs, or a real estate group with high-value exempt residential sales against low associated input tax, will see the percentage move — in either direction. Every partially exempt business should model both methods on current-year numbers now, quantify the 2028 delta, and consider whether a special apportionment method application to the FTA (which remains available for businesses the standard method distorts) becomes more or less attractive under the new baseline.

The composite supply rule enters the Regulation (new Article 4(6))

A supply of multiple components may not be treated as multiple supplies where the nature and economic substance of the arrangement show the components are interconnected and inseparable — it is a single composite supply taxed by its principal component. This codifies the single-versus-multiple doctrine the FTA has long applied through guidance, and it is drafted as a prohibition on the taxpayer splitting: the target is artificial unbundling to capture zero-rating or exemption for a component. It also completes the frame around Directive No. 4 of 2026 on life insurance fees — where the embedded-versus-separately-charged analysis now sits on an express regulatory footing for composite supplies generally. Pricing and invoicing structures that unbundle interconnected components should be re-tested against the economic-substance language before 1 October.

The remaining refinements — brief but not trivial

Profit margin scheme (Article 29(5)). The “purchase price” on which the margin is computed includes costs and fees incurred to purchase the good — but now only where the input tax on those costs was not recoverable. Costs whose VAT you recovered cannot also inflate the purchase price and shrink the taxable margin; used-goods dealers should revisit margin computations that loaded recoverable-VAT costs into the base.

Medical zero-rating (Article 41(4)). The zero-rating anchor becomes “any medical product as specified in a decision issued by the Cabinet,” alongside the existing limb for other goods supplied in the course of, and necessary for, zero-rated healthcare services. The operative list will live in the Cabinet decision — pharmaceutical and medical-device suppliers should watch for it and re-map product classifications against it.

“Outside the State” (Article 52(2)). The codified test: a person is outside the State only if present for less than 30 days and the presence is not effectively connected with the supply. The bright-line day count plus the effective-connection limb should be embedded in zero-rating checklists for services supplied to non-resident customers — a customer’s project team on the ground for five weeks defeats the test even before connection is analysed.

Capital Asset Scheme (Article 57(1)). The AED 5,000,000 (excluding tax) threshold and the useful-life tests (ten years for buildings, five for other assets) are unchanged — the redraft is in the object of the test: the old text defined a Capital Asset as a “single item of expenditure” of that amount, while the new text speaks of a “business asset with a cost” of that amount. The threshold now attaches to the asset’s total cost rather than to a single expenditure item — a helpful clarification for assets assembled through multiple payments, phased construction, or componentised purchases, where the “single item of expenditure” framing had invited argument about whether staged spend aggregated into one Capital Asset. Under the asset-cost framing, a warehouse built through twelve progress payments totalling AED 8 million is squarely within the Scheme; equally, splitting a purchase across invoices does not keep an asset below the line.

Credit notes (Article 60(1)(a)). The words “Tax Credit Note” must be clearly displayed — a template check, and one that e-invoicing implementations should hard-code.

Worked example — the 2028 apportionment switch

Facts. Nahda Properties LLC makes taxable supplies (commercial leases and sales) of AED 40 million and exempt supplies (residential leases) of AED 10 million in its first tax year commencing after 1 October 2027. Its residual (mixed-use) input tax — head office, marketing, shared services — is AED 1,200,000 after direct attribution.

New method: recovery ratio = 40m ÷ 50m = 80% (no rounding needed; capital asset disposals and reverse-charge receipts excluded from both sides). Recoverable residual input tax = 1,200,000 × 80% = AED 960,000.

The delta: suppose that under the current input-based method Nahda’s ratio has been running at 72% (its exempt residential activity consumes proportionally more directly-blocked input tax). The switch is worth AED 96,000 a year to Nahda — but for a neighbour with the opposite cost profile, the same switch cuts recovery. The direction of the change is business-specific, which is exactly why the modelling belongs in 2026–27 planning, not in the first return of 2028.

What businesses should do now

Before 1 October 2026

• Migrate remaining cash supplier payments to bank channels ahead of the Article 54(3) block, and watch for the ministerial threshold decision
• Re-test bundled and unbundled pricing structures against the new composite supply rule
• Reassess staff accommodation input tax against the MOHRE-mandate test, and convert informal benefit practices into documented, signed policies
• Refresh margin-scheme purchase-price computations, credit note templates, and “outside the State” checklists

Before the 2028 tax year

• Model the outputs-based apportionment against the current method and quantify the delta
• Decide whether a special method application is warranted
• Government Entities and Charities should instead implement the new Clause 19 input-based computation

How TSAC can help

TSAC advises on partial exemption modelling and special apportionment method applications, employee benefits VAT reviews, composite supply structuring, margin scheme compliance, and the cash-payment and verification regime taking effect this October. Two clocks are running in this Decision — and the slower one, the 2028 apportionment switch, is the one that rewards businesses that start the arithmetic now.

This publication is for general information only and does not constitute tax advice. Based on the English text of Cabinet Decision No. 149 of 2026; the Arabic text prevails. Please contact TSAC for advice specific to your circumstances.