On 8 September 2026 the UAE Ministry of Finance announced the issuance of Cabinet Decision No. (149) of 2026, amending certain provisions of Cabinet Decision No. (52) of 2017 on the Executive Regulation of Federal Decree-Law No. (8) of 2017 on Value Added Tax. The Decision was issued on 1 September 2026. Most of its provisions take effect on 1 October 2026, while the new input tax apportionment methodology under Article (55) is deferred to the first Tax Year commencing after 1 October 2027. Far from a technical tidy-up, the Decision signals a clear direction of travel: the right to recover input tax is being tied ever more tightly to the economic substance of a transaction, the quality of a business’s internal documentation, and even the method by which it pays its suppliers.

Single composite supplies: economic substance over invoice splitting

A new Clause (6) added to Article (4) of the Executive Regulation provides that a supply made up of more than one component is not automatically treated as multiple separate supplies where the nature and economic substance of the supply show that its components are interconnected and cannot be separated. In that case the transaction is treated as a “single composite supply” and takes the VAT treatment of its principal component. The rule reaches every sector that sells bundles and packages: supply-and-install and maintenance contracts, technology subscriptions, hotel and tourism packages, logistics services and healthcare bundles. Breaking an invoice into separate line items is no longer sufficient in itself to attract different VAT treatments for each item; the question is what the customer is actually buying, judged by the commercial reality of the deal.

New restrictions on input tax recovery: cash payments and employee benefits

The new Clause (3) of Article (54) is among the most significant changes. It provides that input tax may not be recovered on a supply whose value exceeds a threshold to be set by a decision of the Minister of Finance where the consideration is paid, or is intended to be paid, in cash, subject to the controls laid down in that decision. The present Decision does not fix the threshold, so businesses must watch for the forthcoming Ministerial Decision and revisit their accounts-payable procedures: the method of payment is becoming a condition of recovery rather than a mere bookkeeping detail.

On goods and services provided to employees, the amended Article (53) confirms that recovery remains available where the provision is mandatory under the labour legislation applicable in the UAE or in a free zone (including financial and non-financial free zones), or where it arises from a contractual obligation or a documented company policy, in the cases and subject to the conditions specified by the Federal Tax Authority. The Decision expressly carves accommodation provided by an employer out of the “legal obligation” category unless its provision is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation. In practice, employment contracts and HR policies have become tax documents in their own right and should be drafted and reviewed with care to evidence the source of the obligation behind each benefit.

Capital assets, healthcare supplies and the “outside the State” test

The Decision redefines a “Capital Asset” for the purposes of the Capital Asset Scheme in Article (57): a business asset costing AED 5 million or more (excluding VAT) on which VAT is payable, with an estimated useful life of ten years or more for a building or part of a building, and five years or more for other assets. In the healthcare sector, the amended Article (41) extends zero-rating beyond the medical products specified by Cabinet decision to other goods supplied in the course of providing zero-rated healthcare services where those goods are necessary for the provision of the services. Article (52) now provides a clearer test for treating a person as “outside the State”: a person is so treated where their presence in the UAE is for less than thirty days and that presence is not effectively connected with the supply, a change that bears directly on the provisions where the VAT outcome turns on the recipient’s location. Article (29) brings within the “purchase price” for profit margin scheme purposes the costs and fees incurred in purchasing the goods where the input tax on them is not recoverable, and Article (60) requires the words “Tax Credit Note” to be clearly displayed on the document.

Input tax apportionment: a fundamental change on a longer timeline

The amendment with the deepest impact on mixed-activity businesses — those making both taxable and exempt supplies, such as banks, insurers and real estate developers — is the rewriting of Article (55). Under the new method, the recoverable percentage of input tax is calculated by dividing the value of supplies that carry a right of recovery by the total value of supplies; the resulting percentage is rounded to the nearest whole number and applied to the residual, mixed-use input tax. Supplies of Capital Assets are excluded from the calculation, as are imported goods and services subject to the reverse charge mechanism under Article (48) of the Decree-Law. For Government Entities and Charities, the Decision retains a separate mechanism, now set out in the new Clause (19), based on the ratio of recoverable input tax to total recoverable and non-recoverable input tax.

Because this methodology applies only from the first Tax Year commencing after 1 October 2027, the legislator has given businesses a meaningful window to align their accounting and ERP systems. That window should not be mistaken for a reason to wait. Businesses that today rely on manual estimates or approximate ratios will need to build the system capability to extract supply data in the classifications that the amended Article (55) demands, and to document an apportionment methodology that will withstand a tax audit.

Cabinet Decision No. (149) of 2026 is not a single sweeping reform so much as a tightening of the link between the commercial reality of a transaction, a business’s internal documentation and its VAT treatment. With 1 October 2026 approaching, taxable persons are advised to review contracts containing bundled supplies, employee benefit policies and employment contracts, fixed asset registers for assets above AED 5 million, tax credit note templates and cash payment procedures, and to monitor the Ministerial Decisions and Federal Tax Authority decisions that will supply the implementing detail.