The UAE's VAT Executive Regulation has changed. Cabinet Decision No. 149 of 2026, which took effect on 1 October 2026, amends the rules most businesses use every month: when input VAT can be recovered, how bundled supplies are treated, and how partially exempt businesses calculate their recovery.
Here are the main changes and what to check in your own processes.
1. No input VAT on large cash purchases
Input VAT will not be recoverable on purchases above a threshold where the price is paid, or is intended to be paid, in cash. The threshold itself will be set by a separate Ministerial Decision, which has not been issued yet.
What to do: move regular suppliers to bank transfer or card payments now, and flag cash purchases in your accounting system so you can find them once the threshold is published.
2. Employee benefits and staff accommodation
Input VAT on goods and services provided to employees remains recoverable where the benefit is required by UAE labour law, including free zone labour laws. Staff accommodation is now treated more strictly: it no longer falls under that exception unless a decision or directive of the Ministry of Human Resources and Emiratisation requires it.
Other employee benefits provided under a contract or documented policy can still qualify, but only in the cases and under the conditions set by FTA Decision No. 17 of 2026, which also took effect on 1 October. We cover those six cases in a separate article.
3. Composite supplies
The amendments clarify that elements of a supply that are economically inseparable are treated as a single supply for VAT. Businesses that sell bundles, such as a product with installation, training or a subscription, should review how contracts, prices and invoices describe what is sold, because that drives the VAT rate.
4. Medical products
The zero-rating and profit margin rules now refer to "medical products" instead of "pharmaceutical products" and "medical equipment". Clinics, pharmacies and medical suppliers should check how the new term applies to the items they zero-rate.
5. Capital Assets Scheme
The AED 5 million threshold for capital assets is unchanged. The amendments to the scheme are mainly clarifications.
6. Partial exemption: a new default method from October 2027
Businesses that make both taxable and exempt supplies, such as banks, insurers and property companies, recover only part of their input VAT. Today, the default recovery ratio is based on input tax. Under the amendments, it will be based on the value of supplies (outputs), excluding capital asset disposals and reverse-charge transactions.
This applies from the first tax year beginning on or after 1 October 2027, and not to government entities or charities. That leaves about a year to model the impact and update systems.
What to check now
- Cash purchases: how much input VAT do you currently recover on cash-paid bills?
- Employee costs: separate staff accommodation and other benefits from ordinary business expenses in your chart of accounts.
- Bundled products: review how you price and invoice them.
- Partial exemption: run your current ratio both ways to see how the 2027 change affects you.
How Dreambooks helps
Dreambooks records the payment method on every bill, lets you tag employee benefits separately, and calculates input VAT recovery from the ledger, so you can measure the impact of each change before it hits a VAT return.
Official sources
- Ministry of Finance: amendments to the VAT Executive Regulation
- Cabinet Decision No. 149 of 2026 amending the VAT Executive Regulation
- FTA: VAT Executive Regulation and its amendments (September 2026)
This article is general information as of October 2026, not tax advice. Check Cabinet Decision No. 149 of 2026 and the latest FTA guidance, or speak to your tax adviser, before acting.