UAE VAT Update | Cabinet Decision No. 149 of 2026 | FTA Decision No. 17 of 2026 | UAE VAT amendments 2026
Last Updated: 2 October 2026
Learn about UAE VAT amendments 2026 under Cabinet Decision No. 149 of 2026, including Profit Margin Scheme, employee VAT, cash payments, medical products and Article 55 input tax apportionment.
The UAE has introduced important amendments to its Value Added Tax (VAT) Executive Regulation, with most of the changes taking effect from 1 October 2026.
The amendments were introduced through Cabinet Decision No. 149 of 2026, which amends certain provisions of the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax.
The UAE Ministry of Finance has stated that the amendments are intended to provide greater clarity, improve the implementation of the VAT system, strengthen compliance and align the UAE VAT framework with international best practices.
For UAE VAT-registered businesses, the changes are particularly relevant to:
Profit Margin Scheme
Medical products and healthcare supplies
Employee accommodation and employee benefits
Input VAT recovery
Cash payments
Input tax apportionment
VAT accounting and bookkeeping
Procurement and payment procedures
This article explains the key UAE VAT changes from 1 October 2026 in simple language and highlights what businesses in the UAE and Indian businesses operating through UAE entities should review.
| VAT Area | Main Change | Effective Date |
|---|---|---|
| Article 29 – Profit Margin Scheme | Purchase price includes eligible costs and fees incurred to purchase the goods | 1 October 2026 |
| Article 41 – Medical Products | Updated rules and terminology for zero-rated medical products | 1 October 2026 |
| Article 53 – Employee Expenses | New conditions for recovery of input VAT on employee-related expenses | 1 October 2026 |
| Article 54 – Cash Payments | Input VAT restriction for qualifying cash-paid supplies above a future Ministerial threshold | 1 October 2026 |
| Article 55 – Input Tax Apportionment | New turnover/supply-value-based methodology | First Tax Year commencing after 1 October 2027 |
| Article 57 – Capital Assets | Capital Asset Scheme provisions clarified | 1 October 2026 |
The Ministry of Finance confirms that the amendments include changes relating to medical products, employee accommodation, input-tax apportionment, capital assets, composite supplies and cash-payment restrictions.
The Profit Margin Scheme is particularly relevant to businesses dealing with eligible goods such as certain second-hand goods, antiques and collectors’ items.
Under the Profit Margin Scheme, VAT is calculated by reference to the profit margin rather than the entire selling price.
The basic calculation is:
Profit Margin = Selling Price – Purchase Price
The profit margin is treated as inclusive of VAT.
The purchase price includes not only the price paid for the goods but also certain costs and fees incurred by the reseller to purchase the goods.
The FTA’s Profit Margin Scheme Guide explains that such costs can include costs that form part of the cost of the goods to make them ready for use or resale, such as transport and installation costs.
The FTA’s earlier clarification also gives examples such as:
Customs duties
Shipping
Handling
Wrapping
Installation costs
where the relevant conditions are satisfied.
Suppose a UAE business purchases a used machine for:
Purchase price: AED 100,000
Eligible purchase-related costs:
Shipping: AED 5,000
Handling: AED 2,000
Customs duty: AED 3,000
The relevant purchase price could therefore be:
AED 100,000 + AED 5,000 + AED 2,000 + AED 3,000 = AED 110,000
If the machine is subsequently sold for AED 130,000:
Profit Margin = AED 130,000 – AED 110,000
Profit Margin = AED 20,000
The VAT calculation under the Profit Margin Scheme is then based on the applicable VAT treatment of that margin.
Businesses should not simply add every expense connected with a transaction to the purchase price.
The treatment depends on the nature of the cost and whether input VAT is recoverable.
For example, the FTA has clarified that where certain shipping or installation services are supplied by a VAT-registered supplier and input VAT can be recovered through a valid tax invoice, those costs should not be included in the purchase price for the Profit Margin Scheme in the same manner.
Businesses using the Profit Margin Scheme should review:
Purchase invoices
Customs documents
Shipping invoices
Handling charges
Installation costs
Input VAT recovery
Inventory costing
VAT calculation workings
The UAE VAT Executive Regulation also updates the provisions relating to the zero-rating of medical products and healthcare-related supplies.
The amended framework updates the terminology and provisions governing the supply and import of qualifying medical products.
The Ministry of Finance has specifically stated that the amendments update the provisions governing the supply and import of medical products in line with the UAE’s updated legislative framework for the healthcare sector.
The updated Article 41 provision refers to medical products specified in a Cabinet Decision, as well as qualifying goods supplied in the course of zero-rated healthcare services where the applicable conditions are satisfied.
Healthcare businesses should not assume that every medical item is automatically zero-rated.
Businesses should verify:
Whether the product falls within the qualifying category
Whether the product is specified under the applicable Cabinet Decision
Whether the supply is made under the required conditions
Whether the transaction is a supply or import
Whether the relevant documentation is maintained
This change may be particularly relevant to:
Hospitals
Clinics
Pharmacies
Medical equipment suppliers
Pharmaceutical businesses
Medical distributors
Healthcare service providers
Importers of medical products
Employee expenses are another important area affected by the 2026 amendments.
The general VAT principle is that input VAT on goods and services provided to employees free of charge for their personal benefit can be restricted.
However, the amended framework provides specific exceptions and conditions.
The FTA has now issued FTA Decision No. 17 of 2026 – Cases and Conditions for the Recovery of Input Tax on Employee Expenses.
The Decision was issued on 9 September 2026 and is effective from 1 October 2026.
From 1 October 2026, employee accommodation requires careful review.
The amended Article 53 framework specifically addresses accommodation and the circumstances in which input VAT may be recoverable.
Under FTA Decision No. 17 of 2026, input VAT on employee accommodation may be recoverable where specified conditions are satisfied.
These include circumstances where:
The employee cannot choose a cash allowance instead of accommodation;
The accommodation is related to operational requirements;
It is not simply part of the employee’s ordinary compensation or benefit package;
The nature of the work requires the employee to live near the workplace, work site or client’s location;
The accommodation is primarily for the relevant employee; and
The accommodation is appropriate for the job requirements and basic residential needs.
The FTA Decision also provides for certain temporary accommodation for new employees.
The relevant conditions include that:
The accommodation is temporary;
The period does not exceed 30 days; and
The accommodation is appropriate for the employee’s job requirements and basic residential needs.
Businesses should not treat all staff accommodation VAT as automatically recoverable.
Each arrangement should be reviewed against:
Employment contracts
Company policies
Nature of the employee’s work
Location of the workplace
Accommodation arrangements
Whether a cash alternative exists
Supporting invoices and documents
FTA Decision No. 17 of 2026 goes beyond accommodation.
It provides specific cases and conditions for recovering input VAT on certain employee expenses.
Input VAT on employee transportation can be recoverable where specified conditions are satisfied.
For example, the transportation should relate to:
Employee residence to workplace;
Workplace to client premises; or
Other purposes directly connected with job duties.
The employee should not have an option to receive cash or financial compensation instead of the transportation service.
Input VAT on food and beverages provided to employees may be recoverable in specific circumstances.
The FTA Decision includes conditions such as:
The employee’s residence being in a remote, distant or isolated area;
Appropriate food preparation facilities not being available;
Nearby restaurants or facilities not being readily available;
The food being directly linked to the work or residence period required because of the job; and
The employee not being able to choose a cash allowance instead.
The Decision also covers certain employee communication expenses, including:
Mobile phones
Airtime
Data packages
Internet access through a modem or router
The expenses must be necessary for the employee to perform their job duties.
Businesses should also maintain an appropriate documented internal policy and reasonable monitoring mechanisms where required.
This is particularly relevant for businesses operating:
Remote-working arrangements
Sales teams
Field employees
Consulting businesses
Technology businesses
Logistics companies
International businesses
Certain employee parking expenses can also qualify for input VAT recovery where the prescribed conditions are satisfied.
Businesses should maintain evidence such as parking receipts showing:
Date
Time
Amount
VAT paid
A documented internal reimbursement and approval policy is also relevant.
One of the important changes for UAE businesses is the introduction of a new restriction concerning cash payments.
Under the amended rules, input VAT recovery can be restricted where:
The value of a supply exceeds an amount to be specified by the Minister of Finance; and
The consideration is paid, or intended to be paid, in cash.
The actual threshold is to be prescribed through a separate decision of the Minister of Finance. The Ministry of Finance has confirmed that the new provisions restrict input VAT recovery for cash payments exceeding thresholds to be prescribed.
As of the date of this article, businesses should not assume a particular AED threshold unless and until the applicable Ministerial Decision is issued.
This is important because several figures circulating online may relate to other UAE tax provisions and should not automatically be treated as the cash-payment threshold.
Businesses should start reviewing large cash purchases now.
Consider using traceable payment methods such as:
Bank transfer
Corporate bank payment
Business credit/debit card
Approved electronic payment channels
Businesses should also maintain:
Supplier invoices
Payment evidence
Bank statements
Purchase orders
Contracts
Accounting records
This is one of the most significant technical changes, but there is an important timing point.
The amended input tax apportionment provisions apply from the first Tax Year commencing after 1 October 2027.
For a business whose Tax Year follows the calendar year, the new methodology would generally apply from 1 January 2028.
This gives businesses additional time to review their systems.
A business making both taxable and exempt supplies may not always be able to recover all of its input VAT.
Input VAT that relates directly to taxable supplies may generally be recoverable, subject to the VAT rules.
Where input VAT relates to both taxable and exempt activities, an apportionment calculation may be required.
Under the amended standard method, the recovery percentage moves toward a supply-value / turnover-based calculation.
In simplified form, the calculation is based on:
Value of qualifying supplies ÷ Total value of relevant supplies
Certain transactions are excluded from the calculation to prevent unusual transactions from distorting the recovery percentage.
These include specified:
Capital asset supplies attributable to the taxable person; and
Receipts of concerned goods and concerned services subject to the reverse-charge mechanism.
Suppose a business has relevant supplies of:
Taxable supplies: AED 8 million
Other relevant supplies: AED 2 million
Total relevant supplies:
AED 10 million
The simplified recovery ratio would be:
AED 8 million ÷ AED 10 million = 80%
The resulting percentage would then be applied to the residual input VAT under the applicable apportionment rules.
However, actual UAE VAT calculations can involve exclusions, rounding rules and special provisions.
Therefore, businesses should not use a simplified percentage calculation without checking the complete Article 55 requirements.
The new apportionment rules are particularly relevant to businesses that have both taxable and exempt activities.
Examples may include:
Financial services businesses
Insurance businesses
Real estate businesses
Healthcare businesses
Education businesses
Holding companies
Investment businesses
Businesses with exempt and taxable revenue streams
These businesses should begin modelling the effect of the new methodology before it becomes applicable.
The amendments also clarify provisions relating to the Capital Assets Scheme.
The Ministry of Finance has confirmed that the amendments clarify the application scope of the Capital Assets Scheme to ensure consistency with the VAT Law.
Businesses with significant long-term assets should review:
Capital asset registers
Asset costs
VAT incurred
Useful life
Input VAT recovery
Capital Asset Scheme calculations
Subsequent changes in taxable use
This can be particularly relevant to businesses making significant investments in property, machinery and other qualifying assets.
These amendments are not only legal changes.
They can directly affect the way businesses record transactions in their accounting software.
Businesses should therefore review their:
Ensure the accounting system can correctly identify:
Recoverable VAT
Non-recoverable VAT
Employee expenses
Profit Margin Scheme transactions
Exempt supplies
Zero-rated supplies
Reverse-charge transactions
Capital assets
Purchase orders should identify:
Supplier
VAT registration details
Payment method
Tax treatment
Purchase category
Supporting documents
Companies should separately identify:
Staff accommodation
Transportation
Food
Mobile and internet
Parking
Other employee benefits
This will make VAT recovery testing easier.
Before and after the 1 October 2026 changes, businesses should consider the following checklist:
☐ Confirm VAT registration details
☐ Verify TRN information
☐ Review taxable and exempt activities
☐ Review eligible goods
☐ Review purchase price calculations
☐ Identify eligible purchase-related costs
☐ Check input VAT recovery
☐ Review accommodation arrangements
☐ Review employment contracts
☐ Update employee-benefit policies
☐ Review transportation expenses
☐ Review food and beverage expenses
☐ Review mobile/internet expenses
☐ Review parking expenses
☐ Identify significant cash purchases
☐ Monitor the forthcoming Ministerial threshold
☐ Review payment procedures
☐ Maintain payment evidence
☐ Review taxable and exempt supplies
☐ Identify residual input VAT
☐ Review capital asset transactions
☐ Review reverse-charge transactions
☐ Model the impact of the new Article 55 methodology
☐ Update VAT codes
☐ Update accounting procedures
☐ Maintain supporting documents
☐ Reconcile VAT accounts before filing VAT returns
These VAT amendments are also important for Indian entrepreneurs and businesses operating in the UAE.
Many Indian business owners have companies or operations in:
Dubai
Abu Dhabi
Sharjah
Ajman
Ras Al Khaimah
Fujairah
Umm Al Quwain
A UAE company owned by Indian shareholders must independently review its UAE VAT obligations.
The business should not assume that its UAE VAT compliance is automatically correct simply because:
The company is a Free Zone company;
The company has Indian shareholders;
The company has low revenue;
The company has no employees; or
The business is managed partly from India.
The UAE VAT treatment depends on the nature of the transaction and the applicable UAE tax legislation.
Indian owners of UAE companies should therefore coordinate their:
Accounting + VAT + Corporate Tax + cross-border transactions + supporting documentation
to maintain proper tax compliance.
Businesses can take the following approach.
Identify which amendments apply to your business.
Check whether VAT codes and input-tax classifications need updating.
Examine accommodation, transportation, food, mobile, internet and parking expenses.
Identify significant transactions that are currently paid in cash.
Monitor the applicable Ministerial Decision for the cash-payment threshold.
Businesses using the scheme should review purchase price calculations and eligible costs.
Businesses with partial exemption should start modelling the new apportionment methodology well before its applicable Tax Year.
Accounts staff should understand the new VAT treatment before recording transactions.
Keep tax invoices, contracts, payment evidence, customs documents, employee policies and other supporting records.
Most of the amendments introduced by Cabinet Decision No. 149 of 2026 take effect from 1 October 2026. However, the revised Article 55 input tax apportionment methodology has a separate later effective date.
There are several changes, including changes to the Profit Margin Scheme, medical products, employee expenses, cash payments, capital assets and other VAT provisions.
The amended Article 55 provisions concerning the new input-tax apportionment methodology do not generally apply from 1 October 2026. They apply from the first Tax Year commencing after 1 October 2027.
Generally, for a calendar-year business, the first Tax Year commencing after 1 October 2027 would be 1 January 2028.
Potentially, yes, but the recovery must satisfy the applicable conditions. FTA Decision No. 17 of 2026 provides specific conditions for employee accommodation and other employee expenses.
No. Businesses must examine the applicable conditions for each employee expense.
The Decision covers specified cases involving employee transportation, food and beverages, accommodation, temporary accommodation for new employees, mobile phones and internet, and parking expenses.
Yes. The amended VAT Executive Regulation introduces a restriction on input VAT recovery for qualifying supplies above a threshold to be specified by the Minister of Finance where consideration is paid or intended to be paid in cash.
The applicable threshold is to be prescribed by a separate Ministerial Decision. Businesses should not assume a threshold from unofficial sources until the relevant decision is published.
Certain costs and fees incurred by the reseller to purchase the goods can form part of the purchase price, subject to the applicable VAT rules. The FTA’s Profit Margin Scheme guidance specifically discusses transport and installation costs.
No. The applicable zero-rating conditions and the relevant definition/specification of qualifying medical products must be checked.
Yes. Businesses should review their VAT codes, employee expense classifications, purchase records, payment methods, Profit Margin Scheme calculations and input-tax apportionment processes.
The UAE VAT amendments effective from 1 October 2026 introduce several important changes that businesses should understand and incorporate into their tax and accounting procedures.
The key areas include:
Article 29: Profit Margin Scheme and purchase-price calculation
Article 41: Medical products and healthcare-related zero-rating
Article 53: Employee expenses and accommodation
Article 54: Cash-payment restrictions on input VAT recovery
Article 55: New input-tax apportionment methodology from the relevant Tax Year after 1 October 2027
Article 57: Capital Asset Scheme clarification
For businesses, the most important step is not simply reading the new legislation. It is translating the changes into practical accounting, procurement, payment and VAT-return procedures.
Businesses should review their VAT treatment before filing their next VAT return and ensure that the accounting team has proper documentation to support every input VAT claim.
IGSK Corporate Tax Advisors assists businesses and entrepreneurs with UAE tax and accounting requirements.
Our services include:
UAE VAT Registration
UAE VAT Return Filing
UAE VAT Accounting
UAE VAT Health Check
UAE VAT Advisory
UAE Corporate Tax Registration
UAE Corporate Tax Return
UAE Corporate Tax Advisory
Bookkeeping and Accounting
Financial Statement Preparation
UAE Business Setup Advisory
India–UAE Tax and Business Advisory
Website: www.igskct.ae
For UAE businesses and Indian entrepreneurs operating businesses in the UAE, proper VAT accounting and timely compliance can help reduce errors, avoid unnecessary tax exposure and maintain reliable financial records.
This article is prepared for general information and educational purposes based on UAE VAT legislation and official information available at the time of publication. It should not be treated as legal, tax or financial advice for a particular transaction. VAT treatment depends on the facts and circumstances of each business. Businesses should review the current UAE legislation and obtain professional advice where required.
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