Key Takeaways:
- Most amendments under Cabinet Decision No. 149 of 2026 take effect from 1 October 2026.
- UAE businesses claiming input VAT now face detailed supplier and supply verification requirements under FTA Decision No. 13 of 2026.
- New rules clarify when VAT on specific employee expenses and accommodation may be recovered.
- Input VAT may be restricted on qualifying high-value purchases paid or intended to be paid in cash, although the applicable monetary threshold is still to be prescribed.
- Businesses selling bundled goods or services should reassess whether they constitute a single composite supply.
- The standard UAE VAT rate remains 5%.
- The revised input tax apportionment methodology does not apply from October 2026. It starts from the first Tax Year commencing after 1 October 2027.
The UAE VAT framework has entered another important compliance phase. From 1 October 2026, several changes affect how businesses support input VAT claims, assess suppliers, manage employee-related costs, process cash payments, and determine the VAT treatment of bundled transactions.
For finance teams, the practical message is straightforward: VAT compliance is increasingly about the evidence behind a transaction, not simply the figures entered in the VAT return.
At Creative Zone Tax & Accounting, we recommend that UAE businesses treat these changes as an opportunity to review procurement, accounts payable, HR policies, VAT records, and internal controls before the next return is prepared.
Supplier Verification Becomes Part of Input VAT Compliance
One of the biggest operational changes comes from FTA Decision No. 13 of 2026.
Before deducting input VAT, taxable persons may now need to verify both the supplier and the supply. The requirements include checking supplier identity, incorporation details, business premises, risk indicators, the commercial rationale for transactions, payment arrangements, pricing, and whether the supply is consistent with the supplier’s licensed or ordinary activities. Verification steps and supporting evidence must also be documented.
Supplier verification is required when dealing with a supplier for the first time and again where the supplier has not been verified during the previous 12 months. Each taxable supply must also be assessed.
There is a limited exception where the consideration is below AED 10,000 excluding VAT, but it stops applying where total supplies from that supplier exceed, or are expected to exceed, AED 100,000 over a 12-month period.
Where supplies from a supplier exceed or are expected to exceed AED 375,000 over 12 months, additional checks include obtaining written confirmation from a UAE-authorized bank that the supplier has a bank account and reviewing reliable public information about the supplier.
For many businesses, this means supplier onboarding can no longer sit completely separately from VAT compliance.
Employee Expenses Now Have More Specific VAT Tests
The treatment of employee-related expenses has also been clarified.
Under FTA Decision No. 17 of 2026, input VAT may be recoverable in specified circumstances for employee transport, food and beverages in qualifying remote locations, accommodation, temporary accommodation for new employees, mobile phones and connectivity, and employee parking. Each category comes with its own conditions.
For example, employee transportation must relate to work purposes and cannot simply be replaced by a cash allowance. Temporary accommodation for a new employee is limited to no more than 30 days under the relevant category.
Accommodation also requires careful review. The amended Executive Regulation narrows the labor-legislation exception for employer-provided housing so that accommodation must be mandatory under a MoHRE decision or directive to qualify through that route. A separate contractual or documented-policy route may apply where the specific FTA conditions are satisfied.
Businesses should therefore avoid assuming that an employment contract alone automatically supports an input VAT claim.
Cash Payments Could Affect Input VAT Recovery
Another important amendment concerns cash.
New Article 54(3) provides for input VAT recovery to be restricted where the value of a supply exceeds an amount prescribed by the Minister of Finance and the consideration is paid, or intended to be paid, in cash.
The monetary threshold and detailed controls still require a separate Ministerial Decision. Until those details are published, businesses should monitor further guidance rather than applying an assumed amount.
Practically, businesses with significant cash purchases should start identifying those transactions now and consider whether more traceable payment methods and stronger supporting records are appropriate.
Bundled Products and Services Need Another Look
Cabinet Decision No. 149 also strengthens the VAT treatment of single composite supplies.
Where different components of a transaction are interconnected and cannot reasonably be separated based on their nature and economic substance, they may need to be treated as one composite supply, with the VAT treatment generally following the principal component.
This is particularly relevant for businesses selling packages containing multiple services, equipment plus installation, bundled subscriptions, or other combined offerings.
The invoice format or separate pricing of individual components may not, on its own, determine the VAT result. The commercial substance of the transaction now requires greater attention.
Other VAT Changes Effective From October 2026
The amendments also update technical provisions covering the Profit Margin Scheme, medical products, the Capital Assets Scheme, certain tests involving persons outside the UAE, and Tax Credit Notes. For example, the wording requirement now correctly requires the document itself to display “Tax Credit Note.”
One major change should not be confused with the October deadline. The revised standard method for input tax apportionment will apply only from the first Tax Year commencing after 1 October 2027. Businesses making both taxable and exempt supplies have time to prepare, but modelling the future impact early may still be worthwhile.
What Should UAE Businesses Do Now?
- Procurement: Review supplier onboarding and verification processes.
- Finance: Identify high-value cash transactions and strengthen VAT documentation.
- HR and Finance: Reassess employee benefits and accommodation together.
- Sales and Finance: Review bundled products or services to confirm the VAT treatment reflects the economic substance of the transaction.
- Overall: Make sure VAT compliance is built into the processes that create the underlying transactions.
A VAT health check can help identify gaps before they appear in a return or during an FTA review.
Creative Zone Tax & Accounting is an FTA-Approved Agency and ACCA-Approved Employer, supporting UAE businesses with VAT filing, VAT reviews, accounting and bookkeeping, voluntary disclosures, tax agency services, and ongoing compliance support. Our approach is focused on accurate records, practical guidance, and keeping businesses prepared as UAE tax requirements continue to evolve.
