Cabinet Decision No. 149 of 2026 changes more than technical wording – it affects employee benefits, input tax recovery, composite supplies, healthcare, capital assets, and the way mixed-use VAT will eventually be apportioned.
The UAE VAT framework continues to mature.
Cabinet Decision No. 149 of 2026 introduces a series of amendments to the VAT Executive Regulations, most of which take effect from 1 October 2026. The changes are spread across several technical areas, but taken together they point in one direction:
VAT compliance is becoming more dependent on the economic substance of transactions, the quality of internal policies and the strength of underlying evidence.
For businesses, this means the amendments should not be treated as a tax-return update alone.
They may require changes across finance, procurement, HR, legal, systems and internal controls.
Employee benefits: policy documentation now matters more
One of the more commercially relevant changes concerns input tax recovery on goods and services provided to employees.
The amended rules continue to allow recovery where the provision is mandatory under UAE labor legislation or applicable Free Zone rules. They also recognize circumstances where the provision arises from a contractual obligation or documented policy, subject to cases and conditions to be specified by the FTA.
This is an important development.
For many businesses, employee benefits are handled operationally through HR practice rather than through a carefully documented tax framework.
That may no longer be sufficient.
The practical question becomes:
Can the business demonstrate why the benefit was provided, under what policy, and how that policy connects to VAT recovery?
Accommodation requires particular attention because the amendment specifically excludes employer-provided accommodation unless it is mandatory under relevant Ministry of Human Resources and Emiratization decisions or directives.
NRD View
The tax position on employee benefits is increasingly moving from “what did we provide?” to “why were we required or committed to provide it?”
Composite supplies: economic substance takes priority
A new provision clarifies that a supply consisting of multiple components cannot be artificially separated where those components are economically interconnected and cannot reasonably be separated.
In such cases, the transaction is treated as a single composite supply, with VAT treatment determined by its principal component.
This is particularly relevant for businesses offering:
- bundled services;
- maintenance packages;
- technology subscriptions;
- hospitality packages;
- healthcare-related bundles;
- installation and equipment arrangements;
- logistics and support services.
The key issue is no longer simply how the invoice is split.
It is:
What is the customer actually buying as a matter of economic substance?
That distinction can affect the applicable VAT rate, place of supply, and overall tax treatment.
Healthcare: the zero-rating perimeter is being clarified
The amendments also revise the zero-rating treatment for medical products and certain goods supplied as part of zero-rated healthcare services.
In addition to medical products specified by Cabinet decision, other goods may qualify if supplied in the course of providing zero-rated healthcare services and are necessary for those services.
For healthcare businesses, this may require a review of:
what is supplied separately, what is integral to the healthcare service, and what evidence supports that treatment.
The “outside the State” test is becoming more specific
For the relevant place-of-supply provisions, a person may be considered outside the UAE if they are present in the State for less than 30 days and that presence is not effectively connected with the supply.
This is another example of the VAT framework moving toward a more fact-specific analysis.
Physical presence alone may not determine the outcome.
The relationship between that presence and the underlying supply also matters.
Capital Asset Scheme threshold: AED 5 million
The amended regulations define a Capital Asset for purposes of the Capital Asset Scheme as a business asset costing AED 5 million or more, excluding VAT, provided it meets the relevant useful-life criteria:
- 10 years or more for buildings or parts of buildings; and
- 5 years or more for other capital assets.
For asset-intensive sectors, this should trigger a review of:
- fixed-asset registers;
- major capital projects;
- input VAT attribution;
- change-of-use adjustments;
- long-term record retention.
Cash payments: a new input VAT risk is coming
A particularly noteworthy amendment provides that input VAT may not be recovered on a supply exceeding an amount to be specified by Ministerial Decision where the consideration is paid, or intended to be paid, in cash.
The threshold itself is not contained in this Decision.
That means businesses should watch for the subsequent Ministerial Decision.
The broader policy signal, however, is already visible:
The method of payment may increasingly become relevant to the right to recover input VAT.
This reinforces the importance of traceable payment flows and controlled accounts-payable processes.
Input tax apportionment will change - but later
The Decision also introduces a revised approach to apportioning recoverable input VAT.
The new mechanism calculates the recoverable percentage by reference to the value of relevant supplies compared with total supplies, with specific exclusions such as capital asset supplies and certain reverse-charge transactions. The percentage is then rounded to the nearest whole number and applied to the residual input tax pool.
Importantly, these revised apportionment provisions do not take effect on 1 October 2026.
They apply from the first Tax Year commencing after 1 October 2027.
This gives businesses time – but also creates an opportunity to prepare systems well before implementation.
Mixed-use businesses should begin assessing whether their existing ERP and tax engines can produce the data needed for the new methodology.
What should businesses review now?
Management should consider whether the amendments require changes to:
| Area | Question |
Employee benefits | Are contractual obligations and policies properly documented? |
Bundled supplies | Are multiple components being separated where they should be treated as one supply? |
Healthcare | Are zero-rated goods properly linked to qualifying healthcare services? |
Capital assets | Are assets above AED 5 million identified and tracked correctly? |
Payments | Could future cash-payment restrictions affect input VAT recovery? |
Input tax apportionment | Can systems support the revised methodology from the relevant 2027/28 Tax Year? |
Cross-border supplies | Is physical presence in the UAE being assessed together with its connection to the supply? |
The bigger message
Cabinet Decision No. 149 of 2026 is not one dramatic VAT reform.
It is something more important operationally:
a tightening of the links between commercial substance, internal documentation, and tax treatment.
The recurring theme is clear:
- economic substance over invoice form;
- documented policy over informal practice;
- traceable payment over unsupported cash;
- systems-based apportionment over manual approximation.
For businesses, that means VAT governance increasingly needs to move upstream.
Not after the invoice.
Not at the return-filing stage.
But at the point where contracts, employee policies, payment methods and transaction structures are designed.
The next phase of UAE VAT compliance will be defined less by whether a business can calculate VAT – and more by whether its operating processes naturally produce the right VAT outcome.
At NR Doshi & Partners, we believe businesses should use the period before 1 October 2026 to identify where these amendments affect existing policies, transaction flows and systems, while separately preparing for the later changes to input tax apportionment.
This publication is intended for general information only and is based on Cabinet Decision No. 149 of 2026. It does not constitute tax or legal advice.
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