The UAE has just given itself the power to refuse your input tax because of how you paid. Settle a large invoice in cash and the VAT on it becomes unrecoverable, once the Minister of Finance sets the value that triggers the rule. The power arrives on 1 October, inside a package that also tightens staff accommodation recovery and changes how bundled supplies are taxed.
TL;DR: Cabinet Decision No. 149 of 2026 amends the UAE VAT Executive Regulation from 1 October 2026. A new Article 54(3) blocks input tax recovery on high-value supplies paid in cash, above a threshold the Minister of Finance has yet to set. Employee accommodation recovery is narrowed to MOHRE-mandated housing, and bundled supplies now follow economic substance.
What Changed in the UAE VAT Rules on 1 October 2026?
Cabinet Decision No. 149 of 2026 amends the Executive Regulation of Federal Decree-Law No. 8 of 2017 on VAT. It was issued on 1 September 2026 and, under its Article 3, takes effect on 1 October 2026 (Cabinet Decision No. 149 of 2026).
None of the headline numbers moved. The AED 375,000 mandatory registration threshold and the AED 187,500 voluntary threshold are untouched (Federal Tax Authority, 2026), and the rate stays at 5%. What changed is when you can claim input tax back.
The Ministry frames the package as improving clarity and reducing disputes. Two of the amendments are narrower than that suggests. It is a separate instrument from VATP046, the public clarification issued days later covering six changes including the Non-Resident definition and the refund deadline.
Can You Still Recover Input VAT on Cash Payments?
Only below a threshold, and nobody knows what that threshold is yet. The new Article 54(3) says input tax may not be recovered on any supply whose value exceeds the amount specified in a decision issued by the Minister, where the consideration is paid or intended to be paid in cash, subject to the controls in that decision.
That Ministerial Decision has not been published, so the mechanism sits in the Regulation with the trigger point blank. No cash payment is actually blocked on 1 October. The power to block one exists from that date.
Our reading is that cash should stop being treated as a neutral choice, because bank transfers, cards and cheques carry no such risk. What we see most often is cash used for convenience, not necessity, usually with small contractors and one-off suppliers, and that is the habit worth changing before the threshold lands.
What Do the New Employee Accommodation Rules Mean?
They narrow it. The amended Article 53(1)(c) carves employee accommodation out of the general labour-law route for recovering input tax on employee benefits, and lets it back in only where the accommodation is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation (Gulf News, 2026).
Read that as a restriction, not a clarification. If your recovery position rests on a general obligation under UAE labour law, or on the employment contract alone, it no longer holds. A second route exists for cases and conditions the FTA specifies, but the FTA has not published them.
So the question for construction, hospitality and logistics employers is narrow: can you point to a MOHRE decision or directive making this accommodation compulsory? If you already track labour accommodation for Wage Protection System and MOHRE compliance, that is where the evidence sits.
How Does the New Composite Supply Test Work?
It follows economic substance. Under the new Article 4(6), where the nature and economic substance of a supply show that its components are interconnected and cannot be separated, the supply is a single composite supply taxed according to its principal component.
The test turns on substance, not on how the invoice is laid out. Splitting a bundle across separate lines for a better VAT outcome no longer helps if the components genuinely belong together.
In our experience this shows up most in service contracts with an equipment element, and in fit-out work billed alongside a lease. Review any product or service bundle where the components attract different VAT treatment, and check the analysis still holds under a substance test.
Three Smaller Amendments Worth Checking
Three further changes worth testing against your own position:
- Capital Assets Scheme: the AED 5 million VAT-exclusive threshold is unchanged. The definition moved from "a single item of expenditure" to a business asset with a cost, and the scheme now anchors to Articles 12 and 60 of the Decree-Law rather than Article 60 alone.
- Medical products: Article 41(4) now zero-rates the supply or import of any medical product specified in a Cabinet decision, plus other goods supplied in the course of providing zero-rated healthcare services where they are necessary to that supply.
- Exempt financial services: Article 52(2) now treats a recipient as outside the UAE where they are present under 30 days and that presence is not effectively connected with the supply, replacing "less than a month". This governs input tax recovery on exempt financial services supplied overseas. Zero-rated exported services sit in Article 31 and are unaffected.
The profit margin scheme purchase price definition and tax credit note requirements were also revised. If either applies to you, read the decision text rather than any summary, including this one.
Input Tax Apportionment: The Change That Lands in 2027
Clauses 6 and 7 of Article 55 were replaced and a new Clause 19 added, but none of it bites yet. Those provisions apply from the first tax year commencing after 1 October 2027.
What moves is the basis of the ratio. The old method used recoverable input tax as a share of total input tax. The new one works from turnover: qualifying supplies as a proportion of total supplies, excluding capital asset disposals and reverse-charge transactions, rounded to the nearest whole number and applied to residual input tax. Government entities and charities keep the old basis.
Partly exempt businesses, mostly financial services, insurance and residential property, get more than a year to model the difference. Run both calculations on a past period, because a turnover-based ratio can move recovery sharply either way.
What Should You Do Before 1 October?
Start with payments. Ask your finance team for supplier payments settled in cash over the last twelve months, sorted by value. Anything sizeable is a candidate to move onto a traceable method now, before the Minister sets the threshold.
Then check two things: whether a MOHRE decision or directive actually mandates each employee accommodation cost you recover VAT on, and any bundled contract where the components carry different VAT treatment. The same 1 October date brings new supplier verification duties for input VAT, so treat this as one review rather than two.
The FTA is visibly more active. Its excise enforcement teams alone made 103,680 inspection visits in the first half of 2026, up 21% on the same period a year earlier (Federal Tax Authority, 2026). Whatever position you take on these amendments, write the reasoning down at the time you take it.
Frequently Asked Questions
When exactly do the new UAE VAT rules take effect?
It was issued on 1 September 2026 and applies from 1 October 2026. The exception is the revised apportionment method in Article 55, which applies from the first tax year commencing after 1 October 2027.
What is the cash payment threshold for blocking input VAT?
It has not been published. Article 54(3) gives the Minister of Finance the power to set it, in a separate Ministerial Decision. Until that lands, no amount applies, so the practical step is to reduce reliance on cash for high-value invoices.
Who has to register for VAT in the UAE?
Registration is mandatory once taxable supplies and imports exceed AED 375,000 over the previous 12 months, or where you expect to exceed that within 30 days. Voluntary registration starts at AED 187,500. Neither threshold changed here.
How often do I file a UAE VAT return?
Most registered businesses file quarterly, while larger businesses are assigned monthly tax periods by the FTA. Returns and payment are due by the 28th day following the end of the tax period. Common filing errors are covered in our guide to UAE VAT return mistakes and the penalties they trigger.
What happens if I claim input tax I was not entitled to?
You face administrative penalties plus repayment of the over-claimed tax, with late payment penalties running from the original due date. A voluntary disclosure through EmaraTax generally produces a better outcome than waiting for the FTA to find it. Our note on preparing for an FTA tax audit sets out what the Authority asks to see.
If you want a second pair of eyes on how these amendments hit your VAT position, get in touch. We work with mainland and free zone businesses across the UAE and can review your accommodation recovery and bundled contracts before 1 October.