UAE VAT Input Tax Deduction Changes From 1 October 2026
KEY TAKEAWAYS
- Most changes under Cabinet Decision No. 149 of 2026 apply from 1 October 2026.
- The new input tax apportionment method applies later: from the first tax year commencing after 1 October 2027. If your tax year is the calendar year, that is 1 January 2028.
- Input tax can no longer be recovered on cash payments above a set value. The threshold has not been published yet.
- Employee accommodation is no longer automatically recoverable.
- The Capital Asset Scheme now applies to assets costing AED 5 million or more, excluding VAT.
- A business that only makes taxable supplies will see little change. A business with exempt income needs to review its numbers now.
UAE VAT input tax deduction changes coming into effect from 1 October 2026 will affect how businesses handle input tax recovery, apportionment, employee benefits, cash payments, and certain capital assets. Businesses should review their VAT processes and documentation before the new rules take effect.
The UAE Ministry of Finance issued Cabinet Decision No. 149 of 2026 on 1 September 2026. It amends Cabinet Decision No. 52 of 2017, the Executive Regulation of Federal Decree-Law No. 8 of 2017 on VAT. The stated aims are to simplify procedures, give taxable persons more clarity, and reduce tax disputes.
The Decision covers a lot: composite supplies, healthcare zero-rating, employee benefits, cash payments, the Capital Asset Scheme, tax credit notes, and input tax apportionment. This guide focuses on what it means for input tax recovery, the part that changes what you can claim back. The dates matter, because not everything starts at once.
What Changes, and When
| Date | What Applies |
|---|---|
| 1 September 2026 | Cabinet Decision No. 149 of 2026 issued |
| 1 October 2026 | Employee benefit conditions, cash payment restriction, Capital Asset definition, composite supplies, healthcare zero-rating, purchase price rules, tax credit note wording |
| To be announced | Ministerial Decision setting the cash payment threshold |
| First tax year commencing after 1 October 2027 | Revised apportionment method under Article 55 (1 January 2028 for calendar-year businesses) |
Changes That Apply From 1 October 2026
Employee benefits and accommodation (Article 53)
You can recover input tax on goods and services you provide to employees when one of these is true:
- The benefit is required under UAE labour law or free zone rules.
- It comes from a contractual obligation.
- It follows a documented company policy.
If you rely on a policy or a contract, it must be in writing and applied consistently. A verbal habit will not hold up in a review.
Employee accommodation is treated differently. It is not automatically recoverable, unless the Ministry of Human Resources and Emiratisation requires you to provide it.
Cash payments (Article 54(3))
A new rule blocks input tax recovery on a supply above a set value when payment is made, or intended to be made, in cash. The value threshold will come from a separate Ministerial Decision, and it had not been published at the time of writing.
If your business pays suppliers in cash, start reviewing those payments now. Moving larger payments to bank transfer removes the risk before the threshold is even announced.
The Capital Asset Scheme
A Capital Asset is now defined as a business asset that costs AED 5 million or more, excluding VAT, with VAT payable on it. It must also have an estimated useful life of 10 years or more for a building or 5 years or more for other assets.
Other Changes In The Decision
These apply from the same date. Each one deserves its own guide, so here is the short version:
| Area | What changed? |
|---|---|
| Composite supplies | Clarifies when a supply made up of several parts is treated as one composite supply |
| Healthcare | Updates zero-rating for medical products and healthcare-related goods |
| "Outside the UAE" test | A person present in the UAE for fewer than 30 days, where that presence is not effectively connected to the supply, can be treated as outside the UAE. |
| Purchase price (Profit Margin Scheme, Article 29) | Costs and fees of buying goods are included in the purchase price where the input tax on them cannot be recovered under Article 54. |
| Tax credit notes | Wording clarified |
The Apportionment Change That Starts Later
Most people call these “the 2026 changes,” but the biggest rewrite does not start on 1 October 2026. The revised Article 55 applies from the first tax year commencing after 1 October 2027.
First, what apportionment is
Some VAT you pay clearly belongs to taxable sales, so you recover it. Some clearly belongs to exempt sales, so you do not. The rest, like head office rent, shared utilities, accounting software and admin salaries, serves both. That is residual input tax, and apportionment decides how much of it you can recover.
What Is Changing
| How the recoverable share is calculated | Current method | From the first tax year after 1 October 2027 |
|---|---|---|
| How the recoverable share is calculated | Input-based standard calculation | Value of supplies |
| Formula | n/a | Value of relevant recoverable supplies divided by total supplies, rounded to the nearest whole number |
Capital Asset disposals and certain receipts of concerned goods and services under Article 48 are left out of the calculation, so they do not distort the percentage.
Government entities and charities keep a separate approach and do not move to the general method.
The actual use check (Article 55(11))
Reported analysis of the amended rules points to a comparison step. After the annual wash-up, you compare the recovery percentage from the standard method with the actual use of the goods and services you bought that year. If the difference in recoverable input tax is more than AED 250,000, further adjustments are needed.
For a large mixed business, that single check can matter more than the formula itself.
A Worked example
This is a simplified illustration. Real calculations depend on your exact supplies and the exclusions in Article 55.
A facilities company earns AED 6 million from commercial cleaning (taxable) and AED 2 million from leasing part of a building for qualifying residential use (exempt).
- Direct attribution first. VAT on cleaning supplies for commercial contracts is fully recoverable. VAT on residential maintenance is not recoverable.
- Find the residual input tax. Head office rent, shared admin and accounting software serve both sides. Say this VAT adds up to AED 100,000.
- Apply the value-of-supplies percentage. AED 6 million divided by AED 8 million total supplies is 75%.
- Work out recovery. 75% of AED 100,000 is AED 75,000 recoverable. The other AED 25,000 is a cost of the exempt activity.
The change does not automatically mean you recover more or less. The only way to know is to run your own figures through the new formula and compare them with your current method, well before your first affected tax year.
Who Is Affected
Little change: businesses that only make taxable supplies. Zero-rated and standard-rated sales both count as taxable.
Review now:
- Businesses with both taxable and exempt income, such as property groups with commercial and residential activity.
- Financial and insurance businesses, which usually have the most layered positions because of their exempt income. Treatment is not uniform across product lines.
- Any business that pays employee benefits or accommodation or pays suppliers in cash.
- Any business already using a standard or special apportionment method.
Need help with your VAT position?
Not sure whether your business is affected?
Review your input tax position and understand what the new apportionment rules could mean for your business.
How To Prepare
Some of this is urgent this week, and some has until your first affected tax year.
Before 1 October 2026
- Review employee benefit and accommodation claims against the new Article 53 conditions.
- Put any benefit policy that supports a claim in writing.
- Identify cash payments to suppliers and plan to move larger ones to bank transfer.
- Check whether any asset you plan to buy could qualify as a Capital Asset at AED 5 million.
Before your first affected tax year
- List your taxable and exempt supplies and check they are classified correctly.
- Find your residual input tax in the cost base.
- Run the current apportionment calculation and the new one side by side.
- Check that your accounting or ERP system can produce the data the new method needs.
- Train finance staff on what changes and when.
- Record any methodology change with the date and the reason.
Watch for further FTA and Ministry of Finance guidance, especially the cash payment threshold. Because the formula is technical, many businesses have a VAT advisor check their numbers before either date.
Common Mistakes
- Claiming without a proper tax invoice. Claims with no paper trail are the first to be rejected.
- Treating every expense as fully recoverable. Some categories are blocked under Article 53, separate from apportionment.
- Keeping an outdated method. Carrying on with the old calculation once the new one applies creates exposure.
- Underestimating exempt income. It skews the whole recovery position.
- Waiting until a return is due to update procedures. Fix processes before 1 October 2026, not after.
The Bottom Line
Cabinet Decision No. 149 of 2026 is not one dramatic reform. It is a set of changes on two timelines. Employee benefits, cash payments, and the Capital Asset definition arrive on 1 October 2026. The new apportionment method follows from the first tax year after 1 October 2027.
Businesses with mixed taxable and exempt income have the most to gain from using the gap in between. Run your figures now, compare the two methods, and fix your documentation while you have time.
Frequently Asked Questions
When do the UAE VAT input tax changes take effect?
Most changes under Cabinet Decision No. 149 of 2026 take effect on 1 October 2026. The revised apportionment method under Article 55 applies from the first tax year commencing after 1 October 2027.
What is input tax recovery?
It is claiming back the VAT you paid on business purchases. The expense must relate to your taxable activity, and you need a valid tax invoice or acceptable evidence.
What is input tax apportionment?
It is the method used to split VAT on shared costs between taxable and exempt activity when the VAT cannot be tied directly to either.
Can I still recover input tax if I pay in cash?
Not on supplies above the new threshold, once it is announced and the rule applies. Below the threshold, the normal recovery rules continue.
Which businesses need to review their input tax position?
Businesses with both taxable and exempt supplies, businesses with shared or mixed-use costs, and any business already using a standard or special apportionment method.
Can I use a special apportionment method?
Yes, where the standard method does not fairly reflect your actual use of inputs. You need to meet the eligibility conditions and get FTA approval.
Does a fully taxable business need to do anything?
Probably little on apportionment. It should still check employee benefit claims, cash payments, and any planned Capital Asset purchases.