In brief
The UAE Federal Tax Authority has published an updated consolidated version of the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax. The publication incorporates Cabinet Decision No. 149 of 2026, issued on 1 September 2026 and generally effective from 1 October 2026.
The amendments affect several technically important areas of VAT compliance. These include the treatment of interconnected components as a single composite supply, the calculation of purchase price under the Profit Margin Scheme, the zero-rating of medical products and related healthcare goods, input tax recovery connected with exported financial services, employee accommodation and benefits, restrictions involving cash consideration, input tax apportionment, the Capital Asset Scheme and the required wording on tax credit notes.
Most changes apply from 1 October 2026. However, the revised provisions governing the standard input tax apportionment calculation, together with the special method for Government Entities and Charities, apply from the first Tax year commencing after 1 October 2027.
Businesses should not treat the FTA publication as merely an administrative consolidation. Tax policies, accounting configurations, invoice and credit-note templates, employee-benefit arrangements, margin-scheme calculations and input tax recovery procedures should be reviewed before the relevant effective dates.
Executive summary
The updated Executive Regulation introduces or confirms the following key changes:
A supply containing multiple components cannot be artificially treated as separate supplies where its nature and economic substance show that the components are interconnected and cannot be separated. The supply is treated as a single composite supply according to its principal component.
Under the Profit Margin Scheme, the purchase price includes relevant costs and fees incurred to acquire the goods where input tax on those amounts is not recoverable.
The healthcare zero-rating provision now refers to medical products specified by Cabinet decision and other goods supplied in the course of providing zero-rated healthcare services where those goods are necessary for that healthcare supply.
For certain financial services treated as supplied outside the UAE, a person is regarded as outside the State only where the person is present in the UAE for less than 30 days and that presence is not effectively connected with the supply.
Employer-provided accommodation is generally carved out of the mandatory employee-benefit exception unless providing the accommodation is required under decisions or directives of the Ministry of Human Resources and Emiratisation.
Contractual or policy-based employee benefits must fall within the cases and conditions specified by the FTA for related input tax to be recoverable.
Input tax may not be recovered on a supply above a threshold to be specified by the Minister where the consideration is paid, or intended to be paid, in cash, subject to the applicable controls.
The input tax apportionment mechanism will move toward a supply-value-based standard calculation from the first Tax year commencing after 1 October 2027, with a separate calculation for Government Entities and Charities.
The Capital Asset Scheme provision continues to apply a threshold of AED 5 million, excluding VAT, while clarifying the relevant cost and useful-life conditions.
A tax credit note must clearly display the words “Tax Credit Note”.
The changes are relevant not only to finance and tax teams, but also to procurement, human resources, healthcare providers, financial institutions, second-hand goods dealers, real estate and capital-intensive businesses, government bodies, charities, ERP teams and e-invoicing implementation teams.
In detail
Background to the September 2026 publication
The FTA publication is a consolidated English version of the UAE VAT Executive Regulation. It incorporates the original Cabinet Decision No. 52 of 2017 and subsequent amendments, including Cabinet Decision No. 149 of 2026.
The document states that the English text is not an official translation. Accordingly, businesses should consider the official Arabic legislation where the precise legal wording is material or where an interpretive question arises.
Cabinet Decision No. 149 of 2026 was issued on 1 September 2026 and is generally effective from 1 October 2026. Certain changes to Article 55 have a later commencement rule and apply from the first Tax year commencing after 1 October 2027.
Composite supplies: economic substance takes priority
A new Clause 6 has been added to Article 4. A Taxable Person may not treat a supply comprising more than one component as multiple supplies where the nature and economic substance of the transaction demonstrate that those components are interconnected and cannot be separated.
In such circumstances, the transaction is deemed to be a single composite supply and follows the VAT treatment of its principal component.
This strengthens the economic-substance analysis and limits the ability to divide a commercially integrated transaction into separate elements merely through contractual descriptions or separate accounting lines.
Businesses should review bundled arrangements, implementation packages, service contracts, hospitality packages, property-related arrangements, warranties, maintenance contracts, subscriptions and transactions combining goods and services. The analysis should consider the contract, pricing, commercial objective, customer perspective and whether separating the components would be artificial or unnatural.
Profit Margin Scheme: acquisition costs and fees
Article 29(5) provides that, for purposes of calculating the profit margin, the purchase price includes not only the price of the goods but also costs or fees incurred to purchase those goods, provided any input tax on those costs or fees is not recoverable under Article 54 of the VAT Decree-Law.
This can affect the taxable margin for second-hand goods, antiques and collectors’ items. Dealers should determine which acquisition-related costs form part of the purchase price and retain evidence supporting both the nature of each cost and the reason any related input tax was not recoverable.
The change may require updates to inventory costing, margin-scheme worksheets and ERP configuration. A business should avoid automatically including every subsequent selling or operating expense within the purchase price; the provision focuses on costs or fees incurred to purchase the relevant goods.
Zero-rated healthcare goods and medical products
Article 41(4) now provides for zero-rating where the supply or import concerns:
a medical product specified in a Cabinet decision; or
another good not covered by that category which is supplied in the course of providing zero-rated healthcare services and is necessary for the provision of those services.
Healthcare providers, pharmacies, medical suppliers and importers should map their products to the relevant Cabinet decision and separately assess other goods supplied during treatment. A good should not be treated as zero-rated merely because it is sold by a healthcare provider or used in a healthcare environment. The connection with a qualifying zero-rated healthcare service and the necessity of the good remain important.
Product masters, tax codes, billing packages and clinical charging protocols should therefore distinguish medical products specifically covered by Cabinet decision from other necessary goods supplied as part of qualifying healthcare treatment.
Financial services supplied outside the UAE
Article 52 concerns input tax recovery relating to specified financial services whose place of supply is treated as outside the UAE and whose recipient is outside the UAE when the services are performed.
Under the amended Clause 2, a person is considered outside the State only if the person is present in the UAE for less than 30 days and that presence is not effectively connected with the supply.
The test is therefore not based solely on the recipient’s legal address or residence. Financial institutions and other businesses supplying financial services should examine the recipient’s physical presence in the UAE, the duration of that presence and whether the UAE presence is effectively connected with the relevant service.
Supporting evidence may include contractual details, onboarding and KYC information, correspondence, service-delivery records and information showing which establishment or personnel received or used the service.
Employee benefits and employer-provided accommodation
Article 53 restricts input tax recovery where goods or services are acquired for employees without charge and for their personal benefit, subject to specific exceptions.
The amended provision continues to recognise goods or services that an employer is legally required to provide under UAE or free-zone labour rules. However, employer-provided accommodation is excluded from this exception unless the accommodation is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation.
This requires a more precise review of staff accommodation costs. A general business need, employment practice or operational preference may not, by itself, establish recoverability under the mandatory-benefit exception.
The separate exception for goods or services provided under a contractual obligation or documented policy now operates in accordance with the cases and conditions specified by the FTA. Businesses should therefore ensure that policies are formally documented and that the relevant benefit falls within applicable FTA requirements. A contractual reference alone should not be assumed to make all related input tax recoverable.
Human resources, payroll, procurement and tax teams should jointly review accommodation, transport, meals, relocation support, staff welfare, mobile phones, subscriptions and similar benefits.
Cash consideration and input tax recovery
A new Clause 3 has been added to Article 54. It provides that input tax may not be recovered on a supply whose value exceeds an amount specified by a decision of the Minister where the consideration is paid, or intended to be paid, in cash, in accordance with the controls specified in that decision.
The provision creates an enabling restriction. Its practical scope depends on the amount and controls to be prescribed by the Minister. Businesses should therefore monitor the relevant Ministerial Decision and should not invent or assume a monetary threshold before it is officially specified.
Once operational, the rule may affect cash-intensive businesses, petty-cash procedures, high-value procurement, supplier settlement methods and the evidence required to support input tax recovery. ERP and expense-management systems may need controls that identify cash-paid transactions above the prescribed threshold and prevent unsupported input tax claims.
Input tax apportionment: major future change
Article 55 governs the apportionment of input tax where costs relate partly to recoverable supplies and partly to exempt supplies or non-business activities.
The revised Clauses 6 and 7, effective from the first Tax year commencing after 1 October 2027, provide a supply-value-based standard calculation. Broadly, the Taxable Person calculates the percentage of supplies qualifying for recovery under Article 54(1) of the VAT Decree-Law to the total value of supplies.
Capital asset supplies and the receipt of Concerned Goods and Concerned Services under the reverse-charge provisions are excluded from the calculation. The resulting percentage is rounded to the nearest whole number and applied to the residual input tax requiring apportionment.
The amendment represents an important systems and methodology change for partially exempt businesses. Banks, financial institutions, insurers, real estate businesses, holding structures and other mixed-supply businesses should model the impact before the first affected Tax year.
The updated Article 55 also introduces Clause 19 for Government Entities and Charities. For mixed-use input tax falling within the relevant provision, these entities calculate a recovery percentage by reference to recoverable and non-recoverable input tax for the Tax Period, round it to the nearest whole number and apply it to the relevant residual input tax.
The delayed commencement provides implementation time, but businesses may need comparative modelling, data-field changes, revised tax engines, updated apportionment workpapers and governance approval well before 2027.
Capital Asset Scheme
Article 57(1) provides that a Capital Asset is a business asset costing AED 5 million or more, excluding VAT, on which VAT is payable and with an estimated useful life of at least ten years for a building or part of a building, or five years for other Capital Assets.
Businesses undertaking major property, construction, fit-out, manufacturing, infrastructure or technology projects should reassess whether assets or aggregated staged expenditure fall within the Capital Asset Scheme.
The review should cover the VAT-exclusive cost, whether VAT is payable, estimated useful life, staged payments, asset components and the first business-use date. Capital Asset Scheme registers should be reconciled with fixed-asset records and input tax claims.
Tax credit notes
Article 60(1)(a) now requires the words “Tax Credit Note” to be clearly displayed on the document.
Although this may appear to be a drafting simplification, it has direct document-compliance implications. Businesses should verify that manual, PDF, ERP-generated and electronic tax credit notes use the required title clearly and consistently.
The amendment should also be considered in UAE e-invoicing projects. Structured credit-note data, the human-readable representation and the underlying VAT document should remain aligned, while all other mandatory particulars under Article 60 continue to apply.
Effective dates
| Provision | Subject | Effective date |
|---|---|---|
| Article 4(6) | Composite supplies and economic substance | 1 October 2026 |
| Article 29(5) | Profit Margin Scheme purchase price | 1 October 2026 |
| Article 41(4) | Healthcare goods and medical products | 1 October 2026 |
| Article 52(2) | Recipient outside the UAE for financial services | 1 October 2026 |
| Article 53(1)(c)(1) and (2) | Employee benefits and accommodation | 1 October 2026 |
| Article 54(3) | Cash consideration and input tax recovery | 1 October 2026, subject to the relevant Ministerial Decision and controls |
| Article 55(6), (7) and (19) | Input tax apportionment | First Tax year commencing after 1 October 2027 |
| Article 57(1) | Capital Asset Scheme | 1 October 2026 |
| Article 60(1)(a) | Tax credit-note title | 1 October 2026 |
Practical impact for UAE businesses
The amendments are particularly relevant for:
businesses selling bundled goods and services;
second-hand goods, vehicle, antique and collectors’ item dealers using the Profit Margin Scheme;
hospitals, clinics, pharmacies, medical-product suppliers and healthcare importers;
banks, insurers, investment businesses and other providers of financial services;
employers providing accommodation or other benefits to employees;
businesses making high-value cash payments;
partially exempt and mixed-activity businesses;
Government Entities and Charities;
real estate developers, property owners and capital-intensive businesses;
businesses updating ERP, billing, expense and e-invoicing systems.
The impact should be assessed by legal entity and by transaction type. A general group-level conclusion may not be sufficient where different entities use different billing models, benefit policies, payment channels or input tax recovery methods.
Actions to consider
Affected businesses should consider the following actions:
Identify contracts containing multiple goods, services or bundled components and reassess whether they constitute a single composite supply.
Review Profit Margin Scheme calculations and determine whether qualifying non-recoverable acquisition costs and fees are correctly included in the purchase price.
Update healthcare product tax coding and retain evidence supporting zero-rating.
Strengthen evidence for determining whether recipients of relevant financial services are outside the UAE.
Review employee-benefit and accommodation policies with HR, payroll and procurement teams.
Monitor the Ministerial Decision prescribing the threshold and controls for cash-paid consideration.
Model the revised input tax apportionment method before the first affected Tax year commencing after 1 October 2027.
Review Capital Asset Scheme registers and reconcile them with fixed-asset and project-cost records.
Update tax credit-note templates so the required wording is clearly displayed.
Test ERP, billing, expense-management and e-invoicing configurations before the applicable effective dates.
Maintain a documented VAT impact assessment and evidence of all resulting policy and system changes.
How PTG Consultant L.L.C can support
PTG Consultant L.L.C can assist UAE businesses with:
VAT Executive Regulation amendment impact assessments;
composite-supply and multiple-supply reviews;
Profit Margin Scheme calculation and control reviews;
healthcare zero-rating and product-mapping assessments;
financial-services place-of-supply and input tax recovery reviews;
employee-benefit and accommodation input tax assessments;
input tax apportionment modelling and methodology updates;
Capital Asset Scheme reviews and register preparation;
tax invoice and tax credit-note compliance reviews;
ERP, expense-management and e-invoicing tax configuration;
VAT procedures, training, documentation and implementation support.
Businesses should complete the immediate amendments review before applying the new rules from 1 October 2026 and should begin planning early for the later input tax apportionment changes.
Request a UAE VAT Amendments Impact Review
Website: https://www.ptgconsultant.com
YouTube: https://www.youtube.com/@PTG-Tax
Conclusion
Cabinet Decision No. 149 of 2026 introduces targeted but commercially important amendments to the UAE VAT Executive Regulation. The changes reinforce economic substance for composite supplies, refine specific input tax and zero-rating rules, introduce a potential restriction for cash-paid consideration and establish a significant future change to the standard input tax apportionment methodology.
The amendments should not be reviewed only by the tax function. Their application may depend on contract design, procurement practices, employee policies, payment methods, product coding, fixed-asset data and system configuration.
Businesses that assess the changes early will be better positioned to apply the correct VAT treatment, preserve eligible input tax recovery and maintain consistent documentation from 1 October 2026 onward.
Official source basis
This article has been prepared with reference to:
Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended.
Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended.
Disclaimer
This article is for general information only and should not be treated as legal, regulatory, accounting or tax advice. The application of the UAE VAT legislation depends on the particular facts, contractual arrangements, transaction flows, supporting documents and applicable decisions or guidance. The English consolidated Executive Regulation states that it is not an official translation. The official Arabic legislation should be consulted where necessary, and professional advice should be obtained before implementing or changing a VAT treatment.