The UAE has introduced changes to its VAT regime through Cabinet Decision No. 149 of 2026 and FTA Decisions Nos. 13 and 17 of 2026. Most of these changes took effect on 1 October 2026. They cover input VAT recovery, supplier registration, employee expenses, composite supplies, and VAT calculations.
Businesses in the UAE need to understand the UAE VAT Law 2026. This will help them assess their VAT claims correctly and maintain proper records. The standard VAT rate remains 5%, and the mandatory VAT registration threshold remains AED 375,000.
What Is Input Tax Recovery Under UAE VAT Law?
Input tax is the VAT a business pays on goods and services purchased for its operations. A VAT-registered business can generally deduct eligible input tax from its output VAT, subject to the applicable rules.
For example, a business collects AED 1,000 in output VAT and has AED 500 in eligible input VAT. In this case, the business will have to pay AED 500 in VAT.
Under the new guidelines, businesses must pay special attention to supplier verification, payment methods, and eligible expenses.
Key Changes Under UAE VAT Law 2026
1. Restrictions on Input VAT Recovery for Cash Payments
The new provisions restrict input tax recovery on supplies above an amount set by the UAE Ministry of Finance when the payment is made or is due to be made in cash.
The ministry will specify the applicable amount and explain how the restriction will be applied through a ministerial decision.
2. Supplier Verification Before Claiming Input VAT
FTA Decision No. 13 of 2026 introduces requirements for verifying suppliers and supplies before claiming an input tax deduction.
Businesses must maintain a written verification policy. They must also carry out the prescribed checks and document the results. These checks may include verifying the supplier’s legal existence, business address, commercial purpose of the transaction, and payment terms.
Businesses must also review their verification procedures annually, as required by the decision.
FTA Decision No. 13 of 2026 provides special provisions for certain low-value supplies. Supplies worth up to AED 10,000, excluding VAT, may qualify for an exemption from the prescribed verification procedures, subject to the applicable conditions. The exemption also depends on the total annual transaction value with the same supplier, which must fall within the AED 100,000 threshold.
However, a tax invoice alone may not be sufficient when a transaction is linked to tax fraud or the required verification procedures have not been followed.
3. Changes to Composite Supplies
The updated rules clarify the VAT treatment of composite supplies. When several items form a single supply, they may need to be treated together rather than as separate transactions.
Generally, the VAT treatment of the main item determines how the entire composite supply is treated, subject to the applicable rules.
Businesses supplying bundled goods and services should review their arrangements in light of these changes.
4. Revised Profit Margin Scheme Rules
The Profit Margin Scheme applies to certain second-hand goods, such as used cars and antiques. Under this scheme, VAT may be charged on the profit margin rather than the total selling price.
Under the revised provisions, certain expenses and charges related to a purchase can be added to the purchase price if the input VAT on those expenses cannot be recovered.
This prevents businesses from deducting these expenses when calculating the taxable profit margin while also recovering input VAT on the same expenses.
5. New Input VAT Apportionment Rules
Businesses that provide both taxable and non-taxable services may incur costs that cannot be directly allocated to either activity. In such cases, they must calculate recoverable input VAT using the applicable apportionment rules.
The new approach uses a turnover-based method to calculate recoverable input VAT. Certain transactions are excluded from this calculation, including specific capital asset disposals and transactions subject to the reverse charge mechanism.
The new system will apply from the first tax year beginning on or after 1 October 2027. Public sector organisations and charities will continue to use the input-tax-based apportionment method under the amended rules.
Affected businesses should prepare for this change in advance.
How UAE Company Registration Relates to VAT Compliance
Businesses planning UAE Company Registration must consider their tax responsibilities alongside the company formation process. Company registration and VAT registration are separate procedures. Completing one does not automatically mean the other is complete.
Businesses should check whether they meet the UAE VAT registration requirements and maintain the necessary records.
Input VAT Recovery on Employee Expenses
FTA Decision No. 17 of 2026 specifies the circumstances in which businesses can deduct VAT on certain expenses provided to employees free of charge.
The decision covers six types of employee expenses:
- Transportation: Transport provided to employees for work purposes, subject to the applicable conditions.
- Remote food: Food provided to employees working at remote locations or sites.
- Employee accommodation: Accommodation provided to employees for operational or employment purposes.
- Short-term accommodation for new employees: Temporary accommodation for newly hired employees, subject to the applicable conditions.
- Telecommunication: Telecommunication services provided to employees for work purposes.
- Parking: Parking facilities or costs incurred in connection with employees’ work.
VAT recovery is not automatically allowed for every expense listed above. Businesses must meet the relevant conditions and maintain the necessary documents. A contract or company policy alone is not sufficient.
The rules also specify conditions for employee accommodation. These include accommodation required under relevant Ministry of Human Resources and Emiratisation (MoHRE) decisions or directives.
Businesses should assess each expense against the applicable provisions before claiming input VAT.
How Businesses Can Prepare for the New Rules
Businesses can take the following steps to prepare for the changes:
- Review payment procedures to identify transactions covered by the new requirements.
- Strengthen supplier verification procedures and maintain records of the checks required under FTA Decision No. 13 of 2026.
- Review employee expenses to ensure that all VAT claims meet the relevant conditions.
- Reassess VAT calculations where the Profit Margin Scheme or apportionment rules apply.
- Maintain supporting documents for purchases, payments, supplier checks, and input VAT claims.
These steps will help businesses identify potential compliance gaps and prepare for the revised requirements.
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Conclusion
The UAE VAT amendments of 2026 place greater emphasis on supplier verification, restrict input VAT recovery for certain cash payments, clarify the treatment of composite supplies, and revise the rules for employee expenses and VAT apportionment.
Under the UAE VAT Law 2026, proper documentation, supplier verification, and accurate VAT calculations are essential. Businesses should review their existing procedures and follow official FTA guidance. They should also prepare for the revised apportionment method before it takes effect.
FAQs
1. When did the new UAE VAT rules take effect?
Most amendments under Cabinet Decision No. 149 of 2026 and FTA Decisions Nos. 13 and 17 of 2026 took effect on 1 October 2026. The new apportionment rules will apply from the first tax year beginning on or after 1 October 2027.
2. Has the UAE VAT rate changed in 2026?
No. The standard UAE VAT rate remains 5%. The changes mainly concern input tax recovery, supplier verification, and the VAT treatment of specific transactions.
3. Is a tax invoice sufficient to claim input VAT?
Not always. Businesses must meet the applicable input VAT recovery requirements and follow the prescribed verification procedures where necessary.
4. Can businesses recover VAT on employee expenses?
Businesses can recover VAT on the six specified categories of employee expenses only when all relevant legal conditions are met. VAT recovery is not automatic for every employee benefit.
Moreover, if you want any other guidance relating to UAE VAT Law 2026 , please feel free to talk to our business advisors at 8881-069-069.
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