Amendments to the UAE VAT Executive Regulation
The United Arab Emirates (UAE) has introduced amendments to its Value Added Tax (VAT) Executive Regulation, reflecting updates to the application of a number of existing VAT provisions.
Cabinet Decision No. 149 of 2026 amends several provisions of Cabinet Decision No. 52 of 2017 (the VAT Executive Regulation). The Decision was issued on 1 September 2026 and is effective from 1 October 2026, with certain key provisions taking effect from a later date as noted below.
The amendments span input tax apportionment calculations, composite supply treatment, the Capital Asset Scheme, blocked input tax, and credit note requirements. All UAE VAT-registered businesses should review the changes against their current compliance positions.
Key takeaways
- Apportionment ratio — New Standard Method introduced
The most significant change under Cabinet Decision No. 149 of 2026 is a fundamental revision to the standard method of input tax apportionment. The revised methodology now requires the taxable person to calculate the percentage of total taxable supplies to the total value of all supplies, and critically, the supply of capital assets attributable to the taxable person (real estate businesses should differentiate between stock-in-trade vs capital assets), the receipt of Concerned Goods, and the receipt of Concerned Services under Article 48 of the Decree-Law (i.e., reverse charge supplies) must all be excluded from this calculation.
This is a material departure from the previous methodology, though aligned with the methodology applicable in majority of tax developed jurisdictions and other GCC countries.
Under the prior rules, the ratio was based on input tax amounts, whereas the new ratio is based on supply values. Businesses must model the impact of this change on their recovery percentage, as it could increase or decrease the amount of input tax recoverable depending on the nature of supplies and procurement.
Key takeaways
- Apportionment ratio — New Standard Method introduced
The most significant change under Cabinet Decision No. 149 of 2026 is a fundamental revision to the standard method of input tax apportionment. The revised methodology now requires the taxable person to calculate the percentage of total taxable supplies to the total value of all supplies, and critically, the supply of capital assets attributable to the taxable person (real estate businesses should differentiate between stock-in-trade vs capital assets), the receipt of Concerned Goods, and the receipt of Concerned Services under Article 48 of the Decree-Law (i.e., reverse charge supplies) must all be excluded from this calculation.
This is a material departure from the previous methodology, though aligned with the methodology applicable in majority of tax developed jurisdictions and other GCC countries.
Under the prior rules, the ratio was based on input tax amounts, whereas the new ratio is based on supply values. Businesses must model the impact of this change on their recovery percentage, as it could increase or decrease the amount of input tax recoverable depending on the nature of supplies and procurement.
- Continued current apportionment methodology for Government Entities and Charities (Article 55, Clause 6(d), and Clause 19 — New)
Provision |
What has changed |
Article 53, Clause 1(c) |
|
Article 54, Clause 3 |
Input tax may not be recovered on any supply with a value exceeding the amount to be specified in a Ministerial decision where consideration is paid or intended to be paid in cash. Such Ministerial decision is yet to be issued. |
Article 52, Clause 2 |
A person is considered "outside the State" if only present for less than 30 days and such presence is not effectively connected with the supply. This clarification is relevant to cross-border service transactions and specifies number of days which was previously referred as ‘less than a month’. |
Article 57, Clause 1 |
A capital asset is a business asset with a cost of AED 5,000,000 or more (excluding tax), with a useful life of 10 years or more for buildings and 5 years or more for other assets. This threshold was already AED 5,000,000 under the prior regulation; the amendment clarifies the definition rather than changing the threshold and refers to a business asset instead of single item of expenditure. |
Article 60, Clause 1(a) |
The words "Tax Credit Note" must be clearly displayed on the credit note. There was an error referring to invoice as this clause earlier read ‘The words “Tax Credit Note” clearly displayed on the invoice.’ |
Article 41, Clause 4 |
A supply or import of goods is zero-rated if it is a medical product specified in a Cabinet decision, or goods supplied in the course of zero-rated healthcare services that are necessary for the provision of such services. Whilst this zero-rating was already in force, subject to certain conditions, the article previously referred to zero-rating for pharmaceutical products and medical equipment. This provision has now been consolidated under the term “medical product”, to be defined by a Cabinet Decision. |
A new paragraph (d) of Clause 6 provides that, for Government Entities and Charities, input tax that partly relates to taxable supplies and Article 57 supplies, and partly to other supplies, shall be calculated in accordance with the new Clause 19.
Under Clause 19, Government Entities and Charities calculate the recoverable percentage as the proportion of recoverable input tax to the total of recoverable and non-recoverable input tax for the tax period, rounded to the nearest whole number, and multiplied by the relevant residual input tax amount.
This is an input tax-based ratio, distinct from the supply value-based ratio now applicable to commercial entities. Government entities and charities will continue to apply the previous input-based methodology, primarily for the reason that it is a more accurate methodology that better reflects the economic reality of how these entities operate.
3. Composite supply rule (Article 4, Clause 6 — New)
Further revisions have been made to the conditions to treat a supply consisting of multiple components as a single composite supply.
Under the new provision, a taxable person may not treat a supply consisting of more than one component as multiple supplies if the nature and economic substance of the supply demonstrate that the components are interconnected and cannot be separated. In such case, the supply is a single composite supply, subject to the tax treatment of its principal component.
Previous changes to this Article had introduced an emphasis on whether the individual components of the supply were priced separately, however this revision requires a broader assessment of the broader substance of the transaction. Businesses offering bundled products or services should review their offerings to determine whether this rule applies and what the appropriate VAT treatment is.
4. Other noteworthy amendments
Effective date
This Decision shall be published in the Official Gazette and is effective from 1 October 2026. The provisions of Clauses 6 and 7 of Article 55 and Clause 19 of Article 55 ( relating to input tax apportionment) come into effect from the first tax year commencing after 1 October 2027.
For businesses on a January–December tax year, the revised apportionment rules apply from 1 January 2028. Businesses should begin their impact assessments and methodology reviews now.
Implications and next steps for businesses
- Model the financial impact of the revised input tax apportionment standard method (supply value-based, with capital asset and reverse charge exclusions) on your current recovery position and take note of new tax year commencement date, post October 2027, for the application of new methodology.
- Review bundled products and services against the new composite supply rule
- Assess employee benefit policies against the updated Article 53(1)(c) conditionsReview procurement processes for cash payments in anticipation of the Ministerial threshold decision.
How Deloitte can help
We would welcome the opportunity to discuss how these developments impact your business and how we can support you to be ready to implement any changes to your business and processes where needed.
