Cabinet Decision No. 149 of 2026 - Amending certain provisions of the VAT Executive Regulation

Article 29 – Clause 5:

(Profit Margin Scheme)

The amended Article clarifies that costs or fees incurred in acquiring eligible goods are included in the purchase price for calculating the profit margin where the input tax incurred on those costs or fees is not recoverable under Article 54 of the VAT Decree-Law.

KPMG comments:

Previously, the provision generally included acquisition-related costs and fees in the purchase price without expressly linking their inclusion to the recoverability of the associated input tax. The amendment therefore prevents a taxable person from recovering the related input tax while also using the same cost or fee to reduce the taxable profit margin.

Article 41 – Clause 4:

(Zero rating healthcare services)

The amendment consolidates the separate categories of pharmaceutical products and medical equipment into a single category of ‘medical products’, as specified in a Cabinet Decision. The existing zero-rating of other goods supplied in the course of providing zero-rated healthcare services, where necessary for those services, remains substantially unchanged.

KPMG comments:

The amendment appears principally intended to simplify and align the terminology used in the healthcare industry. The practical scope of zero-rating will depend on the medical products specified in the relevant Cabinet Decision.

Article 52 – Clause 2:

(Input tax recovery in respect of exempt supplies)

The amendment replaces the previous reference to a short-term presence of ‘less than a month’ with a specific period of ‘less than 30 days’. Accordingly, a person may be treated as outside the UAE where their presence in the UAE does not exceed 29 days and is not effectively connected with the relevant supply.

KPMG comments:

The amendment provides greater certainty in determining whether the presence of a recipient in the UAE affects the application of the relevant zero-rating provisions.

Article 53 – Clause 1 – Paragraph (c) – Sub-clauses 1 and 2:

(Non-recoverable input tax)

The amendment revises the exceptions under which input tax may be recovered on goods or services provided free of charge to employees for their personal benefit.

KPMG comments:

The reference to labour law applicable in a ‘Designated Zone’ has been replaced with a broader reference to labour legislation applicable in any financial or non-financial free zone. The amendment also introduces a specific restriction for employer-provided accommodation, which will qualify under the labour-legislation exception only where its provision is mandatory pursuant to a decision or directive issued by MoHRE.

In addition, the existing requirement for contractually provided employee benefits to enable employees to perform their roles which represent normal business practice has been replaced by a requirement to satisfy cases and conditions to be specified by the Federal Tax Authority (‘FTA’). Businesses should therefore review their employee benefits, accommodation arrangements, employment contracts and documented HR policies, while monitoring further guidance from the FTA.

Article 55 – Clause 6 and Clause 7:

(Apportionment of input tax)

The amendment replaces the existing input-tax-based standard apportionment method with an output-based method calculated by reference to the value of supplies. Under the revised approach, a taxable person must calculate the value of supplies permitting input tax recovery as a percentage of the total value of all supplies, and apply the resulting percentage to its residual input tax.

Supplies of capital assets attributable to the taxable person, together with receipts of Concerned Goods and Concerned Services subject to the reverse-charge mechanism, will be excluded from this calculation. Government Entities and Charities will be excluded from the general output-based method and will instead apply a separate input-tax-based calculation under the new Article 55(19).

The revised provisions will apply from the first Tax Year commencing after 1 October 2027, providing affected businesses with time to assess the potential impact on their input tax recovery and update their apportionment processes accordingly.

KPMG comments:

Partially exempt businesses should review the timeline of applicability of this change based on the Tax Year defined in their VAT registration certificate. The application of the revised method should be modeled against the existing possibility to apply for the special input tax apportionment method.

Article 57 – Clause 1:

(Assets considered capital assets)

The amendment revises the definition of a capital asset by replacing the previous reference to a “single item of expenditure of the business” with a “business asset with a cost”. Accordingly, the revised wording focuses on the underlying business asset and its cost, rather than solely on the expenditure incurred.

The AED 5 million threshold, the requirement that VAT must be payable, and the applicable useful-life conditions remain unchanged. The amendment also introduces an express cross-reference to the Capital Asset Scheme provisions contained in Articles 12 and 60 of the VAT Decree-Law.

Article 60 – Clause 1 – Paragraph (a):

(Tax Credit Note)

Article 4 – Clause 6

(Supply of more than one component)

A new clause has been introduced to allow for a single treatment of supplies comprising multiple components where the nature and economic substance of the transaction demonstrate that the components are interconnected and cannot be separated. In such circumstances, the transaction will be deemed a single composite supply and will follow the VAT treatment of its principal component.

KPMG comments:

The amendment places greater emphasis on the commercial and economic substance of a transaction. Accordingly, separately identifying or pricing individual components may no longer, by itself, require treating them as separate supplies where they are economically inseparable.

Businesses supplying bundled goods or services should review their existing contractual arrangements, pricing structures and invoicing practices to determine whether the individual components are genuinely separate or form a single composite supply in economic substance.

Article 54 – Clause 3

(Special cases of input tax)

A new clause has been added introducing a restriction on input tax recovery for supplies exceeding a value to be specified by the Minister and where the related consideration is paid or intended to be paid in cash.

KPMG comments:

Previously, the method used to settle the consideration did not, in itself, prevent input tax recovery, provided the general recovery conditions were satisfied. The new provision may therefore result in input tax being blocked on high-value supplies settled, or intended to be settled, in cash.

The monetary threshold and detailed application of the restriction will be prescribed in a separate Ministerial Decision. Businesses should monitor further developments and review their cash-payment arrangements, procurement processes and payment controls.

Article 55 – Clause 19:

(Apportionment of input tax)

A new clause has been introduced to establish a separate input tax apportionment method for Government Entities and Charities. Unlike other taxable persons, which will move to an output-based method calculated by reference to the value of supplies, Government Entities and Charities will continue to apply an input-tax-based method.

The recovery percentage will be calculated by dividing directly recoverable input tax by the total directly recoverable and non-recoverable input tax for the Tax Period. The resulting percentage will be rounded to the nearest whole number and applied to residual input tax.

This provision will apply from the first Tax Year commencing after 1 October 2027.