A client asked me last week whether the new VAT amendments meant re-running every input tax claim since 2018. They do not. But Cabinet Decision 149 of 2026 does change how staff housing, cash-paid suppliers, credit notes and mixed-use costs are treated, and most of it applies from 1 October.
A client asked me last Thursday whether Cabinet Decision 149 of 2026 meant going back through every input tax claim the company had made since registration. It does not. Nothing in the decision is retrospective. What it does do is change a handful of rules that sit right in the middle of how DIFC and free zone businesses actually run their books: staff housing, suppliers paid in cash, the heading on a credit note, and how a company with some exempt income works out what it can recover.
A finance manager at a free zone logistics company rang us last Tuesday with a simple question: does the company flat she was about to renew for three warehouse supervisors now change the VAT she can recover? A fortnight ago the answer was settled. Since Cabinet Decision No. 149 of 2026, it depends on paperwork she did not know she needed.
The decision was issued on 1 September 2026 and amends the VAT Executive Regulation (Cabinet Decision No. 52 of 2017). Most of it applies from 1 October 2026. The rewrite of the apportionment rules in Article 55 waits until the first tax year starting after 1 October 2027, which buys partially exempt businesses a year, not a reprieve.
The large advisory firms have already published article-by-article summaries, and they are worth your time. This is narrower. It takes four kinds of company we sit down with every week and asks what each one should actually change before the end of the month.
Three deadlines landing in the same six weeks
The timing is unkind. Companies with a 31 December 2025 year-end have their first corporate tax return due on 30 September 2026. The VAT amendments start the next day. And businesses with revenue of AED 50 million or more must appoint an Accredited Service Provider for e-invoicing by 30 October 2026, ahead of go-live in January 2027.
For a finance team of two in a DIFC office, that is three separate projects competing for the same people. Our advice is to sequence them, not to run them in parallel: file the return, then do the short list of VAT fixes below, then return to the e-invoicing workstream with cleaner templates and master data.
Staff housing is where most free zone employers will feel it
Take a logistics company in a Jebel Ali free zone that houses forty warehouse staff and pays for a serviced building, maintenance and utilities. The question is how much of the VAT on that it can recover.
The amended Article 53, as set out in IR Global's commentary on the published text, gives two routes to input tax recovery on goods and services provided to employees:
- where the benefit is mandatory under UAE labour law or the labour law of a free zone, including the financial free zones
- where it is a contractual obligation or provided under a documented company policy, subject to cases and conditions the FTA specifies
Accommodation is carved out of the first route. It only counts as mandatory if a decision or directive of the Ministry of Human Resources and Emiratisation requires it. So "the law makes us house them" is no longer an argument you can make on general grounds. As far as we are aware, DIFC's employment law does not require an employer to house staff, so a DIFC firm providing apartments for senior hires will be relying on the second route.
That second route turns on paperwork. If housing is written into the employment contract or a dated, approved company policy, you have something to show. If it was agreed on WhatsApp during an offer negotiation and never documented, you do not. The FTA's cases and conditions for the contractual route are still something to confirm against current FTA guidance before you build a claim on them.
One thing from practice. A surprising amount of housing VAT is not recoverable for a much duller reason: the lease or the serviced apartment invoice is in the employee's name, not the company's. We see this constantly with executives who found their own flat and the company simply reimburses. No change in the regulation fixes an invoice addressed to the wrong person. And bear in mind that a standard residential lease is generally exempt anyway, so the VAT in question is usually on serviced accommodation, furnishings, maintenance and utilities rather than the rent itself.
The advisory firm with exempt income
Here is the scenario that will take the most modelling, although not before October. A DIFC advisory company earns standard-rated fees from clients and also has interest income on loans to other group companies. Interest is generally an exempt financial service, which makes the company partially exempt, and its office rent, software and audit fees have to be split.
The amended Article 55 sets out a method based on supply values: recoverable supplies divided by total supplies, rounded to the nearest whole number, applied to the residual input tax. Supplies of capital assets and reverse-charge receipts of concerned goods and services under Article 48 of the VAT Decree-Law are excluded from the calculation.
The current standard method works off input tax rather than supply values. So the effect on your recovery rate could go either way. A company whose exempt income is large in value but costs little to generate, such as a single intra-group loan, may find its recovery rate falls under a turnover test.
This part does not apply from 1 October 2026. It starts with the first tax year beginning after 1 October 2027. What I would do now is take the 2025 and 2026 figures, run both calculations side by side, and see whether the answer moves by more than a point or two. If it does, that gives you a year to restructure how income is booked, or to raise the method question with your adviser well before it bites.
The sources do not agree on charities and government entities
The Ministry's announcement, as reported by Gulf News and summarised by VATupdate and Bazaar Times, says the existing methodology for government entities and charities remains unchanged. IR Global describes a new Clause 19 in Article 55 that gives them a separate mechanism based on recoverable input tax over total input tax. Both can be true if the new clause simply preserves the old input-based approach for those bodies while everyone else moves to a supply-based test. Few of our clients are charities, but if you run a family foundation with charitable activity, confirm against the FTA's published text rather than either summary.
Paying suppliers in cash
The new Article 54(3) says input tax may not be recoverable on a supply above an amount to be set by a Ministerial decision, where the consideration is paid or intended to be paid in cash. The Ministry has framed this as an anti-evasion measure.
There is no threshold yet. Anyone quoting a figure to you is guessing. The provision is part of the package that starts on 1 October 2026, but it has no practical bite until the Minister of Finance publishes the amount and the controls.
That does not mean waiting. A services firm that pays a fit-out contractor, a printer or a driver agency in cash should move those relationships to bank transfer now, while it is a routine supplier conversation rather than a scramble. "Intended to be paid in cash" is broad wording, so invoices that say "cash on delivery" are worth changing too.
Group recharges and the composite supply rule
A new Clause 6 in Article 4 says that a supply with several components is treated as a single composite supply where its nature and economic substance show the components are interconnected and cannot be separated. The VAT treatment then follows the principal component.
For groups outside a VAT group, a monthly recharge from a DIFC holding company to its operating subsidiaries often bundles several things: a desk in the shared office, a share of the finance team, software licences, perhaps a car. How that recharge is described in the intercompany agreement and on the invoice matters more now. If each element is genuinely separate and priced separately, say so in the agreement. If it is one management service with incidental parts, describe it that way, consistently, across the agreement, the invoice and your transfer pricing file.
The e-invoicing data model will expose any mismatch. We covered that interaction in our piece on e-invoicing for DIFC and free zone groups.
Smaller changes that still need someone to check
Tax credit notes. The amended Article 60 requires the words "Tax Credit Note" to be clearly displayed. In our experience a fair number of templates still print whatever heading the software vendor chose on the day it was installed, sometimes "Credit Memo", sometimes just "Credit". It takes ten minutes to fix and is easy to forget.
Customers who are only visiting. Article 52 now treats a person as outside the UAE if they are present for less than 30 days and that presence is not effectively connected with the supply. For an advisory firm billing an overseas family that flew in for a week of meetings, this gives a clearer test when deciding whether a service can be zero-rated as an export. Keep a note of travel dates on the client file.
Capital assets. Article 57 now defines a capital asset as one costing AED 5 million or more excluding VAT, on which VAT is payable, with a useful life of at least 10 years for buildings and 5 years for other assets. Most of our clients will have nothing in scope. Companies that own their office floor should check.
Purchase price and healthcare. Article 29 now includes non-recoverable purchasing costs in the purchase price of goods, and Article 41 revises zero-rating for medical products and goods necessary for zero-rated healthcare services. Clinics and healthcare suppliers will want specialist review of the latter.
A working table for the next two weeks
| Change | Who it touches | What to do before 1 October |
|---|---|---|
| Employee benefits and housing (Article 53) | Employers providing accommodation or other staff benefits | Check housing is in contracts or a dated policy; find invoices in employees' names |
| Cash payments (Article 54(3)) | Businesses paying any supplier in cash | List cash-paid suppliers and move them to bank transfer; watch for the Ministerial decision |
| Tax credit notes (Article 60) | Every VAT-registered business issuing credit notes | Update templates to show "Tax Credit Note" |
| Composite supplies (Article 4(6)) | Groups recharging bundled costs; firms selling packages | Align intercompany agreements and invoice descriptions |
| Outside the State test (Article 52) | Advisory and professional firms with overseas clients | Record client presence in the UAE where zero-rating exports |
| Capital Asset Scheme (Article 57) | Owners of property or high-value plant | Check the fixed asset register against the new definition |
| Apportionment (Article 55) | Partially exempt companies, including those with intra-group interest | Nothing by 1 October; model old and new methods before the 2027 start |
Where we would start on Monday
If you only have a morning, do the credit note template and pull the list of suppliers paid in cash. Both are quick, and both touch the e-invoicing preparation you will be doing in October anyway. Housing takes longer because it means reading contracts, so put HR and finance in a room for an hour before the end of September.
If you have not looked at your broader tax calendar since the corporate tax regime started, our DIFC annual compliance calendar and the overview of UAE corporate tax for DIFC companies put these dates in context.
Atlas handles VAT registration, returns and bookkeeping for DIFC, ADGM and free zone companies through our accounting and tax service. Atlas is part of the GTAG/Assetica group, and where a question needs a formal tax opinion, such as a special apportionment method or a disputed housing claim, we work with GTAG's tax advisory team. If any of the scenarios above sound like your company, get in touch and we can go through your figures before 1 October.
Frequently Asked Questions
When do the UAE VAT Executive Regulation amendments take effect?
Cabinet Decision No. 149 of 2026 was issued on 1 September 2026 and most of its provisions apply from 1 October 2026. The revised input tax apportionment rules in Article 55 apply later, from the first tax year starting after 1 October 2027. Confirm the dates that apply to your registration against the text published by the Ministry of Finance and the FTA.
Can a UAE company still recover VAT on employee accommodation?
Under the amended Article 53, as reported by commentators on the published text, accommodation is excluded from the category of benefits that are mandatory under labour law unless the Ministry of Human Resources and Emiratisation requires it. Recovery may still be possible where housing is a contractual obligation or provided under a documented company policy, subject to cases and conditions the FTA specifies. Check your employment contracts and policies before claiming.
What is the cash payment threshold for input tax recovery in the UAE?
The threshold has not been set yet. The new Article 54(3) says input tax may not be recoverable on supplies above an amount to be fixed by a Ministerial decision where payment is made in cash, subject to controls in that decision. Until the decision is published, the practical step is to move regular suppliers onto bank transfer and keep payment evidence.
Does a tax credit note now need specific wording?
Yes. The amended Article 60 requires the words "Tax Credit Note" to be clearly displayed on the document. Templates in accounting software often carry a different default heading, so check what your system actually prints before 1 October 2026.
How will the new input tax apportionment method affect a partially exempt company?
The amended Article 55 calculates recoverable input tax on residual costs using the value of recoverable supplies divided by total supplies, rounded to the nearest whole number, with supplies of capital assets and reverse-charge receipts excluded. A company with exempt income such as interest on intra-group loans may get a different recovery rate from the one it uses today. The new method does not apply until the first tax year starting after 1 October 2027, which leaves time to model the effect.
What counts as a capital asset under the UAE Capital Asset Scheme after the amendments?
As reported on the amended Article 57, a capital asset is a business asset costing AED 5 million or more excluding VAT, on which VAT is payable, with an estimated useful life of at least 10 years for a building or part of a building and at least 5 years for other assets. Review your fixed asset register against each of those conditions. Confirm the exact wording against the FTA's published text.
Do these VAT changes affect e-invoicing preparation?
They overlap. Credit note wording, supplier master data and how recharges are described all flow into the data your Accredited Service Provider will transmit. Businesses with revenue of AED 50 million or more must appoint a provider by 30 October 2026, so it makes sense to fix templates once rather than twice.