13 September 2026
From 1 October 2026, companies in the UAE can recover input VAT on accommodation for employees under the labour law exception only where decisions or directives of the Ministry of Human Resources and Emiratisation (MoHRE) make that housing mandatory, and they lose input tax on any supply above a threshold still to be set by the Minister of Finance if it is paid, or intended to be paid, in cash. Both rules come from Cabinet Decision No. 149 of 2026, issued on 1 September 2026, whose text now sits in the consolidated VAT Executive Regulation published on the Federal Tax Authority (FTA) website. A third change, a turnover based method for apportioning input tax, starts with the first tax year that begins after 1 October 2027.
What the published text confirms
When the Ministry of Finance announced the decision on 8 September 2026, it listed the areas covered by the amendments but did not publish the text of the decision or its effective date. That is how we described it in our first article on Cabinet Decision No. 149 of 2026 and the VAT Executive Regulation. The gap is now closed. The consolidated Executive Regulation, updated in September 2026 and marked as published by the Ministry of Finance, lists the decision as issued on 1 September 2026 with effect from 1 October 2026 and flags every changed clause in a footnote. Gulf News reported on the amended rules on 13 September 2026, with comments from Justin Whitehouse of Alvarez & Marsal and Samer Hasn of XS.com. The table maps the changes.
| Provision | What changes | Applies from |
|---|---|---|
| Article 53(1)(c)(1), staff accommodation | The labour law exception no longer covers housing provided by the employer unless MoHRE decisions or directives make it mandatory | 1 October 2026 |
| Article 53(1)(c)(2), other employee benefits | Recovery through a contractual obligation or documented policy follows cases and conditions set by the FTA | 1 October 2026 |
| Article 54(3), cash payments | No input tax on a supply above the amount set by the Minister where the consideration is paid or intended to be paid in cash | 1 October 2026, threshold not yet set |
| Article 4(6), composite supplies | Interconnected components that cannot be separated form one supply taxed by its principal component | 1 October 2026 |
| Article 41(4), healthcare | Zero rate for medical products specified in a Cabinet decision and for other goods necessary for zero rated healthcare services | 1 October 2026 |
| Article 29(5), profit margin scheme | The purchase price includes costs and fees on which input tax is not recoverable | 1 October 2026 |
| Article 52(2), financial services to non-residents | A recipient is outside the UAE if present for less than 30 days and the presence is not connected with the supply | 1 October 2026 |
| Article 57(1), Capital Assets Scheme | A business asset costing AED 5,000,000 or more excluding tax, with a useful life of 10 years for buildings and 5 years for other assets | 1 October 2026 |
| Article 60(1)(a), tax credit notes | The words “Tax Credit Note” must be clearly displayed | 1 October 2026 |
| Article 55(6), (7) and (19), apportionment | Share of supplies with a right of recovery in total supplies; a separate input based formula for government entities and charities | First tax year starting after 1 October 2027 |
Staff accommodation: the labour law route now runs through MoHRE
Article 53 of the Executive Regulation lists input tax that cannot be recovered. One category is goods or services bought for employees at no charge to them and for their personal benefit, including entertainment services, and the Regulation defines entertainment services to include accommodation. Until 30 September 2026 the first exception covers provision that is a legal obligation under the labour law of the UAE or a designated zone. From 1 October 2026 it covers goods or services that are mandatory under labour legislation in the State or any free zone, including financial and non-financial free zones, “provided that this does not include the accommodation provided by the employer to its employees, unless the provision of such accommodation is mandatory pursuant to the decisions or directives issued by the Ministry of Human Resources and Emiratisation”.
The VAT text does not name a specific MoHRE instrument. The current MoHRE rule on labour accommodation is Ministerial Resolution No. 122 of 2026, issued on 18 February 2026. It applies to establishments with 50 or more workers where the monthly wage in the worker’s employment contract does not exceed AED 1,500; workers paid on commission at occupational level five or higher are exempt from the wage condition. Such an employer must provide labour accommodation for its workers in accommodation approved and registered in the Ministry’s systems and keep that data up to date. Local authorities may, after coordination with MoHRE, widen the scope in their emirate by lowering the headcount limit, raising the wage limit, or both.
Leases of residential buildings are exempt from VAT, apart from a zero rated first supply within three years of completion, so the condition matters most for housing costs that carry VAT. Article 37 of the Regulation excludes hotels, hotel and serviced apartments, and any place that is not a building fixed to the ground and can be moved without being damaged from the definition of a residential building. Gulf News lists construction, contracting, hospitality, manufacturing, facilities management, oil and gas, and logistics among the sectors likely to be most exposed. Justin Whitehouse, Managing Director and Global and Middle East Indirect Tax Leader at Alvarez & Marsal, noted that many businesses in them have traditionally recovered VAT on labour accommodation, staff housing and camp operating costs, and summed up the change: “The amended provision carves accommodation out of the general labor law route, and it qualifies only where MoHRE mandates it.”
The first exception refers to labour legislation of the State or any free zone, while the carve back for accommodation refers only to MoHRE decisions or directives. The text does not say how the accommodation condition applies to free zone employers, whose staff usually receive work permits through the free zone authority rather than MoHRE. The difference between the two regimes is covered in our guide to mainland and free zone companies in the UAE.
The second exception has also been rewritten. Until now a contractual obligation or documented policy qualified where the benefit was provided so that employees could perform their role and this was normal business practice. From 1 October 2026 it applies “in accordance with the cases and conditions specified by the Authority”, and according to Gulf News the FTA had not specified those cases and conditions as of 13 September 2026. This sub-clause does not mention accommodation. Samer Hasn, Senior Market Analyst at XS.com, told Gulf News that recovery for non-housing staff benefits remains available through contracts or documented policies, provided they meet those cases and conditions.
Cash payments: Article 54(3) and the threshold still to come
New Clause 3 of Article 54 reads: “Input Tax may not be recovered on any supply which has a value exceeding the amount specified in a decision issued by the Minister where the consideration is paid or intended to be paid in cash, in accordance with the controls specified in that decision.” Until now Article 54 tied recovery to the part of the consideration paid in a tax period, or intended to be paid within six months after the agreed payment date, without looking at how it was paid. The payment method now matters for the first time.
Three points follow from the wording. The test is the value of the supply, not the size of the cash payment, and Whitehouse noted that a partial cash settlement could potentially affect VAT recovery on the wider supply, depending on how the provision is interpreted and applied. The words “intended to be paid” reach a cash payment that is planned but not yet made. And the amount and the controls sit in a separate Ministerial decision, which was not on the FTA legislation page when we checked on 13 September 2026. Whitehouse called the rule “a standalone restriction” that “sits outside the existing ineligible categories of recoverable input tax”, and pointed to retail, food and beverage businesses, subcontractor payments, site petty cash and cash on delivery operations as the places to look first.
For a company that still pays suppliers in cash because its operating account is not open yet, opening a corporate bank account is now a VAT question as well as a banking one.
Apportionment: a turnover test from the first tax year after 1 October 2027
Businesses that make both taxable and exempt supplies, such as landlords of residential property, banks, life insurers and local passenger transport operators, recover only part of their residual input tax, the VAT on costs that serve both kinds of supply. Under the current Clause 7 of Article 55 the recovery percentage is recoverable tax as a share of total input tax for the tax period. The amended Clause 7 replaces that with a turnover test: the value of supplies listed in Clause 1 of Article 54 of the VAT Decree-Law, the supplies that carry a right to recover input tax, divided by the value of all supplies. Supplies of the company’s own capital assets and goods and services received under the reverse charge of Article 48 are excluded, and the result is rounded to the nearest whole number.
A simple illustration of the new formula: a company with AED 8 million of taxable supplies and AED 2 million of exempt residential rent in a tax year has a recovery percentage of 80%, so AED 80,000 of AED 100,000 residual input tax is recoverable. Government entities and charities get a separate formula in new Clause 19 that stays input based: recoverable input tax divided by total recoverable and non-recoverable input tax. The rest of Article 55 is not marked as amended, including the calculation for each tax period, the annual adjustment in the first tax period of the next tax year, the mandatory adjustment when the result differs from actual use by more than AED 250,000, and applications for an alternative method or a specified recovery percentage.
Which date is “the first tax year commencing after 1 October 2027” depends on the company’s VAT tax periods. Based on the tax year definitions in Clauses 1 to 3 of Article 55:
| VAT tax periods | Tax year | New method applies from |
|---|---|---|
| Quarterly, ending in January, April, July and October | 1 February to 31 January | 1 February 2028 |
| Quarterly, ending in February, May, August and November | 1 March to the last day of February | 1 March 2028 |
| Quarterly, ending in March, June, September and December | 1 April to 31 March | 1 April 2028 |
| Monthly | Calendar year | 1 January 2028 |
| Twelve months | Same as the tax period | The first such period starting after 1 October 2027 |
A tax year also ends early on deregistration or when a company joins or leaves a tax group, so companies in those situations should confirm the date against their own FTA records.
Other amendments from 1 October 2026
Composite supplies. New Clause 6 of Article 4 stops a taxable person from treating a supply with several components as multiple supplies where its nature and economic substance show that the components are interconnected and cannot be separated. Such a supply is a single composite supply taxed according to its principal component, so contracts that combine components with different VAT treatment should be read against this test.
Healthcare, margin scheme, non-residents, capital assets and credit notes. Clause 4 of Article 41 now zero rates the supply or import of any medical product specified in a Cabinet decision and of any other goods supplied in the course of zero rated healthcare services that are necessary for those services. Clause 5 of Article 29 adds to the purchase price under the profit margin scheme any costs or fees incurred to buy the goods where the input tax on them is not recoverable. Under Clause 2 of Article 52, a recipient of financial services counts as outside the State if present in the UAE for less than 30 days and the presence is not effectively connected with the supply. Clause 1 of Article 57 defines a capital asset as a business asset with a cost of AED 5,000,000 or more excluding tax and a useful life of at least 10 years for a building and 5 years for other assets. Paragraph (a) of Clause 1 of Article 60 requires the words “Tax Credit Note” to be clearly displayed on the credit note.
What to check before 1 October 2026
- List supplier payments made in cash over the last 12 months by supplier and invoice value, and move the larger ones to bank transfer or corporate card before the threshold is announced.
- Identify every staff housing cost on which input tax is recovered, including camp operation, furnishing, maintenance and serviced accommodation, and check whether a MoHRE decision or directive, such as Ministerial Resolution No. 122 of 2026, makes that housing mandatory.
- Collect the employment contracts and HR policies behind other benefits on which VAT is recovered, ready to test them against the FTA’s cases and conditions once they are published.
- Review contracts that combine several goods or services under the new composite supply rule.
- Update credit note templates so that the words “Tax Credit Note” appear clearly.
- If the company makes exempt supplies, note the start date of its first tax year after 1 October 2027 and run the new turnover percentage on last year’s figures.
- Watch the FTA legislation page for the Ministerial decision on the cash threshold.
How Atlant Capital Can Help
Atlant Capital sets up companies on the UAE mainland and in free zones and builds the licence, visas and bank accounts around the way the business actually operates. We open corporate bank accounts so that supplier payments run through the bank, and we arrange employment visas and work permits for owners and staff. VAT registration, returns, apportionment calculations and the review of contracts under the amended Executive Regulation are handled by licensed accounting and tax firms from our partner network. Contact us to discuss your company’s situation.
Conclusion
On 13 September 2026 businesses have 18 days before most of Cabinet Decision No. 149 of 2026 applies. Two changes matter first for most companies: VAT recovery on staff housing through the labour law exception now depends on a MoHRE mandate, and any large purchase paid in cash will lose its input tax once the Minister sets the threshold. Employee benefits wait for the FTA’s cases and conditions, and businesses with exempt supplies have until their first tax year after 1 October 2027 to move to the turnover formula. A company that pays suppliers through the bank, documents its employee benefits and knows its tax year dates will have little to change.
Sources: Federal Tax Authority, consolidated Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax (Cabinet Decision No. 52 of 2017 and its amendments, as published by the Ministry of Finance, September 2026 edition), Articles 4, 29, 41, 52, 53, 54, 55, 57 and 60; Ministry of Human Resources and Emiratisation, Ministerial Resolution No. 122 of 2026 Regarding the Update of Labour Accommodation Requirements, issued on 18 February 2026; Ministry of Finance statement of 8 September 2026; Gulf News report of 13 September 2026; FTA legislation page as checked on 13 September 2026.
Source: Gulf News.
FAQ
When do the UAE VAT changes under Cabinet Decision No. 149 of 2026 take effect?
Cabinet Decision No. 149 of 2026 was issued on 1 September 2026, and most of its amendments to the VAT Executive Regulation apply from 1 October 2026, including the rules on staff accommodation, employee benefits, cash payments, composite supplies and tax credit notes. The new input tax apportionment method in Article 55 applies later, from the first tax year that starts after 1 October 2027. The cash rule also needs a separate decision of the Minister of Finance that sets the threshold.
Can a UAE company recover VAT on staff accommodation from 1 October 2026?
Under the amended Article 53, the labour law exception no longer covers accommodation provided by an employer unless it is mandatory under decisions or directives of the Ministry of Human Resources and Emiratisation. MoHRE Ministerial Resolution No. 122 of 2026 requires establishments with 50 or more workers whose contractual monthly wage does not exceed AED 1,500 to provide labour accommodation approved and registered with the Ministry. Housing outside such a mandate should not be assumed to qualify, and other employee benefits depend on a contract or documented policy under cases and conditions the FTA has yet to publish.
What is the cash payment threshold for input VAT recovery in the UAE?
No amount has been published yet. New Clause 3 of Article 54 blocks input tax recovery on any supply whose value exceeds an amount set in a decision of the Minister of Finance where the consideration is paid, or intended to be paid, in cash, subject to the controls in that decision. The clause is part of the amendments that apply from 1 October 2026, but the threshold decision was not on the FTA legislation page on 13 September 2026.
How will input tax apportionment change for UAE businesses with exempt supplies?
From the first tax year that starts after 1 October 2027, the recoverable share of residual input tax will equal the value of supplies that carry a right to recover input tax divided by the value of all supplies, rounded to the nearest whole number. Supplies of capital assets and goods and services received under the reverse charge in Article 48 are left out of the calculation, and government entities and charities use a separate input based formula. Until then the current method, based on the share of recoverable input tax in total input tax, continues to apply.
