UAE Tax & Regulatory Newsletter

VAT Refund for UAE Nationals Building New Residences (VATGRH1)

Overview

The FTA has issued its updated VAT Guide, VAT Refund for UAE Nationals Building New Residences (VATGRH1 — June 2026), consolidating guidance on the New Residences Refund Scheme. The Scheme allows a UAE National who owns or acquires land in the UAE, and who builds or commissions the construction of his or her own residence, to recover VAT incurred on certain construction-related expenses, subject to the conditions in Article 66 of the VAT Executive Regulation.

The Guide reflects the EmaraTax and "Maskan" application process, adds a set of common errors observed by the FTA, and — most notably — updates the list of eligible expense items to reflect FTA Decision No. 5 of 2026 on Adding Eligible Items for the Recovery of VAT Incurred on the Construction of Residences of UAE Nationals, which took effect from 1 January 2026.

Who Can Apply

A Refund Request may only be made by a natural person who is a UAE National and holds Family Data (the digital successor to the Family Book). The claimed building must be a newly constructed residence used solely by the Applicant and/or his or her family — a building used for any other purpose, such as being leased out, is not eligible.

How to Apply

Applications are submitted via EmaraTax or the Maskan smart application, which are synchronised. Maskan allows a UAE National to scan and link supplier Tax Invoices directly to their account and provides an estimated refund amount, subject to eligibility and verification. Once submitted, eligible claims are reviewed by the FTA and may be passed to an independent Verification Body (free of charge to the Applicant) for detailed review of expenditure and supporting documents. Review and refund typically takes up to 20 Business Days from submission of all required documents.

Deadlines

Eligible Expense Items

VAT may only be recovered on building materials normally incorporated into the residence (excluding furniture and electrical appliances) and on Services provided by contractors — builders, architects, engineers and similar construction-related Services. FTA Decision No. 5 of 2026 has expanded the list of qualifying items, effective 1 January 2026:

Required Documents

• Copy of the Applicant's Emirates ID and Family Data (Family Sequence Number).
• Copy of the property completion certificate, building permit, and site plan.
• Documentary evidence of ownership of the plot of land.
• A stamped bank letter/certificate confirming account holder name, bank name and IBAN.
• Power of attorney (where applying on behalf of the owner) or court permission (where applying on behalf of minors).
• Tax Invoices and proof of payment — Simplified Tax Invoices are not accepted, and invoices must show valid TRNs, correct VAT amounts, and (where issued to a related party, consultant, contractor or agent) confirmation that the issuer is not separately recovering the same Input Tax.

Common Errors Identified by the FTA

• Application details not matching supporting documents (e.g. Emirates ID, building permit, bank letter).
• Missing or incomplete bank letter confirming the Applicant's IBAN, including bank letterhead.
• Missing completion certificate issued by the relevant Municipality, where applicable.
• Missing Power of Attorney where the property has multiple owners and one owner is applying on the others' behalf.

Key Takeaways

• The New Residences Refund Scheme allows UAE Nationals to recover VAT on eligible construction costs for a residence used solely by themselves or their family.
• FTA Decision No. 5 of 2026 (effective 1 January 2026) has expanded the eligible expense list to include items such as staff-room extensions, garages/carports, gyms/play rooms, landscaped agricultural areas, reconstruction works, integrated smart/security systems, and swimming pools/water features.
• Applications must be submitted within 12 months of completion (with limited exceptions), and retention payment claims within 6 months of payment.
• UAE Nationals planning or completing residential construction should review the updated Appendix 1 eligible items list and ensure Tax Invoices are correctly addressed to support a smooth refund claim.
• If the amount of a refund already claimed is later found to be overstated, a Voluntary Disclosure must be submitted to correct the position.

FTA Decision No. 11 of 2026 Amendment to the Tax Refunds for Tourists Scheme

Overview

The Federal Tax Authority (FTA) has issued Federal Tax Authority Decision No. 11 of 2026, further amending Federal Tax Authority Decision No. 2 of 2018 on the Tax Refunds for Tourists Scheme (as previously amended by Decisions No. 9 of 2023 and No. 2 of 2024). The amendment takes effect from 12 July 2026.

The Tax Refunds for Tourists Scheme allows an eligible Overseas Tourist to reclaim VAT incurred on qualifying purchases made in the UAE, provided the goods are exported within 90 days of supply and the applicable conditions are met.

What Has Changed

The key change introduced by Decision No. 11 of 2026 is a reduction in the fixed fee charged per refund claim, which is deducted (together with the administrative fee) by the Scheme Operator from the amount refundable to the Overseas Tourist.

Scheme Conditions That Remain Unchanged

Aside from the reduced fixed fee, the core mechanics of the Scheme are unaffected. In particular:

• The customer must qualify as an Overseas Tourist under Clause 3 of Article 68 of Cabinet Decision No. 52 of 2017, and must be present in the UAE at the time of purchase — either in-store or via an electronic platform, provided the goods are received personally.
• No VAT refund forms may be issued to a customer who is not over 18 years old.
• The Supply of Goods must have taken place within 90 days of the date the refund documents were requested, and the Operator must verify that the goods are exported outside the UAE within 90 days of the date of supply.
• Tax will not be refunded where Tax-inclusive purchases from the same Taxable Person are below AED 250.
• Goods excluded from the Scheme continue to include goods not accompanied by the tourist on departure, goods consumed (in full or in part) within the UAE or another Implementing State, and motor vehicles, boats and aircraft.
• The maximum cash VAT refund remains capped at AED 35,000 per Overseas Tourist per 24-hour period.

Practical Implications

This update is particularly relevant for:

• Retailers participating in the Tax Refunds for Tourists Scheme.
• The Scheme Operator and its authorised third parties responsible for verification and refund processing.
• Businesses in the retail, luxury goods, and tourism sectors that rely on the Scheme to support tourist spending.

Participating retailers and stakeholders should:

• Update any customer-facing communications or point-of-sale materials that reference the previous AED 4.80 fixed fee.
• Ensure retail and finance teams are aware that the new fee applies to refund claims processed from 12 July 2026 onward.
• Continue to apply the existing purchase, documentation and export verification procedures, which remain unchanged under the amended Decision.

Final Thoughts

Decision No. 11 of 2026 is a targeted, tourist-friendly amendment rather than a structural change to the Scheme. Businesses participating in the Tax Refunds for Tourists Scheme should nonetheless update internal references to the fee structure and confirm that their systems and staff reflect the revised fee applicable from 12 July 2026.

FTA Issues Directive on Tax Transactions No. 1 of 2026 VAT Treatment of Judicial Expert Services

Overview

The Federal Tax Authority (FTA) has issued Directive on Tax Transactions No. 1 of 2026, clarifying the Value Added Tax (VAT) treatment of services provided by Judicial Experts appointed by a competent court. The Directive confirms that fees earned by such experts for the performance of expert services fall within the scope of UAE VAT.

A “Judicial Expert” is defined as a natural or legal person registered in the Roster of Experts with the Ministry of Justice, a local judicial authority, or an arbitration centre, who is appointed by the competent court to provide Expert Services.

Key Highlights

• Expert Services provided by a Judicial Expert following a court appointment are treated as being supplied in the course of a Business in the UAE and constitute Taxable Supplies under Article 1 (Definitions) and Article 2 of the VAT Law.
• Any amount received by the Judicial Expert for such Expert Services constitutes Consideration for a supply of Services, as defined in Article 1 of the VAT Law.
• The Judicial Expert must comply with all legally prescribed tax obligations, including registering for VAT where the registration thresholds in Article 13 of the VAT Law and Article 7 of the VAT Executive Regulation are met, if not already registered.
• The receipt of Consideration for Expert Services from a Government Entity does not affect the VAT treatment of the supply — the service remains taxable regardless of the identity of the paying party.
• The Directive is to be published in the Official Gazette.

Practical Implications

This Directive is particularly relevant for:

• Individuals and firms registered in the Roster of Experts with the Ministry of Justice, local judicial authorities, or arbitration centres.
• Legal and arbitration practitioners who engage or rely on judicial experts as part of litigation or arbitration proceedings.
• Government entities and courts that appoint and remunerate judicial experts.

Judicial Experts and firms providing such services are encouraged to:

• Assess whether cumulative Taxable Supplies (including judicial expert fees) exceed the mandatory VAT registration threshold and register where required.
• Review fee structures and invoicing to ensure VAT is correctly charged on expert fees, including those received from government entities or courts.
• Maintain adequate documentation evidencing the nature of the appointment and the fees received.
• Assess historical positions where VAT may not previously have been applied to such fees, and seek professional advice on any corrective action required.

Final Thoughts

While the Directive does not introduce new legislative provisions, it removes any ambiguity as to whether judicial expert fees fall within the scope of VAT. Judicial experts and the parties who engage them should review current billing practices to ensure alignment with this Directive and continued compliance with the UAE VAT Law.

Directive No. 2 of 2026 — VAT Adjustments Following a Registrant's Exit from a Tax Group

Overview

The Federal Tax Authority (FTA) has issued Directive on Tax Transactions No. 2 of 2026, addressing how a Person that leaves a Tax Group — but remains separately registered for VAT — should treat adjustments to Output Tax and Input Tax relating to Taxable Supplies made, or Taxable Expenses incurred, while it was still a member of the Tax Group.

The Directive was issued on 8 July 2026 and is effective from 1 August 2026. It does not amend the VAT Law itself, but clarifies how the existing provisions of the VAT Law and its Executive Regulation should be applied in this specific scenario.

The Core Rule

Where a Person ceases to be a member of a Tax Group but remains a VAT Registrant, and adjustments arise relating to Taxable Supplies or Taxable Expenses incurred before it left the Tax Group, the Registrant must make those adjustments in its own Tax Returns — provided the underlying supplies or expenses were originally declared in the Tax Group's Tax Returns.

What Counts as an Adjustment

Record-Keeping Obligation

The Registrant must retain supporting documents and records evidencing that these adjustments relate to Taxable Supplies or Taxable Expenses that were previously declared in the Tax Group's Tax Returns. This evidence should be readily available to substantiate the adjustment in the event of an FTA audit or review.

Practical Implications

• Entities planning to leave, or that have recently left, a Tax Group should review open items — credit notes, returned goods, disputed invoices, and other post-exit adjustments — relating to their pre-exit trading period.
• Robust handover documentation between the Tax Group's representative member and the exiting entity is essential to identify which supplies and expenses were declared at group level and may require future adjustment.
• VAT return preparation processes should be updated to capture and correctly report these adjustments once the entity is filing independently.
• Historical records evidencing the original declaration within the Tax Group's returns should be retained and readily accessible.

Key Takeaways

• A Person leaving a Tax Group but remaining VAT-registered must self-adjust Output Tax and Input Tax relating to its pre-exit Taxable Supplies and Taxable Expenses.
• Adjustments specifically include reductions in previously declared Taxable Supplies and reductions in Taxable Expenses on which Input Tax was previously recovered.
• Supporting documents and records must be maintained to evidence the link between the adjustment and the amounts originally declared in the Tax Group's returns.
• The Directive is effective from 1 August 2026 — businesses with recent or upcoming Tax Group exits should assess their processes ahead of this date.

Directive No. 5 of 2026 — Valuing Deemed Supplies of Services

Overview

The Federal Tax Authority (FTA) has issued Directive on Tax Transactions No. 5 of 2026, setting out the methodology a Taxable Person must use to determine the value of a Deemed Supply of Services for the purposes of Article 37 of the VAT Law. The Directive was issued on 20 July 2026 (referenced by the FTA as corresponding to 6 Safar 1448H) and is published in the Official Gazette.

The Directive does not change the underlying rule that Deemed Supplies of Services are valued by reference to total costs on which Input Tax was incurred — it standardises how that cost figure should be calculated in practice.

The Core Rule

A Taxable Person making a Deemed Supply of Services must determine the value of that supply based on the total costs — both direct and indirect — on which Input Tax was incurred to make the Deemed Supply, in accordance with Article 37 of the VAT Law.

The Four-Step Valuation Mechanism

Practical Implications

• Businesses that make Deemed Supplies of Services — for example, services provided free of charge or for no consideration in circumstances captured by Article 37 — will need to apply this four-step mechanism rather than relying on ad hoc cost estimates.
• The net profit margin used in Step 2 should be sourced from the Taxable Person's own audited or management financial statements for the preceding financial year; sector averages should only be used where a Person-specific margin genuinely cannot be determined.
• Cost accounting and finance teams should ensure they can identify, from their financial records, which costs specifically carried recoverable Input Tax, to support the Step 3 and Step 4 calculations.
• Because the calculation relies on prior-year financial statements, this valuation approach may require closer coordination between the finance/accounting function and the VAT compliance function.

Key Takeaways

• Deemed Supplies of Services must be valued based on total costs on which Input Tax was incurred (direct and indirect), per Article 37 of the VAT Law.
• The FTA has now prescribed a specific four-step formula: determine OMV, strip out the profit margin, calculate the Input-taxed cost ratio, then apply that ratio to the estimated cost base.
• Where a Person's own net profit margin cannot be determined, the average margin for the relevant sector may be used instead.
• Businesses making Deemed Supplies of Services should review and, where necessary, update their valuation workpapers to reflect this prescribed methodology.

Verifying Suppliers Before Claiming Input Tax (Decision No. 13 of 2026)

Overview

The Federal Tax Authority (FTA) has issued Decision No. 13 of 2026 on the Measures, Procedures and Conditions required by Taxable Persons for the Verification of the Validity and Integrity of Supplies before Deduction of Input Tax. The Decision was issued on 22 July 2026 and takes effect from 1 October 2026.

The Decision operationalises Article 54(bis) of the VAT Law by setting out concrete due diligence steps a Taxable Person must carry out on its suppliers and on the supplies it receives, before that Input Tax can be deducted. It effectively shifts part of the compliance burden for combating Tax Evasion onto the recipient of a supply, not only the supplier.

This is a significant procedural change: businesses will need documented onboarding and ongoing monitoring processes for suppliers, not just valid tax invoices, to support Input Tax recovery.

Applicability of the Guide

The Decision applies to all Taxable Persons registered, or obligated to register, for VAT in the UAE, in respect of the supplies they receive. It is particularly relevant for businesses that:

• Deal with a large or changing supplier base;
• Transact with new suppliers on a frequent basis;
• Have supplies from any single supplier exceeding AED 100,000 in a rolling 12-month period;
• Rely on intermediaries, agents, or third parties in the payment chain; or
• Make cash payments to suppliers.

Verifying the Supplier (Article 3)

A Taxable Person must verify the identity, place of business and risk profile of each supplier, generally when dealing with them for the first time, or where the supplier has not been verified within the previous 12 months.

Identity Verification

Place of Business

• Confirm the supplier has an actual place of business, via electronic means or a field visit.
• Ensure the place of business is consistent with the nature of the supplier's activities.

Risk Indicators

The Taxable Person must confirm that none of the following applies to the supplier — or retain a documented, justified explanation where one does:

• The supplier has changed its address more than twice in the previous 12 months;
• The supplier has changed its key employees (managers or the Taxable Person's contacts) more than twice in the previous 12 months;
• The supplier's transactions are disproportionate or unexpected in volume, value or nature relative to its business size and history.

Bank Account & Reputation Check (Higher-Value Suppliers)

Where supplies received from a supplier exceed, or are expected to exceed, AED 375,000 over a rolling 12-month period, the Taxable Person must additionally:

• Obtain written confirmation from a UAE-authorised bank that the supplier holds a bank account (unqualified, and not required to be issued to the recipient); and
• Review publicly available reviews and media coverage on the supplier from reliable sources, checking consistency with the supplier's business and the absence of Tax Evasion indicators.

Verifying the Supply (Article 4)

For each Taxable Supply received, the Taxable Person must also assess the transaction itself:

• General assessment: confirm the supplier's engagement is based on genuine commercial reasons.
• Payment terms: the payment method must be commercially justifiable. Third-party involvement in payment, or payment to a bank account outside the supplier's country of incorporation, requires a reasonable, documented commercial explanation. Payment should be electronic; cash payments must have a documented reason, remain within legislated thresholds, and be easily verifiable.
• Pricing: prices or profit margins must not be commercially unjustifiable or materially out of line with market conditions without clear reason.
• Scope of activity: the goods or services supplied must fall within the supplier's ordinary or licensed activity.
• Goods authenticity: verify the authenticity, origin and the supplier's valid ownership or right to dispose of goods received.
• Intermediaries: where the supplier acts as an intermediary, a clear commercial explanation for that role must be verified.

Documentation & Governance (Article 5)

Taxable Persons must:

• Carry out and document the Article 3 supplier checks, and Article 4 supply checks as set out above;
• Retain supporting documents and records evidencing the verification steps taken, available for FTA review; and
• Maintain a documented internal policy naming the persons responsible for implementing, reviewing and supervising these procedures, including their powers and responsibilities, retained with the business's tax records.

Exceptions (Article 6)

A Taxable Person may disregard the above measures for a Taxable Supply where the consideration, exclusive of VAT, is less than AED 10,000.

This exception does not apply, however, where total supplies received from that supplier exceed, or are expected to exceed, AED 100,000 over a rolling 12-month period — in which case full verification is required regardless of individual invoice value.

Effective Date

The Decision comes into effect on 1 October 2026.

Business Impact

• Input Tax recovery is now conditional not only on holding a valid tax invoice, but on demonstrable supplier and transaction due diligence.
• Procurement and AP onboarding processes will need updating to capture ID documents, incorporation checks, bank confirmations and risk-indicator monitoring.
• Businesses with high-value or recurring suppliers (over AED 375,000 or AED 100,000 thresholds) face the most immediate action points.
• A documented internal governance policy assigning responsibility for these checks is now a mandatory record, not just good practice.
• Existing supplier relationships should be reviewed ahead of 1 October 2026, since dealings with unverified suppliers within the last 12 months will trigger the verification requirement.

Key Takeaways

• Effective 1 October 2026 — Decision No. 13 of 2026 applies to all Taxable Persons in respect of supplies they receive.
• Input Tax recovery now depends on documented supplier and transaction due diligence, not just a valid tax invoice.
• Full verification (ID/incorporation, place of business, risk indicators) is required for new suppliers, and for existing suppliers not verified in the past 12 months.
• Enhanced checks (bank confirmation + reputation review) kick in once supplies from a single supplier exceed AED 375,000 over a rolling 12-month period.
• The AED 10,000 per-supply exception does not apply once total supplies from that supplier exceed AED 100,000 over a rolling 12-month period.
• A documented internal policy naming who is responsible for these checks must be retained and made available to the FTA on request.
• Businesses should review supplier onboarding and AP processes now, ahead of the 1 October 2026 effective date.

VATP045 — Concerned Goods: Accounting for Output Tax, Issuing Tax Invoices, and Input Tax Recovery

Overview

The Federal Tax Authority (FTA) has issued VAT Public Clarification VATP045, addressing the requirement for Taxable Persons that procure Goods from outside the UAE — where the place of supply is in the UAE (“Concerned Goods”) — to account for VAT under the reverse charge mechanism, issue Tax Invoices, and recover the related Input Tax.

Important — Effective date change: the VAT Law was amended with effect from 1 January 2026, and Taxable Persons are no longer required to issue Tax Invoices to themselves when importing Concerned Goods. Consequently, this Public Clarification only applies to Concerned Goods imported on or before 31 December 2025.

Applicability

VATP045 is particularly relevant to:

• Taxable Persons who imported Concerned Goods (e.g. spare parts, machinery, and other goods brought into the UAE) on or before 31 December 2025.
• Registrants required to self-account for VAT on such imports under Article 48(1) of the VAT Law.
• Businesses currently finalising VAT positions, invoicing, or Input Tax recovery for imports made in that period.

Key Clarifications

1. Obligation to Account for Output Tax

Goods imported from outside the UAE constitute Concerned Goods unless they would have been exempt from VAT had they been supplied within the UAE. On importing Concerned Goods, the Taxable Person is treated as making a Taxable Supply to itself and is responsible for accounting for the Due Tax on the imported goods.

• The Taxable Person must reconcile the value of the Goods and the related Output Tax pre-populated in Box 6 of its VAT Return against its internal records for the Tax Period in which the date of supply occurs.
• Any discrepancies identified in the pre-populated Box 6 values, or Goods imported by another person on the Taxable Person's behalf, require an adjustment in Box 7 of the VAT Return.

2. Issuing Tax Invoices

Since the Registrant is treated as supplying the Concerned Goods to itself, it is required to issue and deliver a valid Tax Invoice to itself within 14 days of the date of supply, for Concerned Goods imported before 1 January 2026 — unless an administrative exception has been obtained.

Administrative exception: the FTA accepts that a Recipient is not required to issue a self-Tax Invoice where it:

• obtains and retains the invoice issued by the overseas supplier, showing the details and Consideration paid for the Concerned Goods;
• obtains and retains a declaration issued by the relevant Emirate Customs Department showing the details and value of the Concerned Goods; and
• verifies that the correct VAT amount is pre-populated in Box 6 of the VAT Return, or makes the necessary adjustment in Box 7.

Where all of the above conditions are met, the Recipient does not need to separately apply for an administrative exception under Article 59(7)(b) of the VAT Executive Regulation. This relief does not apply where the Recipient has not obtained the overseas supplier's invoice or the relevant customs declaration.

3. Issuing Tax Credit Notes

Where a Registrant has issued a Tax Invoice to itself in respect of Concerned Goods, it must also issue a Tax Credit Note to itself if an adjustment is subsequently made to the related Concerned Goods.

4. Input Tax Recovery

Registrants are eligible to recover Input Tax to the extent the Concerned Goods are used, or intended to be used, to make Taxable Supplies — provided the relevant supporting documents are obtained and retained.

• The Input Tax may be recovered in the first Tax Period (or the immediately following Tax Period) in which the Registrant obtains the relevant supporting documents and pays the Consideration.
• A Recipient remains eligible to recover Input Tax even where it did not issue a self-Tax Invoice, provided it retains the overseas supplier's invoice and the relevant Customs Department declaration.
• For Input Tax recovery purposes, the Consideration is treated as paid if it is paid, or intended to be paid, within six months of the agreed payment date.

Required Supporting Documentation

Note: retention of the above documents is essential both for the administrative exception from self-invoicing and for Input Tax recovery.

Practical Recommendations

• Identify all Concerned Goods imported on or before 31 December 2025 and confirm whether self-Tax Invoices were issued or an administrative exception applies.
• Ensure overseas supplier invoices and Emirate Customs Department declarations are obtained and retained for each import.
• Reconcile Box 6 (Output Tax) and, where necessary, Box 7 (adjustments) of VAT Returns against internal import records.
• Review Input Tax recovery timing to ensure recovery is claimed in the correct Tax Period.
• For imports made on or after 1 January 2026, apply the revised (self-invoicing-free) treatment under the amended Article 48(1) — see Section 2 below.

Key Takeaways

VATP045 applies only to Concerned Goods imported on or before 31 December 2025.

For those imports, the importer was treated as making a Taxable Supply to itself and was responsible for accounting for Output Tax.

The FTA accepted a practical administrative approach under which the importer did not need to issue a Tax Invoice to itself where the required supplier invoice, customs declaration and VAT return reconciliation conditions were met.

Input Tax recovery is available to the extent the Concerned Goods are used or intended for Taxable Supplies and the relevant documentation and payment conditions are satisfied.

From 1 January 2026, the self-invoicing requirement for Concerned Goods was removed by the amended VAT Law.

VATP046 — Amendments to the VAT Federal Decree-Law

Overview

The Federal Tax Authority (FTA) has issued VAT Public Clarification VATP046, summarising the amendments made to the VAT Federal Decree-Law No. 8 of 2017 by:

• Federal Decree-Law No. 16 of 2024, effective from 30 October 2024; and
• Federal Decree-Law No. 16 of 2025, effective from 1 January 2026.

These amendments introduce new definitions, revise the reverse charge and Input Tax recovery rules, formalise the Electronic Invoicing System requirements, introduce a five-year time limit for reclaiming excess recoverable VAT, and add a new provision denying Input Tax recovery on supplies linked to Tax Evasion.

Summary of Amended, New and Repealed Articles

Amendments Effective 30 October 2024 (Federal Decree-Law No. 16 of 2024)

Definitions — Article 1

The definition of “Non-Resident” was amended to clarify that a Person is regarded as UAE-resident where it has a Place of Establishment or Fixed Establishment in the UAE, regardless of whether it owns the premises.

• Example: where a foreign business's employees regularly work from a client's premises in the UAE, the presence of those employees and the technology resources they use (e.g. mobile phone, laptop) can create a Fixed Establishment — meaning the foreign business would not be treated as a Non-Resident for VAT purposes.

New definitions were also introduced for the “Electronic Invoicing System”, “Electronic Invoice”, and “Electronic Credit Note”, and the definitions of “Tax Invoice” and “Tax Credit Note” were expanded to include their electronic equivalents where these meet the requirements of Articles 59 and 60 of the Executive Regulation.

Key point: an Electronic Invoice or Electronic Credit Note does not automatically constitute a valid Tax Invoice or Tax Credit Note — the underlying requirements of the Executive Regulation must still be satisfied.

Input Tax Recovery — Article 55

Article 55(1)(c) now requires a Taxable Person to retain the Tax Invoice in the format of an Electronic Invoice, where one is required to be (or has been) issued under the Electronic Invoicing System, in order to recover the related Input Tax. A new Article 55(1)(d) also allows the Cabinet to prescribe additional conditions for Input Tax recovery in future.

Electronic Invoicing Obligations — Articles 65 and 70

Registrants that fall within the scope of the Electronic Invoicing System are now required to issue and transmit Tax Invoices (Article 65) and Tax Credit Notes (Article 70) in the form of Electronic Invoices and Electronic Credit Notes respectively, in accordance with that system.

• Registrants subject to the Electronic Invoicing System must issue e-Invoices/e-Credit Notes once the system is implemented for them — failure to do so may trigger Administrative Penalties.
• Registrants not yet subject to the Electronic Invoicing System must continue to issue and deliver Tax Invoices and Tax Credit Notes under the current general VAT invoicing rules.

Administrative Penalties — Article 76

The amendments to Article 76(4) and (5) clarify that a failure to issue a Tax Invoice, Tax Credit Note, or any other permitted alternative document within the legally prescribed period will result in an Administrative Penalty Assessment.

Amendments Effective 1 January 2026 (Federal Decree-Law No. 16 of 2025)

Reverse Charge Mechanism — Article 48

Article 48(1) was amended to remove the requirement for a Taxable Person to issue a self-addressed Tax Invoice when importing Concerned Goods or Concerned Services. The Taxable Person must, however, still account for VAT on the supply and retain the relevant supporting documents as prescribed in the Executive Regulation.

This relief applies only to Goods and Services imported on or after 1 January 2026. For imports made before that date, the earlier self-invoicing requirements continue to apply, as clarified in VATP044 (Concerned Services) and VATP045 (Concerned Goods) — see Section 1 of this newsletter.

Excess Recoverable Tax — Article 74

Under Article 74(2), any excess Recoverable Tax is first offset by the FTA against Payable Tax or Administrative Penalties owed by the Taxable Person. Where an excess remains after such offset, the Taxable Person may apply for a refund.

New 5-year time limit: Article 74(3) now introduces a five-year time limit, calculated from the end of the Tax Period in which the excess arose, within which a Taxable Person must apply for a refund or use the credit balance to settle Payable Tax or Administrative Penalties. If the credit balance is not claimed or utilised within this period, the right to the refund lapses.

• Example: excess Recoverable Tax arising in the Tax Period ended 31 January 2026 may be carried forward and used, or a refund claimed, up to 31 January 2031 — after which any unused balance is forfeited.

New Article 54 (bis) — Denial of Input Tax Linked to Tax Evasion

A new Article 54 (bis) allows the FTA to reject the deduction of Recoverable Input Tax where it establishes that the underlying supply, or chain of supplies, was related to Tax Evasion, and that:

• the Taxable Person was aware of this relation when deducting the Input Tax — in which case the deduction will be rejected; or
• the Taxable Person should have been aware of this relation based on the circumstances of the supply — in which case the FTA may reject the deduction.

A Taxable Person is considered to have been required to be aware of such a link where it did not verify the validity and integrity of the supplies before deducting the Input Tax. Importantly, the “supply chain” for this purpose is not limited to a Taxable Person's direct suppliers and customers, but extends to any person involved in the wider chain of supplies connected to the Tax Evasion.

Statute of Limitation — Article 79 (bis) Repealed

Article 79 (bis) of the VAT Decree-Law (statute of limitation) has been repealed, as this matter is now comprehensively governed by Federal Decree-Law No. 28 of 2022 on Tax Procedures and its amendments.

Practical Implications for Businesses

• Review invoicing processes and systems in preparation for, or compliance with, the Electronic Invoicing System where applicable.
• Ensure electronic invoices and electronic credit notes meet the relevant requirements before treating them as valid VAT documents.
• Review input tax recovery controls to ensure required invoices and supporting records are retained in the prescribed format.
• Monitor VAT credit balances and establish internal tracking of the five-year period for refund or utilisation of excess Recoverable Tax.
• Strengthen supplier and transaction due-diligence procedures, particularly where input tax recovery could be affected by the new Article 54 (bis) provisions.
• Retain adequate documentation demonstrating the validity and integrity of supplies supporting input tax deductions.
• Review VAT return and tax accounting processes for imports of Concerned Goods and Concerned Services from 1 January 2026.

Key Takeaways

• VATP046 consolidates the FTA's clarification of amendments to the UAE VAT Decree-Law introduced in 2024 and 2025.
• Electronic invoicing has been embedded into the VAT legislative framework, with specific consequences for Tax Invoices, Tax Credit Notes and Input Tax recovery.
• The reverse charge amendments remove the requirement for self-invoicing on imports of Concerned Goods and Concerned Services from 1 January 2026, while the obligation to account for VAT and retain supporting documents remains.
• Excess Recoverable Tax is subject to offset against Payable Tax and Administrative Penalties, with a five-year period for refund applications.
• Input Tax may be rejected where the FTA establishes a connection with Tax Evasion and the Taxable Person knew, or should have been aware, of that connection.
• Businesses should review their VAT controls, documentation, invoicing processes and due-diligence procedures in light of these amendments.

Cabinet Decision No. 149 of 2026 — Amendments to the VAT Executive Regulation

Overview

The Federal Tax Authority has released a consolidated version of the VAT Executive Regulation (Cabinet Decision No. 52 of 2017 and its amendments) reflecting Cabinet Decision No. 149 of 2026, which was issued on 1 September 2026. This is the eighth round of amendments to the Executive Regulation since 2017, and the first since Cabinet Decision No. 100 of 2025.

The amendments touch nine Articles of the Executive Regulation, covering the treatment of composite supplies, the Profit Margin Scheme, zero-rated Healthcare supplies, the “outside the State” test for exempt Financial Services, non-recoverable Input Tax on employee benefits, a new restriction on Input Tax recovery for cash-paid supplies, a substantially revised Input Tax apportionment mechanism, the Capital Asset Scheme threshold, and the required wording of Tax Credit Notes.

With one significant exception — the overhaul of the Input Tax apportionment mechanism under Article 55, which only takes effect from the first Tax year commencing after 1 October 2027 — all of the changes take effect from 1 October 2026.

Summary of Amended Articles

Key Amendments in Detail

Composite Supplies (Article 4)

A new Clause 6 has been added to Article 4. Where a supply consists of more than one component, a Taxable Person may no longer treat the components as separate, multiple supplies if the nature of the supply and its economic substance show the components are interconnected and cannot be separated. In that case, the whole supply is treated as a single composite supply and follows the Tax treatment of its principal component.

Profit Margin Scheme (Article 29)

Clause 5 of Article 29 has been amended to confirm that the “purchase price” used to calculate the profit margin on second-hand Goods, antiques and collectors’ items includes any costs or fees incurred to purchase the Good, but only to the extent the Input Tax on those costs or fees is not recoverable under Article 54 of the Decree-Law.

Zero-Rated Healthcare Goods (Article 41)

Clause 4 of Article 41 has been amended to revise the scope of Goods that qualify for zero-rating alongside a zero-rated Healthcare Service — namely, medical products specified in a Cabinet decision, and other Goods necessary for the supply of the zero-rated Healthcare Service.

The “Outside the State” Test for Exempt Financial Services (Article 52)

Clause 2 of Article 52 continues to provide that a Recipient of financial Services is treated as “outside the State” — relevant to whether the related Input Tax is recoverable — only where the Recipient is present in the State for less than 30 days and that presence is not effectively connected with the supply. The amendment clarifies how this test is applied.

Employee Benefits — Non-Recoverable Input Tax (Article 53)

Article 53(1)(c) continues to block Input Tax recovery on Goods or Services provided to employees free of charge for their personal benefit, including entertainment, subject to certain exceptions. The amendment updates the mandatory-accommodation exception — accommodation provided to employees remains outside the exception unless it is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation — and updates the conditions attached to the contractual-obligation or documented-policy exception.

New Restriction on Cash Payments (Article 54)

A new Clause 3 has been added to Article 54. Input Tax may not be recovered on any supply with a value exceeding an amount to be specified in a decision of the Minister, where the consideration is paid, or intended to be paid, in cash — in accordance with controls to be set out in that decision.

Overhaul of Input Tax Apportionment (Article 55) — Deferred to 2027

The most substantive change is to Article 55, which governs how a Taxable Person apportions Input Tax between Taxable and Exempt Supplies. From the first Tax year commencing after 1 October 2027, Clause 6 moves to a total-supplies percentage method: a Taxable Person will calculate the percentage that Taxable Supplies (per Article 54 and Article 57 of the Decree-Law) represent of total supplies, excluding Capital Assets and certain Concerned Goods/Services from that calculation, round the percentage to the nearest whole number, and apply it to the relevant Input Tax.

A new Clause 19 introduces a separate, dedicated mechanism for Government Entities and Charities to calculate their recoverable Input Tax under the revised Clause 6(d).

Until the first Tax year commencing after 1 October 2027, the current recovery-percentage mechanism in Article 55 (calculating the percentage of Recoverable Tax to total Input Tax for the Tax Period) continues to apply unchanged.

Capital Asset Scheme (Article 57)

Clause 1 of Article 57 has been amended to revise the useful-life criteria a business asset must meet, on top of the AED 5,000,000 cost threshold, to be treated as a Capital Asset — currently 10 years for buildings (or parts of buildings) and 5 years for all other Capital Assets.

Tax Credit Notes (Article 60)

Paragraph (a) of Clause 1 of Article 60 has been amended, changing the requirement for how the words “Tax Credit Note” must be clearly displayed on the document.

Practical Implications

• Review contracts and pricing for bundled supplies (e.g. combined goods-and-installation, or goods-and-warranty packages) to determine whether they must now be treated as a single composite supply under the new Article 4(6).
• Businesses using the Profit Margin Scheme for second-hand goods, antiques or collectors’ items should revisit how they calculate “purchase price” in light of the Article 29(5) clarification.
• Healthcare providers and suppliers of medical goods should confirm which Goods remain zero-rated under the revised Article 41(4) scope.
• Financial services businesses should reassess how the “outside the State” test in Article 52(2) is applied when determining Input Tax recovery on exempt Financial Services.
• HR and payroll teams should review employee accommodation, benefits and entertainment policies against the updated Article 53(1)(c) exceptions.
• Accounts payable functions should prepare for the new Article 54(3) cash-payment restriction, and monitor for the Minister’s decision setting the relevant threshold and controls.
• Businesses making both Taxable and Exempt Supplies should begin modelling the impact of the revised Article 55 apportionment mechanism well ahead of its effective date (first Tax year commencing after 1 October 2027), given the shift to a total-supplies percentage basis.
• Government Entities and Charities should note the new dedicated apportionment mechanism under Article 55(19).
• Finance and capital expenditure teams should review the revised useful-life criteria in Article 57(1) when assessing whether an asset falls within the Capital Asset Scheme.
• Invoicing and billing systems should be updated to reflect the amended Tax Credit Note wording requirement in Article 60(1)(a).

Key Takeaways

• Cabinet Decision No. 149 of 2026, issued 1 September 2026, amends nine Articles of the VAT Executive Regulation.
• Most changes — composite supplies, the Profit Margin Scheme, zero-rated healthcare Goods, the exempt financial services “outside the State” test, employee benefits, the new cash-payment restriction, the Capital Asset Scheme, and Tax Credit Notes — take effect from 1 October 2026.
• The comprehensive overhaul of the Input Tax apportionment mechanism under Article 55 is deferred to the first Tax year commencing after 1 October 2027.
• A new Article 54(3) will deny Input Tax recovery on cash-paid supplies above a threshold still to be set by the Minister.
• Businesses should map each amendment against their own supply types, payment practices, employee benefit policies and partial-exemption position, and prioritise the changes effective 1 October 2026.

Final Thoughts

Cabinet Decision No. 149 of 2026 is a broad, multi-Article amendment rather than a single targeted change, and most of it takes effect within weeks of issuance. Businesses should review the Articles summarised above against their own operations now, while treating the Article 55 apportionment overhaul as a medium-term project to be modelled and tested well before the first Tax year commencing after 1 October 2027.