UAE changes VAT rules for cash payments, staff housing and medical products

Businesses across the UAE will see several changes to Value Added Tax (VAT) rules covering cash payments, employee accommodation, medical products and input tax recovery under amendments announced by the Ministry of Finance.

The changes were introduced through Cabinet Decision No. 149 of 2026, which amends provisions of the Executive Regulation of Federal Decree-Law No. 8 of 2017 on VAT.

New Restrictions on Input Tax Recovery

One of the key changes introduces restrictions on input tax recovery when cash payments exceed prescribed thresholds.

The specific thresholds will be announced separately through a decision issued by the Minister of Finance.

According to the Ministry, the measure is designed to strengthen tax compliance and reduce risks associated with tax evasion.

Employee Accommodation Rules Clarified

The amendments also provide greater clarity on the VAT treatment of employee accommodation for input tax recovery purposes.

This change is particularly relevant to businesses that provide housing or accommodation to their employees.

The rules governing input tax apportionment have also been updated to better reflect the nature of a taxable person's economic activities.

However, the existing methodology applicable to government entities and charities will remain unchanged.

VAT Rules for Medical Products Updated

The UAE has also updated VAT provisions related to the supply and import of medical products.

The changes aim to bring VAT rules in line with the country's revised legislative framework for the healthcare sector.

The amendments also clarify the scope of the Capital Assets Scheme, helping ensure that its application remains consistent with the VAT Law.

New Rules for Composite Supplies

New provisions have been introduced to clarify the VAT treatment of a single composite supply.

Under the updated approach, the VAT treatment will be determined in accordance with the economic substance of the supply.

This is intended to provide businesses with greater clarity when determining the appropriate VAT treatment for complex transactions.

UAE Reviews Wider VAT Framework

The Ministry of Finance said the latest amendments form part of its ongoing review of UAE tax legislation.

The changes are intended to:

Improve tax transparency
Simplify VAT procedures
Provide greater clarity to taxable businesses
Reduce potential tax disputes
Improve the efficiency of VAT implementation
Align the UAE VAT framework with international best practices

Changes Aim to Support Business Compliance

The Ministry said the amendments are designed to make it easier for businesses to comply with UAE VAT requirements while ensuring the tax framework continues to keep pace with economic and legislative developments.

Businesses affected by the updated provisions will need to review their VAT procedures and ensure their tax practices remain aligned with the latest requirements.