UAE VAT Rules Change on 1 October: What SMEs Must Do Now

From 1 October 2026, the UAE changes several VAT rules that decide how much input VAT a business can claim back. The biggest shift for SMEs is simple: large purchases paid in cash may no longer qualify for input VAT recovery. If you run or finance a UAE entity, this week is the time to check your payment habits, your staff housing costs and your invoice templates.

What has changed

The UAE Cabinet issued Cabinet Decision No. 149 of 2026 on 1 September, amending the VAT Executive Regulation. The Ministry of Finance announced the amendments on 8 September, saying they aim to improve transparency and align the system with international standards.

Most of the changes apply from 1 October 2026. One important exception, the new input VAT apportionment method, only applies from the first tax year starting after 1 October 2027.

The Ministry said the revisions should "provide greater clarity for taxable persons, thereby supporting voluntary compliance and reducing tax disputes", as reported by Khaleej Times.

The five changes most SMEs will feel

1. Cash payments above a threshold. Under the amended Article 54, input VAT may not be recoverable where a supply above a set value is paid in cash. The threshold itself is to be specified in a separate Ministerial decision, so watch for that announcement. The direction is clear, though: big-ticket cash purchases put your VAT refund at risk.

2. Employee accommodation. Input VAT on employer-provided housing is now excluded unless the accommodation is mandatory under decisions or directives of the Ministry of Human Resources and Emiratisation. Contracting, logistics and hospitality businesses with labour accommodation should review what they currently claim.

3. Composite supplies. Where a supply has several parts that are interconnected and cannot be separated, it is treated as one supply for VAT. That matters if you sell bundles, such as equipment plus installation, and have been splitting them for VAT purposes.

4. Capital Assets Scheme. A capital asset is now defined as one costing AED 5 million or more, excluding VAT, with a useful life of 10 years or more for buildings or 5 years or more for other assets. Fewer assets will need long-term VAT adjustments.

5. Tax credit notes. Credit notes must now clearly carry the words "Tax Credit Note". It sounds minor, but it means updating your accounting software and invoice templates before 1 October.

Two other points are worth knowing. A person is now treated as outside the UAE if present for fewer than 30 days and that presence is not effectively connected with the supply, which gives more certainty on zero-rated exports of services. And from 2027, partially exempt businesses will calculate recovery using an output-based formula: taxable supplies divided by total supplies.

What this means for your business

For UAE companies, the practical message is to reduce cash on large purchases and to make sure every claim has the right paperwork behind it.

For Qatar, Saudi and Indian groups with a UAE subsidiary or branch, the risk is that the change gets missed because the head office finance team is not close to day-to-day UAE spending. A site team paying suppliers in cash, or a local accountant claiming VAT on staff housing out of habit, could lead to disallowed input VAT at the next audit.

The timing also clashes with another deadline. The Federal Tax Authority has reminded businesses that corporate tax returns and payments for financial years ended 31 December 2025 are due by 30 September 2026 through EmaraTax. So many UAE finance teams will be closing one tax job as the new VAT rules begin.

Your checklist before (and just after) 1 October

• Map your cash spending. Pull a list of supplier payments made in cash over the last six months and move regular large ones to bank transfer or card.
• Tell your site and branch teams. Explain in one line that large cash purchases may lose their VAT refund.
• Review staff housing claims. Check whether each accommodation cost is required under Ministry of Human Resources and Emiratisation rules before claiming input VAT.
• Update credit note templates. Make sure your system prints "Tax Credit Note" on every credit note from 1 October.
• Look at bundled sales. List contracts where you split one deal into separately taxed parts and test them against the composite supply rule.
• Check your fixed asset register. Confirm which assets now fall inside or outside the Capital Assets Scheme.
• Plan for 2027. If you make exempt supplies, model how the new apportionment formula will change your recovery rate.
• Watch for the cash threshold decision and check with your tax adviser before changing any VAT positions.

If you juggle filing dates across several countries, a single compliance calendar, such as the one in NexCFO, helps keep dates like these in view while the team is busy with year-end work.

Small wording changes in a regulation can have real cash effects, so a short review this week is time well spent.