VAT

The 2026 VAT Changes: Supply Chains, Refunds and a Five-Year Clock

UAE VAT has been amended twice this year, and the two changes pull in different directions. The January amendments to the VAT Law removed paperwork and added deadlines. The Executive Regulation that takes effect on 1 October tightens how supplies are characterised and what input tax can be recovered. Between them they reach almost every business that files a return, and several of the changes are the kind that only show up when a refund is refused two years later.

Two instruments, two dates

It helps to keep them apart, because they are commonly reported as one thing.

The first two are already live and have been governing your returns all year. The third is the one to read this week.

The supply chain change that matters most

The Executive Regulation adds a new Clause 6 to Article 4. Where a supply has more than one component and those components are interconnected to the point of being inseparable, it may no longer be broken into separate supplies. The whole thing follows the tax treatment of its principal component.

That sounds technical and is not. Any arrangement that bundles goods with delivery, installation, training, warranty or support has been split by somebody, somewhere, to get a better rate on one piece of it. From October, if the pieces cannot stand alone commercially, they do not stand alone for VAT either. Contracts written to itemise components, and pricing built on the assumption that one component is zero-rated, both need re-reading.

The 30-day test for "outside the State"

Zero-rating an export of services depends on the recipient being outside the UAE. Article 52 now puts a number on it: a person is treated as outside the State where their presence here is for fewer than 30 days and that presence is not effectively connected with the supply.

A clear rule is easier to apply than the "short-term presence" language it replaces, but it is also easier to fail. Service exporters who have been zero-rating on the strength of a foreign billing address now need something on file about where the recipient actually was, and for how long.

Input tax: three new restrictions

• Cash payments. A new Article 54(3) blocks input tax recovery on a supply above a value to be specified by the Minister where the consideration is paid in cash. The threshold has not yet been issued, so the restriction has no practical effect until it is — but it is coming, and businesses paying suppliers in cash should expect to stop.
• Employee benefits. Article 53 narrows recovery to benefits that are mandatory under labour legislation or ministry directives, or provided under a contractual obligation or a documented policy. Employer-provided accommodation is specifically excluded unless a directive requires it.
• Anything touching evasion. The Law itself now requires the FTA to deny input tax where a supply is connected to tax evasion and the recipient knew it, and allows denial where the recipient should have known. That second limb is the one to worry about: it puts a diligence burden on the buyer for the seller's behaviour.

The five-year clock, in three places

This is the change most likely to cost someone real money, because it works silently.

The VAT Law's own statute of limitation article was repealed outright. Limitation now sits entirely in the Tax Procedures Law, which is tidier but means the VAT position can no longer be read from the VAT Law alone.

Capital assets: the threshold moved to AED 5 million

Article 57 now sets the Capital Asset threshold at AED 5,000,000 excluding tax, with an adjustment period of ten years for buildings and five years for everything else. Assets below that line fall out of the capital asset scheme entirely, which removes an annual adjustment for a lot of mid-sized purchases.

Smaller changes worth knowing

• Self-invoicing is gone. From January, no tax invoice to yourself for reverse-charge imports. Ordinary supporting documents — supplier invoices, contracts, records specified in the Regulation — are what evidences the supply now.
• Profit margin scheme. "Purchase price" now includes costs and fees incurred to buy the goods, where input tax on those costs was recoverable.
• Healthcare. Zero-rating extends to medical products specified by Cabinet decision and to goods supplied in the course of a zero-rated healthcare service.
• Credit notes. The words "Tax Credit Note" must appear on the document. A small thing that will nonetheless fail an audit.
• Apportionment. Articles 55(6), 55(7) and the new 55(19) restructure input tax apportionment, including a percentage method for government entities and charities. These are deferred — they apply from the first tax year after 1 October 2027.

What to do before the end of October

1. Pull any EmaraTax credit balance older than five years and decide whether to claim it now.
2. Read your bundled contracts against the new composite supply rule. Re-price anything that depended on splitting.
3. Document where your zero-rated service customers actually are, against the 30-day test.
4. Check what employee benefits you are recovering input tax on, and whether a written policy exists for each.
5. Stop paying suppliers in cash for anything material, ahead of the threshold being set.
6. Add the words "Tax Credit Note" to your credit note template.

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