Input VAT recovery in the UAE: what changed on 1 October 2026

On 1 October 2026 the UAE changed what it takes to recover input VAT. A correct tax invoice still matters, but it is now only the starting point. Three decisions took effect on the same day: Cabinet Decision No. 149 of 2026, which amends the VAT Executive Regulation, FTA Decision No. 17 of 2026 on employee expenses, and FTA Decision No. 13 of 2026 on verifying suppliers and supplies before you deduct input tax.

For a small or mid-sized business the impact is less about tax rates and more about paperwork nobody asked for before: a written policy for staff benefits, a verification file for each supplier and a clear stance on paying suppliers in cash. This guide covers what each decision says, where the numbers come from and what to change in your process now.

The three decisions at a glance

Instrument	Issued	Effective	What it covers
Cabinet Decision No. 149 of 2026	1 September 2026, announced by the Ministry of Finance on 8 September	1 October 2026, apportionment rules later	Cash payments, employee accommodation, medical products, tax credit notes, input VAT apportionment
FTA Decision No. 17 of 2026	9 September 2026	1 October 2026	Input VAT on employee expenses, six cases with conditions
FTA Decision No. 13 of 2026	22 July 2026	1 October 2026	Supplier and supply verification before input tax deduction

The legal hook for supplier checks was already in place. Federal Decree-Law No. 16 of 2025 added Article 54 bis to the VAT Law from 1 January 2026, allowing the Federal Tax Authority to deny input tax where a supply forms part of a tax evasion arrangement. Decision No. 13 now spells out the steps a business has to be able to show it took.

Supplier verification: the change that touches every business

This is the one that reaches every VAT-registered company, whatever its sector. Before you deduct input VAT on a purchase, you need to have verified two things and kept the evidence: the supplier and the individual supply.

Verifying the supplier. Required the first time you deal with a supplier, and again whenever they have not been verified in the previous 12 months:

• Identity. For an individual, a copy of a valid Emirates ID or passport and a meeting before the supply, in person or by video. For a company, incorporation checked through official databases or a certificate of incorporation, plus ID for the person authorised to represent it.
• Place of business. Confirmation, electronically or through a site visit, that a real place of business exists and fits the activity.
• Risk indicators. More than two address changes in 12 months, more than two changes of key contacts or managers in 12 months, or transactions out of proportion to the supplier’s size and history. If one applies, keep a written explanation of why you still went ahead.

Enhanced checks above AED 375,000. Where purchases from one supplier exceed AED 375,000 over the previous 12 months, or are expected to over the next 12, add two steps: a written confirmation from a UAE bank that the supplier holds an account there, and a review of reliable public reviews and media coverage.

Verifying each supply. For every taxable supply you receive: a genuine commercial reason, payment terms that make sense, prices and margins in line with the market, goods or services that fall within the supplier’s licensed activity, clear origin and ownership of goods, and a reason for any intermediary in the chain. Payment is expected to be electronic. Cash needs a documented commercial reason and has to stay within the legal limits.

The small purchase exception. Supplies below AED 10,000, excluding VAT, can be left out of these checks. The exception falls away once total purchases from that supplier exceed AED 100,000 over 12 months, past or expected.

Worked example: an IT support contractor bills AED 9,000 a month. Each invoice is under AED 10,000, but the year adds up to AED 108,000, so the exception does not apply and the contractor must be verified. A bank confirmation is not needed, because annual spend stays below AED 375,000.

One more requirement is easy to miss. You need a documented verification policy naming who carries out the checks, who reviews them and who is responsible, kept with your other tax records. If your records are already patchy, the UAE bookkeeping and record keeping rules are the place to start.

Input VAT on employee costs: six cases, with conditions

Goods and services you must provide under UAE or free zone labour law remain recoverable. Accommodation is the exception within that rule: it only counts as mandatory where a Ministry of Human Resources and Emiratisation decision or directive requires it.

Anything you provide voluntarily, under an employment contract or an internal policy, is now recoverable only in the six cases set by FTA Decision No. 17:

Case	Key conditions
Transport	Home to work, to clients or for job duties only, no personal benefit, no option to take a cash allowance instead
Food and drink	Remote residence, no cooking facilities or nearby restaurants, linked to the work period, no cash alternative
Accommodation	Needed for operational reasons, not part of the normal package, for the employee only, reasonable standard, no cash alternative
Temporary housing for new hires	No longer than 30 days, reasonable for the role
Mobile phones, data and home internet	Needed for the job, personal use only incidental, documented internal policy, reasonable monitoring
Parking fees	Business use only, documented reimbursement policy with approval process, receipts showing date, time, amount and VAT

The cash alternative is where most employers will trip. If staff can choose a transport allowance instead of company transport, or a housing allowance instead of the flat, the input VAT on the benefit in kind goes. For transport, food and accommodation, Decision No. 17 says so explicitly. Company transport usually means fuel too, and pump prices rose sharply in 2026, the current figures are in our guide to UAE fuel prices.

Worked example: a consultancy with eight staff pays for company phones and data plans and has always recovered the VAT on the monthly bills. From October it needs a written policy setting out permitted use and the consequences of misuse, and it has to show a reasonable way of monitoring compliance. If you are taking on your first employees, build this policy in from day one, alongside the steps in our first employee cost checklist.

No input VAT on cash payments above a threshold

Cabinet Decision No. 149 adds a new clause to Article 54 of the Executive Regulation: input tax cannot be recovered on a supply above a value set by a Minister of Finance decision where the consideration is paid, or intended to be paid, in cash.

The threshold itself has not been published yet. As of 1 October 2026 the ministerial decision was still outstanding. In practice that changes little: if you pay suppliers by bank transfer or card, you do not need to know the number. Decision No. 13 already expects electronic payment and a documented reason for any cash.

Other changes in Cabinet Decision No. 149

• Tax credit notes. The words Tax Credit Note must now be clearly displayed on the document. Check your templates.
• Medical products. Zero rating applies to medical products specified in a separate Cabinet decision, and to other goods necessary for supplying zero-rated healthcare services. Clinics will find the wider picture in VAT on healthcare services in the UAE.
• Composite supplies. Where the components of a supply are interconnected in substance and cannot be separated, it is treated as one supply and taxed according to its principal component.
• Capital assets. For the Capital Asset Scheme, a capital asset is a business asset costing AED 5,000,000 or more excluding VAT, with a useful life of at least ten years for buildings and five years for other assets.

Apportionment: the new method arrives later

Businesses with both taxable and exempt supplies, a trading company that also lets residential property for example, have to apportion residual input VAT. Under the amended rules, the recoverable share will be based on supplies: taxable supplies that carry recovery rights as a percentage of all supplies, rounded to the nearest whole number. Sales of capital assets and imports accounted for under the reverse charge mechanism are left out of the calculation.

This only applies from the first tax year beginning after 1 October 2027. Government entities and charities keep a separate method based on the ratio of recoverable to total input tax. If you make mixed supplies, it is still worth modelling now how your recovery rate will move.

Checklist: what to do from October 2026

1. List every staff benefit in kind. Transport, meals, housing, phones, internet, parking.
2. Remove cash alternatives, or stop recovering. Where staff can swap transport, food or housing for cash, the input VAT is gone.
3. Write the employee benefits policy. Scope of use, monitoring and consequences of misuse, especially for phones, internet and parking.
4. Rank suppliers by 12 month spend. Who is above AED 100,000, who is above AED 375,000.
5. Open a verification file per supplier. ID or trade registry extract, proof of place of business, risk indicator check, bank confirmation and public review above AED 375,000, all dated.
6. Adopt the verification policy. Who checks, who reviews, who is accountable, where the evidence is kept.
7. Stop paying suppliers in cash. Transfer or card, and a written reason for any exception.
8. Update your credit note template. Make Tax Credit Note clearly visible.

How we handle this for clients

Input VAT is where most UAE businesses get real money back from VAT, and it is exactly where the documentation burden now sits. If you are still setting up, start with the basics in our VAT registration guide.

We run VAT end to end, from VAT registration through quarterly returns to the supplier verification file, on top of bookkeeping kept to IFRS. If you want to know which of your staff benefits still qualify, book an initial consultation, it is free.

As of 1 October 2026. Based on Cabinet Decision No. 149 of 2026 and FTA Decisions No. 13 and No. 17 of 2026. The FTA publishes its decisions in English as unofficial translations, and the Arabic text prevails. This article is general information and does not replace advice on your specific situation.

Read on: VAT registration in the UAE · Reverse charge mechanism in UAE VAT explained · UAE bookkeeping rules · Avoiding tax penalties in Dubai