UAE Tightens VAT Rules To Curb Tax Evasion And Clarify Compliance

(MENAFN- Khaleej Times) The UAE has amended its Value Added Tax (VAT) executive regulations, introducing new restrictions on input tax recovery for large cash payments in a move aimed at strengthening compliance and reducing the risk of tax evasion.

The changes, announced by the Ministry of Finance on Tuesday, are part of a broader effort to refine the country's tax framework, provide greater clarity for businesses and align the VAT system with international best practices. The amendments were made through Cabinet Decision No. 149 of 2026, which revises parts of the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on VAT.

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One of the most notable changes is the introduction of provisions that prevent the recovery of input tax on cash payments exceeding thresholds that will be specified in a future decision by the Minister of Finance. According to the ministry, the measure is intended to“strengthen compliance and mitigate the risks of tax evasion”.

The amendments also seek to simplify VAT procedures and reduce uncertainty for taxpayers. The ministry said the revisions are designed to“provide greater clarity for taxable persons, thereby supporting voluntary compliance and reducing tax disputes”.

Several technical updates have been introduced across the VAT framework. These include revised provisions covering the supply and import of medical products to bring them in line with the UAE's updated healthcare legislation, as well as clarification of rules relating to employee accommodation for input tax recovery purposes.

The government has also clarified how the Capital Assets Scheme should be applied to ensure consistency with the provisions of the VAT law. In addition, it has refined the methodology used for input tax apportionment so that it more accurately reflects the economic activities of taxable persons, while maintaining the existing approach used by government entities and charities.

Another change introduces provisions governing the VAT treatment of a single composite supply, with the rules intended to reflect the economic substance of a transaction.

The Ministry of Finance said the reforms are part of its ongoing review of tax legislation. It noted that the amendments are intended to ensure the tax system keeps pace with economic and legislative developments, while supporting the effective implementation of VAT and making compliance easier for businesses operating in the UAE.

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