UAE VAT and cash payments: the new input tax rule

From 1 October 2026, UAE businesses cannot recover input VAT on high-value supplies where the consideration is paid, or intended to be paid, in cash. The change comes from Cabinet Decision No. 149 of 2026, which adds a new Article 54(3) to the VAT Executive Regulation. The value threshold that triggers the restriction has not yet been published and will be set by a separate Ministerial Decision.

Until this change, how you settled an invoice had no bearing on whether you could recover the VAT on it. Provided the general recovery conditions were met, the payment method was not in itself a barrier. From 1 October, it is. For the first time, how you pay has become a tax decision, not just a treasury one.

What the rule actually says:

Cabinet Decision No. 149 of 2026 was issued on 1 September 2026 and took effect on 1 October 2026. It amends several parts of the VAT Executive Regulation, including composite supplies and employee-related input tax, but the provision with the widest operational reach is the new Article 54(3).

In substance: where a supply exceeds a value to be set by the Minister of Finance, and the consideration is paid or intended to be paid in cash, the input tax on that supply may be blocked.

One further change in the same Decision has a later start date. The revised input tax apportionment methodology applies from the first tax year commencing on or after 1 October 2027, so it is not an immediate concern.

The threshold nobody has yet:

The obvious question is where the line falls, and the honest answer is that nobody knows. The Minister of Finance has not published the triggering value, and a separate Ministerial Decision is expected to set both the amount and the associated controls.

Do not build an assumed figure into your payment policy or your accounting system rules. If you code a threshold now and the published value turns out to be lower, you will have approved cash settlements that cost you recovery, and the exposure will sit in transactions already booked.

The more useful preparation is finding out how much cash settlement you actually do. Most finance teams are surprised by the answer, because petty cash and site-level spending rarely surface in payment reporting.

What “intended to be paid in cash” is designed to catch:

The wording matters. The restriction covers consideration paid or intended to be paid in cash, and commentary reads that phrasing as deliberately anticipating avoidance: splitting a single large purchase into several smaller cash payments to stay under whatever threshold is eventually set.

There is a second drafting point still open to interpretation. The provision refers to the value of the supply rather than the value of the cash portion alone. On one reading, settling part of a large invoice in cash could affect recovery across the whole supply rather than just the cash element. That interpretation has not been settled, and it is worth raising with your tax adviser before assuming a partial cash payment is safe.

Which businesses are most exposed:

Any VAT-registered business settling significant value in cash is in scope, but two sectors come up repeatedly in professional commentary.

Construction and contracting, where subcontractors and day labour are frequently paid in cash, and where individual supply values are high enough that a threshold is likely to bite.

Retail and food and beverage, where site-level petty cash is routine and spending is distributed across locations, making it harder to see in aggregate.

If your business sits in either category, the exposure is probably larger than your payment records suggest, precisely because cash spending is the part that does not appear in them.

The second rule, and why it compounds the first:

A separate measure took effect on the same day and is receiving far less attention. FTA Decision No. 13 of 2026 makes supplier due diligence a precondition for claiming input tax.

Read together, the two changes close the gap from both ends. You now need a payment you can evidence and a supplier you can verify. A supplier paid in cash who cannot be traced fails both tests at once: the payment method restricts recovery under Article 54(3), and the absence of verification undermines the claim under Decision 13.

For businesses that rely on informal supplier relationships, this is the more significant shift of the two. The cash rule changes a payment habit. The verification rule changes who you can buy from at all.

Moving supplier payments to traceable rails:

The practical response most advisers recommend is the same: move high-value supplier payments into channels that leave a record. That is straightforward in principle and awkward in practice, particularly for businesses paying suppliers overseas, where informal settlement often persists because the formal route is slow or expensive.

A regulated business account addresses both halves. Payments carry an auditable trail against a named supplier, which supports the verification requirement as well as the payment one, and the record exists without anyone having to reconstruct it at year end.

Where suppliers are abroad, holding the currency matters. A multi-currency account lets you pay a supplier directly from a balance in their currency rather than converting and routing through a chain you cannot easily evidence, with the conversion rate shown before you confirm.

Hubpay is licensed by ADGM and regulated by the FSRA as a Category 3C electronic money institution under Financial Services Permission 190024. Accounts open in 24 to 48 hours with zero minimum balance.

What this means if you accept cash?

Most coverage treats this as a buyer’s problem. It is, but there is a consequence for sellers that nobody is discussing.

The rule bites your customer, not you. If you accept cash from business customers on high-value supplies, you may be creating a VAT recovery problem on their side of the transaction. The same invoice, settled through a traceable channel, keeps their recovery intact.

That turns the payment options you offer into a commercial question rather than an administrative one. A business customer choosing between a supplier who takes cash and one who sends a traceable payment request now has a tax reason to prefer the second. For contractors, trade suppliers and B2B retailers, this is worth getting ahead of before customers raise it.

Our guide to payment links for UAE businesses covers how collection works in practice.

What to do now

1. Quantify your cash settlement. Pull the last twelve months of petty cash and cash supplier payments by value. You are looking for the shape of the exposure, not a precise figure.

2. Identify your high-value cash suppliers and start the conversation about changing settlement method before a threshold is published.

3. Check your supplier records against the verification requirement under FTA Decision No. 13.

4. Do not code an assumed threshold into policy or systems until the Ministerial Decision is published.

5. Review the open interpretation questions on partial cash settlement with your tax adviser.

If you are working out how supplier payments should run once cash is no longer a viable settlement route, talk to our team.

This is not the only regulatory change reshaping how UAE businesses pay. For the parallel shift on the invoicing side, see our guide to e-invoicing in the UAE.

Hubpay is a licensed electronic money institution, not a tax adviser. This article explains a regulatory change and should not be read as tax advice. Confirm your position with a qualified adviser and against the published texts from the Ministry of Finance and the Federal Tax Authority.