UAE Input VAT Recovery Rules 2028: What Will Change?

What If Your VAT Recovery Percentage Changes?

Your business has been claiming input VAT using an established accounting method for years.

The finance team knows which expenses are recoverable, which are not and how shared expenses are allocated.

But a change in the calculation method could affect future VAT recovery.

Under Cabinet Decision No. 149 of 2026, the UAE introduced amendments to the VAT Executive Regulation, including changes to the standard method of input tax apportionment.

The revised methodology is scheduled to apply from the first tax year commencing after 1 October 2027.

For businesses following a January-to-December tax year, this generally means 1 January 2028.

Understanding the new UAE input VAT apportionment rules 2028 can help businesses prepare for potential financial and accounting changes.

What Is Input VAT Apportionment?

Input VAT apportionment is the process of calculating how much VAT a business can recover when an expense supports both activities that permit input tax recovery and activities that do not.

For example, a company may generate revenue from taxable commercial property rentals and exempt residential property rentals.

Certain costs can be directly attributed to one activity.

Other costs, such as shared office expenditure or accounting services, may support both activities.

These shared expenses can create a need for input VAT apportionment.

The purpose is to determine the recoverable portion using the applicable methodology.

What Has Changed Under the UAE VAT Rules?

Cabinet Decision No. 149 of 2026 introduces a revised standard apportionment method based on the value of relevant supplies rather than the previous input-tax-based ratio for affected businesses.

The new approach includes specific exclusions from the calculation, such as certain capital asset transactions and reverse-charge transactions.

This means businesses will need reliable information about the value and VAT treatment of their supplies.

The calculation may become more closely linked to the composition of business revenue.

However, the practical outcome will depend on each company's transactions and the applicable rules.

Example: How the New Method Could Work

Imagine a UAE business generating both taxable and exempt revenue.

For illustration, assume the following annual figures:

Using a simplified supply-value ratio:

Recoverable percentage = 4,000,000 ÷ 5,000,000 × 100 = 80%

If the simplified ratio were applicable without further adjustments, the business might recover AED 40,000 from the AED 50,000 shared input VAT.

This is an illustrative example, not a complete statutory calculation.

Actual recovery can depend on supply classifications, required exclusions, direct attribution, special methods and other adjustments.

The important consideration is that a company's VAT recovery percentage may change even where its overall expenses remain relatively stable.

Which UAE Businesses Could Be Affected?

1. Real Estate Businesses

Businesses combining taxable commercial property activities with exempt residential property activities may need to revisit how shared input VAT is allocated.

2. Financial Services Companies

Financial businesses making a combination of taxable and exempt supplies may need to assess the effect of the revised standard method.

3. Mixed-Activity Companies

Businesses operating several service lines with different VAT recovery treatments should review their revenue categories and shared expenses.

4. Companies with Complex Shared Costs

Businesses that allocate corporate overheads across multiple activities may need more detailed accounting records to support the calculation.

Could Businesses Recover More VAT Under the New Rules?

Possibly.

The changes do not automatically mean every business will recover less VAT.

Some businesses may experience an increase in their recovery percentage, while others may experience a decrease.

The impact depends on their particular revenue mix, expense structure and the application of the rules.

This is why financial modelling is important.

A comparison of the existing method and the revised method can help management understand the potential effect before the new provisions apply.

Five Steps to Prepare

1. Classify Business Revenue Correctly

Separate taxable, zero-rated, exempt and other relevant transactions using the appropriate VAT classifications.

2. Review Shared Expenses

Identify overheads that support more than one business activity.

3. Check Existing Apportionment Calculations

Review the present calculation method and supporting records to establish a reliable baseline.

4. Model the Financial Impact

Prepare illustrative calculations using the revised methodology, incorporating the required exclusions and adjustments.

5. Update Accounting and Reporting Processes

Ensure the accounting system can produce the information required to support future recovery calculations.

Why Businesses Should Start Preparing in 2026

Although the revised apportionment provisions are scheduled to apply later, businesses can use their current financial information to understand the likely impact.

Early preparation may identify incorrect VAT classifications, weak cost allocations or missing supporting records.

It also gives finance teams an opportunity to improve procedures before the new calculation becomes applicable.

How Young & Right Can Help

Young & Right Accounting & Tax Consultancy provides VAT advisory, accounting, bookkeeping and financial reporting services to UAE businesses.

Our team can assist in reviewing input VAT recovery, assessing shared expenses and examining the potential effect of the revised apportionment methodology.

Businesses with mixed taxable and exempt activities may particularly benefit from an early review.

Conclusion

The UAE's revised input VAT apportionment rules represent an important development for businesses with mixed activities.

The eventual financial impact will differ from company to company.

Rather than assuming that the current VAT recovery percentage will remain unchanged, businesses should review their transaction data and prepare for the new methodology