Which input VAT can I recover in the UAE, and which stays a cost?

The Ministry of Finance summarises the principle: input tax can be recovered in full if it relates to a taxable supply made, or intended to be made, and cannot be recovered where it relates to supplies that are not taxable. In practice, before you claim a dirham, three things must be true.

• The cost is used, or will be used, to make taxable supplies (standard-rated or zero-rated), not exempt supplies or private use.
• You hold a valid tax invoice, or the right import or reverse charge documentation, in the business’s name.
• The cost is not in a blocked category under the VAT Executive Regulation.

The Executive Regulation blocks recovery on certain costs even when the business is fully taxable. The two that catch most companies are entertainment provided to people who are not employees, such as customers, potential customers, officials and shareholders, and motor vehicles available for personal use. We cover both in separate posts.

The third is goods and services provided to employees for their personal benefit at no charge. From 1 October 2026, Cabinet Decision No. 149 of 2026 and FTA Decision No. 17 of 2026 narrowed the exceptions. According to published summaries, recovery on contractual or policy-based employee benefits is now limited to six defined cases, each with conditions, while benefits that labour legislation requires remain recoverable.

A Dubai software reseller with only taxable sales reviews AED 21,400 of input VAT for a quarter. Office rent on a commercial unit: AED 6,000 VAT, recoverable. Laptops for staff to work with: AED 2,500, recoverable. A sedan leased for the sales director, also available for personal use: AED 1,800, blocked. Client dinners and a hospitality box at a sporting event: AED 3,100, blocked.

The remaining AED 8,000 sits on supplier bills where three have no TRN and one is a pro forma invoice. Those cannot be claimed until proper tax invoices arrive. A careless return would claim all AED 21,400. A careful one claims AED 8,500 now, holds AED 8,000 until proper tax invoices arrive and treats the blocked AED 4,900 as a cost.

Federal Decree-Laws No. 16 and 17 of 2025, effective 1 January 2026, added a five-year limit: excess recoverable input tax can only be carried forward or refunded within five years from the end of the tax period in which it arose. Transitional relief runs to 31 December 2026 for older balances. They also allow the FTA to deny recovery where a supply is part of a tax evasion chain and the business knew or should have known, including by failing to verify the supply.

Cabinet Decision No. 149 of 2026 adds a further rule: recovery is restricted for supplies above a value set by the Minister where payment is made, or intended to be made, in cash. The threshold awaits a Ministerial Decision. If you pay suppliers in cash today, plan to move larger payments to bank transfer now.

A business that makes both taxable and exempt supplies, such as a property company with commercial and residential units, cannot recover all its overhead VAT. Costs directly linked to taxable supplies are recoverable, costs directly linked to exempt supplies are not, and shared overheads are apportioned. Cabinet Decision No. 149 of 2026 replaces the default method with an output-based calculation from the first tax year beginning after 1 October 2027, so mixed businesses should model the effect now.

In HelloBooks, the AI reads each bill and checks the conditions line by line: is there a TRN, is it a tax invoice rather than a quote, does the item look like entertainment or a vehicle cost, has it already been claimed? Lines that fail go to a non-recoverable VAT account or into a review list instead of Box 9. Your accountant reviews the list before the VAT 201 draft is finalised. If your business needs specific rules, for example a fixed treatment for site accommodation, we can build them into the AI's categorisation on request.