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August 12, 2026

UAE & GCC Tax Updates: July 2026, Your Complete Guide

July 2026 has been one of the busiest months for UAE regulatory output in recent memory.

The Federal Tax Authority has issued multiple new directives, public clarifications, and updated guides covering everything from VAT on education and judicial services to digital currency reporting, life insurance fees, deemed supplies, transfer pricing adjustments, and free zone compliance. There are also important updates from Saudi Arabia and Bahrain.

This post covers everything that matters, what’s changed, what it means for your business, and what to do next.

UAE VAT Updates

 

  1. VAT and Education Services, New Comprehensive Guide (VATGED1)

The FTA has released a comprehensive guide on the VAT treatment of educational services and related goods. This is important for any business that provides, supports, or purchases educational services, and for schools, universities, nurseries, and other educational institutions directly.

The core principle: not all education is zero-rated

Zero-rated treatment only applies where two conditions are met simultaneously. The institution must be a Qualifying Educational Institution, recognised by the relevant government authority, and for higher education, government-owned or majority government-funded. And the services must be delivered as part of a Qualifying Curriculum.

Where either condition isn’t met, private tutoring, non-accredited courses, for example, the standard 5% VAT rate applies.

Related goods and services

Items directly related to zero-rated education may also be zero-rated, lab materials and required reading being typical examples. However, the following are explicitly subject to 5% VAT regardless of context: uniforms, electronic devices, food, and extracurricular activities with additional fees.

The nuances worth knowing:

Field trips are zero-rated if directly related to the curriculum and not mainly recreational; the recreational purpose test matters here. Graduation fees are zero-rated if linked to a qualifying programme. Special needs support is zero-rated if directly related to the curriculum and approved by authorities.

Student and staff accommodation can be exempt or standard-rated depending on what services are bundled with it. Distance learning VAT treatment depends on the level of automation and human involvement; automated electronic services may be taxed based on where they are consumed.

Scholarships are treated as discounts, meaning VAT applies to the reduced fee. Grants and donations are outside the scope of VAT where the donor receives no direct benefit from the transaction.

What to do: Educational institutions should review their current VAT treatment of all supplies against this guide. The line between zero-rated, exempt, and standard-rated is more detailed than many institutions currently apply in practice.

  1. Private Tax Clarifications, Updated Process (July 2026)

The FTA has updated its guidance on how to submit private tax clarifications, the mechanism that allows taxpayers to seek official, binding guidance on specific tax matters that aren’t already addressed in public FTA materials.

This is a genuinely useful tool that is underused by most UAE businesses.

What taxes are covered: Excise Tax, VAT, Corporate Tax, and the new Top-up Tax (effective January 2025).

Who can apply: Taxpayers, Tax Groups (via the representative member), Tax Agents, and Legal Representatives. For Corporate Tax and Top-up Tax clarifications, the applicant generally needs to be registered for those taxes.

What qualifies: The request must relate to a genuine uncertainty on a specific tax matter affecting the applicant. It must be specific, supported by relevant documents, and not already addressed in existing FTA guidance. Requests for hypothetical scenarios, matters under audit, or administrative exceptions are not accepted.

The process: All requests go through the EmaraTax portal, with a detailed cover letter and supporting documents. Fees are AED 1,500 for a single tax or AED 2,250 for multiple taxes. The FTA has 60 business days to respond, in English or Arabic as requested.

What a clarification gives you: A binding interpretation, but only for the applicant and the specific facts provided. It cannot be used by other parties and is not subject to dispute resolution. If circumstances change, a new request can be submitted.

Common errors to avoid: Submitting on behalf of third parties, incomplete technical analysis, asking for confirmation of eligibility rather than clarifying a genuine uncertainty, and submitting requests on matters already addressed in public guidance.

What to do: If your business has unresolved tax positions where the correct treatment is genuinely uncertain, a private clarification is worth considering, particularly for matters that have a material impact and where public guidance doesn’t provide a clear answer.

  1. Judicial Expert Services Now Subject to VAT

The FTA has issued Directive on Tax Transactions No. 1 of 2026, clarifying that services provided by court-appointed judicial experts are taxable supplies for VAT purposes.

Court-appointed judicial experts, whether individuals or legal entities registered with the Ministry of Justice, local judicial authorities, or arbitration centres, are considered to be carrying on a business when they provide expert services. The fees they receive are consideration for a taxable supply of services.

This means judicial experts who meet the VAT registration threshold must register and comply with all VAT obligations. Importantly, receiving payment from a government entity does not change the VAT treatment, the supply is taxable regardless of who the customer is.

What to do: If you provide judicial expert services and are not currently VAT registered, review whether your annual fees exceed the registration threshold. If they do, registration is now required.

  1. VAT Adjustments When Leaving a Tax Group, New Directive (From 1 August 2026)

The FTA has clarified the VAT treatment when a business exits a VAT Group but remains VAT-registered. This applies from 1 August 2026.

When a business leaves a VAT Group, it becomes responsible for reporting adjustments in its own VAT returns for transactions that were previously declared by the Tax Group. This covers credit notes, discounts, returns, and changes to previously claimed input VAT.

The departing entity must maintain records that clearly link these adjustments to transactions originally reported under the former VAT Group. Without that documentation, the adjustments cannot be properly substantiated.

What to do: If your business has recently left, or is planning to leave, a VAT Group, ensure your record-keeping is structured to allow these historical adjustments to be accurately reported. This is an administrative process with real compliance consequences, documentation is everything here.

  1. Digital Currency Conversion for VAT Reporting, New Standard Method

The FTA has issued Directive No. 3 of 2026, introducing a standardised method for converting digital currency values into UAE Dirhams for VAT reporting.

This applies to supplies of digital currency and to supplies of goods and services where consideration is received in digital currency.

The method: Taxable persons must select three FTA-approved centralised digital currency exchange platforms and use the same three platforms consistently throughout the calendar year. The AED value is determined using the average exchange rate published by those three platforms at the time of the supply or receipt of consideration.

Records of the exchange rates used from each platform must be retained.

The FTA will publish the approved list of exchange platforms and further guidance for cases where rates are unavailable across three approved platforms.

What to do: If your business accepts digital currency as consideration for any supplies, you need to select your three approved platforms and establish a consistent, documented process for applying this conversion method in your VAT returns.

  1. VAT Treatment of Life Insurance Fees and Charges

Directive No. 4 of 2026 clarifies when fees and charges associated with life insurance and reinsurance contracts qualify for the VAT exemption.

The exemption applies where fees and charges are necessary and directly connected to providing or transferring a life insurance or life reinsurance contract, but only where those fees are included within the insurance premium and no separate consideration is charged.

Fees that relate to the management, operation, or administration of the life insurance contract may be eligible for the exemption, subject to those conditions being met. Services that are independent in nature or charged separately are treated as separate taxable supplies.

What to do: Insurance companies and financial services businesses should review their current fee structures against this directive. The boundary between exempt and taxable treatment depends on whether fees are bundled within the premium or charged separately, and the facts of each case matter.

 

  1. Valuation of Deemed Supplies of Services, Standard Methodology Introduced

Directive No. 5 of 2026 prescribes a standard methodology for determining the value of deemed supplies of services for VAT purposes.

Under this methodology, the value must be based on the costs incurred on which input VAT was recovered, not the full market value of the service. The calculation works as follows:

First, determine the open market value of the service (or a comparable service where necessary). Second, remove the profit element using the previous year’s net profit margin, or the sector average where that isn’t available, to estimate total cost. Third, calculate the proportion of total costs on which input VAT was incurred. Fourth, apply that percentage to the estimated total cost to arrive at the value of the deemed supply.

What to do: Businesses making deemed supplies of services should ensure their VAT return calculations align with this methodology. If you have been using market value as the basis, your approach needs to change.

UAE Corporate Tax Updates

 

  1. Transfer Pricing Downward Adjustments, FTA Clarification (CTP011)

The FTA has issued Public Clarification CTP011, providing guidance on downward transfer pricing adjustments under the arm’s length principle.

The key practical point: downward adjustments, those that reduce taxable income, can be made without prior FTA approval. The UAE Corporate Tax regime operates on a self-assessment basis, so businesses can make these adjustments themselves in their CT return.

However, every downward adjustment must be disclosed in the Corporate Tax Return, regardless of its value or nature.

The documentation requirements are specific and must be maintained:

The rationale for the adjustment. An arm’s length analysis with benchmarking data. A reconciliation between the financial statements and the tax return values. Evidence of corresponding adjustments by the related party, where applicable.

This clarification covers downward adjustments under Article 34(1) of the Corporate Tax Law only. It does not address corresponding adjustments under Articles 34(10) and 34(11).

What to do: If your business has related-party transactions that are not recorded at arm’s length in your accounts, assess whether a downward adjustment is appropriate and ensure the full documentation package is in place before the CT return is filed.

  1. AT1 Instrument Payments by Banks, Tax Treatment (CTP012)

The FTA has issued Public Clarification CTP012, clarifying that payments made by banks on Additional Tier 1 (AT1) capital instruments are not deductible for Corporate Tax purposes if they are not recognised in accounting income.

Where AT1 instruments are classified as equity under IFRS, which is the typical treatment, related dividend or coupon payments are made from retained earnings and do not pass through the profit and loss account. Since Corporate Tax starts from accounting income, payments that don’t appear in profit or loss cannot be claimed as deductible expenses.

This clarification applies only to the issuing bank. It does not address the tax treatment of AT1 instruments from the holder’s perspective.

What to do: Banks and financial institutions with AT1 instruments should review the accounting classification and ensure their CT return treatment aligns with this clarification.

  1. Free Zone Compliance, New Requirements for QFZPs in Distribution Activities (FTA Decision No. 6 of 2026)

This is one of the most significant updates for free zone businesses in this round.

The FTA has issued Decision No. 6 of 2026, introducing additional compliance procedures for Qualifying Free Zone Persons engaged in the distribution of goods or materials in or from Designated Zones. It applies to tax periods from 1 January 2026.

The core new requirement: QFZPs must obtain an Agreed-Upon Procedures (AUP) report from an independent external auditor, prepared under International Standard on Related Services 4400. This report verifies compliance with qualifying activity requirements and must be submitted within 30 days after the deadline for filing the relevant Corporate Tax return.

What the auditor will verify:

That customers are resellers, evidenced by business licences, signed declarations, and sales agreements. That goods imported into the UAE entered through a Designated Zone, evidenced by import declarations and shipping documents. That internal records for goods movement and storage are properly maintained.

The auditor reviews a sample of customer and import records, focusing on those with the highest transaction values. The sample size is determined by a specific formula with a 10% margin of error.

Non-compliance consequence: Failure to submit the required report means the QFZP will not be considered compliant for tax purposes, which puts the preferential free zone tax treatment at risk.

What to do: If your business is a QFZP engaged in distribution activities, start organising your customer and import documentation now. Engaging your external auditor early to understand the AUP requirements and what records they’ll need is strongly recommended, this is not something to address in the month the report is due.

Saudi Arabia Update

 

  1. ZATCA, 25th Wave of E-Invoicing Integration Phase

ZATCA has announced the 25th Wave of its E-Invoicing Integration Phase (Phase Two), targeting businesses with VAT-taxable revenues exceeding SAR 187,500 in any of the years 2022, 2023, 2024, or 2025.

Affected businesses must integrate their e-invoicing solutions with the Fatoora Platform by 1 February 2027. Phase Two requires system integration, electronic format invoicing, and additional mandatory invoice fields.

ZATCA will notify affected businesses directly, with at least six months’ notice before the integration deadline.

What to do: If your business has KSA operations and VAT-taxable revenues above the threshold in any of the relevant years, check whether you’ve received or expect to receive a ZATCA notification. If you haven’t yet integrated with Fatoora, that process needs to begin now, six months is not a long runway for a full system integration.

Bahrain Update

  1. VAT General Guide, Key Updates (July 2026)

Bahrain’s VAT General Guide has been updated with two notable changes.

Section 10.3 introduces enhanced requirements for VAT invoices, particularly around the need for clear and detailed descriptions of supplied goods or services. For construction-related supplies specifically, the building permit number must now be included on the invoice.

Section 11.8.4 provides expanded guidance on the capital assets scheme, including how to adjust input VAT when the use of capital assets changes, for example, when an asset moves from VATable to exempt activities.

What to do: Businesses with Bahrain operations should review their current invoice templates against the updated Section 10.3 requirements, and for any businesses holding capital assets that have changed use, review the updated input VAT adjustment methodology in Section 11.8.4.

What to Action This Month

Immediate (before 1 August 2026):
Review your VAT Group exit procedures if any entity has recently left or is leaving a VAT Group, the new directive applies from 1 August.

This quarter:

  • Free zone businesses in distribution activities, begin organising documentation for the 
  • AUP report requirement.
  • Digital currency businesses, select your three approved exchange platforms and establish your conversion documentation process.
  • Judicial expert services providers, assess whether VAT registration is required.
  • Educational institutions, review your current VAT treatment against the new guide.
  • Banks with AT1 instruments, confirm CT return treatment aligns with CTP012.

Before your next CT filing:
Review related-party transactions for potential downward TP adjustments under CTP011, and ensure full documentation is in place.

If you have KSA operations:
Check whether you fall within Wave 25 of ZATCA’s e-invoicing integration phase and begin system integration planning for the February 2027 deadline.

How Nishe Can Help

These updates cover VAT, Corporate Tax, free zone compliance, transfer pricing, and cross-border e-invoicing, across three GCC jurisdictions. If any of them raises questions about your business’s current position, we’re here to help.

No lengthy process before we’ve understood your situation. Just a practical conversation about where you are and what the update means for you.

Get in touch with the Nishe team

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