The UAE’s tax regime is undergoing a major shift and raising the bar on regulatory accountability. VAT compliance is now following the same direction. For Input VAT recovery, the FTA issued Decision No. 13 of 2026 on 22nd July 2026 to root out tax fraud. This makes the process more evidence-driven and ends passive compliance. Until now, recovering Input VAT largely started with one question: is the tax invoice valid?
The rules are now moving beyond that point. A valid invoice remains important, but businesses will also need to look at the circumstances surrounding the supplier and the transaction. From 1st October 2026, taxable persons must carry out prescribed due diligence on a supplier’s credibility and the commercial substance of a supply before an Input VAT claim can stand.
For taxpayers, this makes supplier and transaction verification an important part of VAT compliance. With the effective date approaching, eligible companies have a narrow window to build a verification workflow that holds up and protects their tax position.
Input VAT Recovery
The Two-Level Verification Framework
The decision rests on two separate checks. One is about checking suppliers' credibility, while the other examines each supply. This two-pronged check replaces the traditional invoice-based approval system.
Supplier Verification
The first check focuses on the supplier. This is important because supplier relationships can change over time. A supplier that was properly verified when the relationship began may not remain in the same position later.
For this reason, supplier verification is not a one-time exercise. It is required before engaging with a supplier for the first time and must be repeated every 12 months.
The recurring verification involves establishing three basic facts:
- The supplier’s identity is verified against official records.
- The person representing the supplier is authorised to act on its behalf.
- The supplier operates from the address it has provided.
These may appear to be straightforward checks. However, the real test comes when a company has to demonstrate that they were actually carried out.
They should also stay alert to indicators that may require closer attention, such as unexplained changes in a supplier’s address, unexpected changes involving key personnel, or unusual order volumes that do not align with the supplier’s normal supply behaviour.
The level of verification also increases as the purchases increase. Once annual purchases from a single supplier exceed AED 375,000, two additional requirements apply. A UAE-authorised bank must confirm in writing that the supplier holds an account with it. Taxpayers must also consider the supplier’s public reputation and standing.
For those dealing with high-value suppliers, this makes maintaining proper records of the verification process particularly important.
Supply Verification
Supplier verification answers one question: who is the business dealing with? Supply verification asks another: does the particular transaction make commercial sense? A supplier may pass the required checks and still be involved in a transaction that raises questions. This is why the second level applies to every supply rather than following an annual cycle.
At this stage, taxpayers need to confirm a few critical things:
- The supplier’s participation in the transaction is commercially justified.
- The pricing and margins are consistent with what would ordinarily be expected.
- The goods or services fall within the supplier’s licensed commercial activities.
- The title and origin of the goods can be established and supported by evidence.
- There is a clear commercial reason for any intermediary involved in the transaction.
For payments, electronic transfer is the default mode, but where cash is used, companies must have a valid, documented reason for doing so.
Beyond these parameters, the FTA decision goes a step further to ensure proper internal implementation. Companies are expected to maintain a written policy identifying who performs the checks, who reviews them and who supervises the overall process.
This makes the verification exercise more than a tax team responsibility. They may need to bring procurement, finance and other relevant internal teams into the process to ensure that the required information is available and properly documented.
Input VAT in the UAE
Why This FTA Update Matters
This VAT update works alongside Article 54 bis of the VAT Law, introduced through Federal Decree- Law No. 16 of 2025. The provision gives the FTA the power to deny an Input VAT claim in certain circumstances and distinguishes between two types of situations:
- Mandatory Rejection: Where a business knew that a transaction was connected with tax evasion, the Input VAT claim is denied.
- Discretionary Rejection: Where a business should have known about tax evasion but failed to identify it, the FTA may deny the claim.
The second situation deserves particular attention. The new verification requirements help establish what businesses are expected to do when assessing the credibility of suppliers and the legitimacy of supplies.
If the prescribed checks have not been carried out, a company may be treated as having failed to meet the required standard of due diligence, even where there was no real intention of being involved in tax evasion.
For leaders, Input VAT recovery is no longer only about having the valid invoice. It is also about being able to prove that reasonable checks were performed before relying on the claim.
Input VAT Recovery Exemption
Reading Between the Lines
The decision does provide some relief for smaller supplies. Article 6 exempts supplies below AED 10,000, excluding VAT, from the full verification requirements. But that exemption doesn't apply once total supplies from a supplier cross AED 100,000 over the past 12 months, or are expected to cross it over the next 12 months.
While this exemption threshold appears as a safety net, for most businesses, it won't feel like one. The threshold sits low enough that repeat business will slip past it without even realising. So, the safer approach is to treat the exemption as the exception rather than the rule and verify most suppliers as though it simply doesn't apply.
Final Words
This FTA decision reflects the UAE’s wider focus on strengthening accountability within its tax framework. For businesses, the change is less about adding another compliance formality and more about demonstrating that reasonable checks are being carried out before Input VAT is recovered.
Excellence helps businesses put the FTA’s requirements into practice, from setting up supplier checks to reviewing transactions and documenting the outcome. We also train internal teams to spot red flags before they turn into rejected Input VAT claims.
The rules may be complex, but the process does not have to be. We turn the new requirements into practical steps that fit into daily operations to help taxpayers strengthen their supply chain verification process before 1st October 2026.
