UAE issues decision on verification measures for input tax deduction

On 22 July 2026, the UAE Federal Tax Authority (FTA) issued Federal Tax Authority Decision No. 13 of 2026 on the Measures, Procedures and Conditions required by Taxable Persons for the Verification of the Validity and Integrity of Supplies before Deduction of Input Tax (Decision). This was published on 20 August 2026 and will come into effect from 1 October 2026.

This update highlights key aspects of the Decision and our observations on its practical impact on supplier onboarding, procurement processes and VAT compliance more generally.

Scope and policy context

The Decision references Article 54(bis) of the VAT Law which prevents VAT-registered businesses from claiming VAT deduction on supplies linked to tax evasion where they “knew or should have known” of the link. It sets out in detail the measures the FTA now expects businesses to take to safeguard their right to VAT recovery by on-going verification of the validity and integrity of suppliers and supplies and retention of the associated evidence.

Supplier due diligence – practical impact

The Decision introduces a set of supplier level checks that closely resemble KYC style on-boarding requirements:

• Identity checks: VAT-registered businesses must verify the identity of the supplier. For natural persons, this includes obtaining a copy of a valid Emirates ID or passport and meeting the supplier (in person or virtually) before the supply is made. For legal persons, it requires verification of incorporation (via official databases or a certificate of incorporation) and obtaining ID for the director, agent or authorised employee representing the supplier.
• Place of business: VAT-registered businesses must verify the existence of an actual place of business (using appropriate electronic means or a field visit) and ensure that the premises are compatible with the nature of the supplier’s activities.
• Risk indicators: VAT-registered businesses must check that certain risk indicators do not apply (e.g. frequent changes of address or of key employees, or disproportionate/unexpected transactions compared to the supplier’s business size and history). If there are risk indicators, the business needs to establish a clear justification, supported and not contradicted by the available evidence, which must be retained and provided to the FTA upon request.
• Enhanced checks: where the value of supplies from a supplier exceeds, or is expected to exceed, AED 375,000 over a 12 month period, Taxable Persons must obtain written confirmation from an authorised UAE bank that the supplier has a bank account (without reservations or conditions), and review publicly available reviews and media coverage from reliable sources to ensure consistency with the supplier’s business and the absence of any indicators of suspected tax evasion.

In practice, businesses will need to ensure that their existing vendor on-boarding processes adequately address the requirements as to identity documentation, corporate information, premises verification and risk assessments, that systems can track supplier level spend against the relevant thresholds for additional checks and that there is adequate governance alignment between the relevant operational teams including, of course, those responsible for tax compliance.

It is important to note that where there is an on-going relationship, the FTA expect at least annual verification of the supplier to be conducted.

Verification of supplies – focus on transaction integrity

As well as supplier due diligence, the Decision also requires verification at the level of each taxable supply received:

• General assessment: VAT-registered businesses must conduct a general assessment of the supply’s conditions and ensure that the supplier’s engagement in the transaction is based on genuine commercial reasons.
• Payment arrangements: payment methods and conditions must be commercially justifiable. Where a third party is involved in the payment process or receipt of payment, or payment is made to a bank account outside the supplier’s country of incorporation, there must be a reasonable commercial explanation that does not contradict the taxpayer’s information or evidence. Consideration should generally be paid by electronic means; cash payments must be supported by a documented commercial reason, must fall within thresholds specified in tax legislation and must be easily verifiable.
• Circumstances of the supply: VAT-registered businesses must verify that prices or profit margins are not commercially unjustifiable or significantly different from market conditions without clear reason; that the goods or services supplied fall within the supplier’s ordinary or licensed activities; the authenticity and origin of goods and the supplier’s ownership or right to dispose of them; and, where the supplier acts as an intermediary, that there is a clear commercial explanation for its role in the supply chain.

These requirements will be particularly relevant for businesses with complex payment flows (including third-party payers or offshore accounts), trading and intermediary structures, or where there are atypical pricing arrangements. They imply a need to document commercial rationale for transaction structures and payment routes as part of VAT compliance.

Procedures, documentation and governance

The Decision goes beyond setting out checks and imposes procedural and governance obligations on Taxable Persons:

• Suppliers must be verified when dealing with them for the first time, and again if they have not been verified in the previous 12 months.
• Each taxable supply received or accepted must be verified.
• Taxable Persons must document the verification steps taken and retain supporting documents and records, in line with standard record-keeping requirements (generally for five years after the end of the tax period but ten years in the case of capital items) in order to enable the FTA to verify correct implementation.
• A documented policy must be maintained, identifying the persons responsible for implementing, reviewing and supervising the verification procedures, clearly setting out their powers and responsibilities, and retained at the designated location for the required documents.

This effectively requires a strong internal control framework around supplier and supply verification, with defined roles, periodic review and auditable records. Many businesses are likely to need to update and align procurement policies, accounts payable procedures and internal compliance documentation to reflect these obligations.

Exceptions and thresholds

The Decision includes a limited exception based on the value of the supply consideration:

• Taxable Persons may disregard the measures and conditions in the Decision for taxable supplies received where the consideration (excluding VAT) is less than AED 10,000.
• However, this exception does not apply where the total value of supplies received from the same supplier exceeds AED 100,000 over the previous 12 months or is expected to exceed that amount over the next 12 months.

In practice, systems will need to monitor cumulative spend per supplier to determine when the exception ceases to apply. For ongoing supplier relationships, the relief may be limited once annual spending crosses the AED 100,000 threshold.

Effective date

The Decision comes into effect prospectively on 1 October 2026. Businesses have a limited window therefore to design, implement and test their verification processes, documentation and governance before the regime applies. They may also wish to consider the robustness of their verification arrangements from 1 January 2026 as this is the date from which the FTA has the power to refuse a VAT-registered business input VAT recovery where the business should have known of tax evasion.

Comment

The Decision introduces a formalised due diligence regime around input VAT deduction, tying the right to deduct to demonstrable on-going verification of suppliers and supplies. The due diligence required combines both prescriptive checks (identity checks, incorporation verification, confirmation of bank accounts above specified thresholds, periodic re-verification and written internal policies) as well as broader, principle-based assessment checks (commercial rationale, market-consistent pricing, payment structures and risk indicators). It remains to be seen how the FTA applies the rules in practice and whether, particularly for large businesses, there will be scope to take into account the additional, and potentially burdensome, level of assessment and record-keeping in determining what constitutes adequate verification in the circumstances.

Non-compliance with the new requirements could result in the inability to recover input VAT and therefore could have a material cost to businesses. VAT-registered businesses are therefore recommended to:

• Revisit their governance policy and procedures and, where required, implement updates to ensure adequate coverage of the new requirements and alignment between the relevant teams (e.g. tax, procurement and finance) as to duties and responsibilities. Updated procedures should take into account system limitations and any required enhancements as well as considering relevant contractual and service level provisions with third parties (e.g. outsourced procurement or tax compliance providers).
• Implement or update existing supplier onboarding and procurement procedures to ensure they capture the new due diligence requirements, capturing both initial onboarding and ongoing / periodic due diligence. Where appropriate, revise standard supplier terms and conditions to ensure that the supplier is required to provide all relevant documentation and information that may be required to facilitate the customer’s compliance with the new requirements and factor in contractual protection covering irrecoverable VAT associated with a supplier’s failure or inability to meet the relevant requirements.
• Implement ongoing monitoring and control procedures within existing wider procurement processes, to ensure appropriate escalation of due diligence requirements where applicable thresholds are exceeded (i.e. the AED 10,000 per supply, AED 100,000 per supplier and AED 375,000 thresholds) and on whether commercial preferences or system limitations may lead to lower or no thresholds being applied in practice.
• Ensuring robust record-keeping and an adequate audit trail is in place to evidence the assessments made, particularly where risk indicators are present.