A valid tax invoice may no longer be enough on its own to protect an Input VAT deduction in the UAE.
From 1 October 2026, Taxable Persons will face a more structured obligation to verify both the suppliers they deal with and the commercial reality of the supplies they receive before deducting Input Tax.
The change comes through Federal Tax Authority Decision No. 13 of 2026, which sets out measures, procedures and conditions for verifying the validity and integrity of supplies.
The practical consequence is significant.
A business may potentially lose the right to deduct Input VAT not because it participated in tax evasion, but because it failed to carry out checks that could reasonably have revealed problems within the supply chain.
For procurement, finance and tax teams, supplier due diligence is therefore becoming a central part of VAT compliance in the UAE.
Why Have the New Rules Been Introduced?
The Decision operates within the UAE VAT framework addressing transactions connected to tax evasion.
A fraudulent supply chain can still generate apparently legitimate paperwork. A tax invoice may exist even where the underlying supplier, transaction or movement of goods raises serious concerns.
The new rules therefore focus on whether the business claiming Input Tax took appropriate steps to establish that both the supplier and the transaction were genuine.
This changes the compliance question.
It is no longer enough simply to ask:
Do we have a valid tax invoice?
Businesses may increasingly need to ask:
What evidence do we have that we properly checked the supplier and the supply before claiming the VAT?
Supplier Verification Becomes a Formal VAT Requirement
Businesses must verify the identity and legitimacy of suppliers before dealing with them.
The required checks include matters such as the supplier’s:
- identity;
- incorporation;
- place of business;
- licensed activities; and
- relevant risk indicators.
The supplier should not simply exist on paper.
Businesses should consider whether the supplier’s actual commercial profile is consistent with the goods or services being provided.
If, for example, a supplier is invoicing for goods that appear unrelated to its licensed commercial activities, that could warrant additional investigation.
This makes supplier onboarding more than a procurement function.
Information gathered at onboarding may later become evidence supporting the company’s Input VAT deduction.
Supplier Checks Are Not Necessarily One-Off
Verification should not end when a supplier is first approved.
Supplier information may need to be reviewed periodically, including re-verification every 12 months where required under the applicable framework.
That matters because commercial circumstances change.
A supplier may:
- change ownership;
- relocate;
- alter its licensed activities;
- change banking arrangements;
- develop adverse public information; or
- begin operating differently from when it was first approved.
Businesses should therefore consider introducing scheduled supplier reviews rather than treating due diligence as a one-time exercise.
Higher-Value Suppliers Face Enhanced Verification
The Decision also introduces additional requirements where supplies from a supplier exceed AED 375,000.
For these higher-value relationships, enhanced verification can include confirming the supplier’s banking arrangements and conducting a reputation review.
Available recommendations, public reviews and relevant media information may become part of that assessment.
This is important because it introduces a more clearly risk-based approach.
A supplier receiving substantial expenditure from the business may require greater scrutiny than an occasional low-value vendor.
Businesses will therefore need systems capable of tracking cumulative supplier spend.
The compliance obligation cannot necessarily be assessed invoice by invoice.
Written Bank Confirmation May Become Important
For suppliers exceeding the relevant AED 375,000 threshold, banking verification becomes particularly significant.
Businesses may need to obtain appropriate confirmation concerning the supplier’s bank account rather than simply accepting payment instructions contained in an invoice or email.
This also has wider fraud-prevention benefits.
Changes in supplier banking details are already a common area of commercial fraud risk. Formal verification procedures can therefore support both VAT compliance and ordinary financial controls.
Businesses should consider requiring independent confirmation before accepting new or amended supplier banking details.
The Supply Itself Must Also Be Verified
A legitimate supplier does not automatically make every transaction legitimate.
The Decision therefore requires businesses to examine the commercial substance of the supply itself.
Relevant considerations include:
- the commercial rationale;
- payment conditions;
- pricing;
- the nature of the goods or services;
- authenticity;
- origin; and
- ownership.
The central question is whether the transaction makes commercial sense.
A business buying goods should be able to understand:
- why the supplier is able to provide them;
- whether the goods correspond with the supplier’s activities;
- where they came from;
- who owns them;
- whether the price is commercially plausible; and
- why the payment arrangements have been structured in the particular way proposed.
Unusual circumstances do not automatically mean tax evasion has occurred.
They may, however, create a reason to investigate further.
Businesses May Need to Demonstrate That the Price Was Reasonable
Pricing is another important part of the verification exercise.
If a transaction involves a price materially outside what would ordinarily be expected, the business may need to understand why.
There may be entirely legitimate explanations.
Goods may be discounted because of:
- volume;
- age;
- clearance;
- market conditions;
- damaged packaging;
- long-term commercial relationships; or
- urgent disposal requirements.
The key issue is whether the business can demonstrate a commercially credible explanation.
A price that appears inexplicably favourable may be a risk indicator rather than simply a good deal.
Cash Payments Deserve Particular Attention
Cash transactions can create additional evidential difficulties.
Businesses should ensure that cash payments are properly documented and capable of being connected to the relevant supplier and transaction.
The compliance file should not leave uncertainty over:
- who was paid;
- how much was paid;
- when payment occurred;
- who authorised it; and
- what transaction the payment related to.
Where payment structures are unusual, additional evidence may be prudent.
The broader objective is to ensure that the business can reconstruct the transaction if questioned later.
Why Documentation Is So Important
The strongest protection for a business may ultimately be its records.
A company may genuinely have had no knowledge that wrongdoing existed elsewhere in a supply chain.
But if it cannot demonstrate that the required checks were performed, its position becomes substantially more difficult.
Businesses should therefore retain evidence showing:
- what was checked;
- when the verification took place;
- who carried it out;
- what documents were reviewed;
- whether any concerns arose;
- how those concerns were resolved; and
- who approved the supplier or transaction.
Depending on the circumstances, supporting material could include:
- trade licences;
- incorporation documents;
- address verification;
- bank confirmations;
- contracts;
- quotations;
- purchase orders;
- delivery documentation;
- proof of payment;
- origin or ownership records;
- internal approval forms; and
- records of reputation checks.
A completed checklist without the underlying evidence may provide limited protection.
Responsibility Should Be Put in Writing
One of the practical consequences of the new framework is that businesses should clearly identify who is responsible for carrying out supplier verification and who oversees the process.
That responsibility should not remain informal.
A company may need to determine whether checks are performed by:
- procurement;
- finance;
- tax;
- compliance;
- accounts payable; or
- a combination of departments.
Oversight should also be assigned.
This avoids the common situation where each department assumes somebody else completed the necessary checks.
A written internal procedure can establish:
- who conducts initial verification;
- who performs enhanced checks;
- who approves exceptions;
- who monitors supplier thresholds;
- who carries out annual reviews; and
- who retains the records.
The AED 10,000 Exception Is Limited
The Decision provides a proportionate exception for certain lower-value supplies.
The prescribed verification measures may generally be disregarded where the consideration for a supply, excluding VAT, is below AED 10,000.
However, businesses cannot necessarily rely on that exception indefinitely.
Where total supplies from the same supplier exceed AED 100,000 during the relevant 12-month period, the lower-value treatment ceases to provide the same protection.
This prevents a substantial supplier relationship from escaping scrutiny merely because it consists of many smaller transactions.
Businesses therefore need to monitor cumulative spend by supplier.
What Does “Should Have Known” Mean in Practice?
This is potentially the most important aspect of the new regime.
A business does not necessarily need actual knowledge of tax evasion before its Input Tax position becomes vulnerable.
The question can also become whether the business should reasonably have known that something was wrong.
The verification requirements help define what responsible commercial behaviour is expected to look like.
If a business fails to carry out the prescribed checks entirely, it may be more difficult to argue later that it could not reasonably have discovered warning signs.
That places a premium on procedure.
The absence of fraudulent intent by the purchaser does not necessarily remove the need to demonstrate proper due diligence.
Procurement and VAT Compliance Are Becoming Connected
Traditionally, supplier approval and VAT recovery may have been treated as separate functions.
Procurement approved the vendor.
Accounts payable processed the invoice.
The tax team claimed the Input VAT.
The new framework connects those stages.
The tax team may depend on information gathered by procurement months earlier.
Finance may need evidence from the supplier onboarding file before approving an Input Tax deduction.
Compliance may need to investigate warning signs before the transaction proceeds.
Supplier management therefore needs to become more integrated.
Existing Suppliers Should Be Reviewed Too
Businesses should not assume the Decision is relevant only when appointing new suppliers after 1 October.
Existing vendor records should also be reviewed.
A longstanding supplier may have been approved years ago under procedures that did not collect the information now required.
The company may therefore discover that it does not currently hold:
- updated licensing information;
- proof of business location;
- verified banking information;
- appropriate incorporation records; or
- evidence of periodic review.
Longstanding familiarity is not necessarily the same as documented verification.
Businesses should consider refreshing supplier records before the new rules take effect.
What Businesses Should Do Before 1 October 2026
The remaining period before implementation should be used to review internal procedures.
A practical readiness programme should include:
1. Update supplier onboarding
Compare existing vendor forms with the new verification requirements and identify missing information.
2. Review existing suppliers
Refresh supplier records where documentation is incomplete or outdated.
3. Introduce 12-month re-verification
Create a system for identifying when supplier information requires periodic renewal.
4. Monitor the AED 375,000 threshold
Ensure higher-value supplier relationships trigger enhanced banking and reputation checks.
5. Monitor the AED 100,000 cumulative threshold
Businesses relying on the lower-value exception must be able to identify when cumulative expenditure with a supplier changes the position.
6. Review transactions as well as vendors
Check whether pricing, payment conditions, ownership, origin and commercial rationale are credible.
7. Document cash payments carefully
Ensure cash transactions can be fully reconstructed and linked to legitimate supplies.
8. Assign responsibility in writing
Specify who performs the checks, who supervises them and who approves higher-risk transactions.
9. Build an escalation process
Employees should know what to do when they encounter unusual pricing, inconsistent supplier information or other risk indicators.
10. Retain supporting evidence
Verification must be demonstrable, not merely assumed to have occurred.
A Wider Shift in UAE Tax Compliance
FTA Decision No. 13 of 2026 represents more than another documentation requirement.
It reflects a broader shift towards evidence-based tax compliance.
Businesses are increasingly expected to understand the commercial transactions behind the tax treatment they claim.
For Input VAT, that means compliance is becoming intertwined with:
- procurement;
- corporate governance;
- fraud prevention;
- vendor management;
- internal controls;
- financial crime risk; and
- record keeping.
The tax invoice remains important.
It is simply no longer the entire compliance story.
Conclusion
From 1 October 2026, UAE businesses will need to approach Input VAT recovery with greater attention to the supplier and the transaction behind the invoice.
FTA Decision No. 13 of 2026 introduces structured verification requirements covering supplier identity, business activities, banking information in applicable cases, transaction rationale, pricing, payment conditions and the authenticity, origin and ownership of supplies.
Businesses must also document what they have checked, periodically refresh supplier information and clearly allocate responsibility for the verification process.
The commercial consequence is significant.
A business may face difficulty recovering Input VAT even without knowingly participating in wrongdoing if it cannot demonstrate that it carried out the checks reasonably expected of it.
The practical lesson is therefore clear:
Input VAT recovery is no longer simply about possessing the right documents. Businesses increasingly need evidence that they understood who they were buying from, what they were buying and why the transaction could reasonably be regarded as genuine.
Al Kabban & Associates
For businesses seeking guidance, Al Kabban & Associates, with over 30 years of experience in UAE law and recognition by Legal 500, stands ready to help corporations build resilience against legal risks while ensuring compliance with local and international standards. For more information or to schedule a consultation, contact us at +971 4 453 9090 or visit www.alkabban.com. You can also follow us on social media for more updates on everything law related in the UAE: @Alkabban_Law
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