UAE Implements Stricter Input VAT Recovery Rules and Supplier Verification Checks

UAE tax authorities have introduced revised input VAT deduction rules that shift standard compliance from simple invoice collection to mandatory verification, according to advisory firm A&A Associate. Under Federal Tax Authority (FTA) Decision No. 13 of 2026, effective 1 October 2026, registered businesses must conduct operational background checks on suppliers and verify commercial rationale to prevent tax recovery denials.

Supplier checks require identity documentation and annual refreshes. For corporate suppliers, businesses must verify legal incorporation, representative identification, and physical premises. For suppliers exceeding AED 375,000 in transactions over 12 months, companies must obtain UAE bank account evidence and review public reputation. Purchases under AED 10,000 are exempt from verification unless total purchases from that supplier exceed or are expected to exceed AED 100,000 over 12 months.

Separately, FTA Decision No. 17 of 2026 limits VAT recovery on free employee benefits strictly to six categories: transport, food and drink, staff accommodation, accommodation for new joiners, mobile phone/data/internet, and parking. Each category requires strict compliance conditions, such as prohibiting cash allowance alternatives and mandating written company usage policies.

The regulatory updates also incorporate Cabinet Decision No. 149 of 2026, which blocks VAT recovery on large purchases paid in cash, with the specific threshold amount to be determined by the government. Monthly filers are required to apply these updated standards starting with their October returns due by 28 November.