UAE Imposes Stricter VAT Due Diligence Requirements for Input Tax Recovery

Businesses operating in the United Arab Emirates must implement and record formal verification procedures before deducting input VAT, according to legal analysis from law firm NZP NAGY LEGAL. Federal Tax Authority (FTA) Decision No. 13 of 2026 enters into force on 1 October 2026, establishing a mandatory due diligence framework for both vendors and discrete commercial transactions.

The decision implements Article 54 bis of the UAE VAT Law, introduced under Federal Decree-Law No. 16 of 2025. Under this statutory rule, the FTA is authorized to deny input VAT recovery if a transaction is connected to a supply chain involving tax evasion and the taxable person knew or reasonably should have known about the link. Inadequate verification exposes companies directly to the denial of tax deductions.

Under the new supplier onboarding rules, a vendor must be verified prior to the initial transaction and re-evaluated if no review occurred within the preceding 12 months. Verification includes reviewing identification, checking official incorporation registers, confirming representative authority, and verifying physical operating premises. For vendors whose transactions exceed or are projected to exceed AED 375,000 over 12 months, companies must obtain confirmation of a UAE bank account and review public records regarding business standing.

For individual transactions, businesses must confirm commercial rationale, valid pricing, alignment with licensed commercial activities, and documentation of goods origin and title. Payments should generally be electronic; cash transactions require documented explanations. While a de minimis exemption applies to supplies under AED 10,000, that relief ceases once cumulative annual purchases from the same supplier reach AED 100,000.