In brief
On 22 July 2026, the Federal Tax Authority (FTA) issued Decision No. 13 of 2026 on Measures, Procedures and Conditions Required by Taxable Persons for Verification of the Validity and Integrity of the Supplies before Deduction of Input Tax (“Decision”), introducing significant new compliance obligations, measures, procedures, and conditions that taxpayers must satisfy before recovering input tax, effective from 1 October 2026.
What should taxpayers do before 1 October 2026?
Practical next steps for UAE taxpayers
Taxpayers should consider taking the following actions before the effective date:
- Perform a supplier population assessment to identify suppliers that are likely to exceed the AED 375,000 threshold and therefore require enhanced verification procedures.
- Update supplier onboarding policies and procurement procedures to incorporate the mandatory verification requirements prescribed by Articles 3 and 4 of the Decision.
- Implement a documented verification policy to identify the persons responsible for implementing, reviewing, and supervising verification procedures and clearly setting out responsibilities and escalation pathways.
- Develop standard evidence collection checklists and retention protocols to ensure that verification steps, supporting documents, and explanations for identified risk indicators are properly documented and readily available during FTA audits.
- Review payment approval processes, particularly arrangements involving third party payments, offshore bank accounts, or cash payments, to ensure that documentary evidence supporting the commercial rationale is maintained.
- Establish procedures for documenting explanations for supplier risk indicators, including changes in address, key personnel turnover, and unusual transaction patterns, as these explanations may need to be submitted to the FTA upon request.
- Assess alignment with existing tax governance and tax control frameworks, given that compliance with the Decision will likely become an area of focus during FTA audits challenging input tax recovery claims under Article 54(Bis).
In more detail
Background
Historically, input tax recovery in the UAE has primarily depended on the taxpayers’ ability to hold and produce valid tax invoices and satisfaction of the input tax recovery specific conditions set out in the VAT framework.
However, the UAE added Article 54(Bis) to the UAE VAT Law under Federal Decree-Law No. 16 of 2025, allowing the FTA to deny input tax recovery where a taxpayer knew (or should have known) that the relevant supply was connected with Tax Evasion, being “the Person’s use of illegal means, resulting in the reduction of the amount of the Due Tax, non-payment thereof, or a refund of Tax that the Person did not have the right to have refunded.”
The latest Decision issued by the FTA effectively implements Article 54(Bis) by setting out measures, procedures, and conditions that taxpayers must implement and follow in order to demonstrate that they have undertaken appropriate checks and verifications to assess the validity and integrity of: (i) their suppliers, and (ii) any taxable transactions undertaken.
Supplier verification requirements
Article 3 of the Decision focuses on the specific verification procedures taxpayers must implement in relation to their suppliers. In accordance with Article 5, such verifications must be performed when onboarding a supplier (i.e., when dealing with a supplier for the first time) and must be repeated where the same supplier has not been verified during the preceding 12 months.
The mandatory verification measures include:
- Verifying the identity of the supplier, including:
- For natural person suppliers, obtaining a copy of a valid proof of identity (including an Emirates ID or passport) and meeting the supplier, whether in person or virtually, before making the supply;
- For legal person suppliers, verifying the supplier’s incorporation through official databases or obtaining a copy of the certificate of incorporation, and verifying that the incorporation details are valid and identical to the entity’s name, address, and employees, as well as other related information; and
- Verifying the identity of the director, agent, or employee authorised to represent the supplier.
- Verifying the existence of an actual place of business of the supplier using appropriate electronic means or through conducting a field visit to its place of business and ensuring that the place of business is compatible with the nature of the activities carried out by the supplier.
- Assessing listed supplier risk indicators, including whether:
- The supplier has changed its address more than twice over the previous 12 months;
- The supplier has changed its key employees (supplier’s managers or those with whom the Taxable Person deals) more than twice over the previous 12 months; and
- The supplier has undertaken commercial transactions that are disproportionate or unexpected in terms of volume, value or nature compared to the size of the supplier’s business and the history of conducting his business.
It should be noted that where any risk indicator exists (and provided it does not contradict with the information and evidence held by the taxpayer) the taxpayer must retain a clear and justified explanation for these to exist. Such explanation must be provided to the FTA upon request (this is expected to be the case where the FTA challenges the input tax recovery).
- Additional verifications apply where supplies received from a supplier exceed the threshold of AED 375,000 during the preceding 12 months or are expected to exceed that threshold during the following 12 months, the taxpayer must:
- Obtain from the supplier a written confirmation issued by an authorised bank in the UAE confirming that the supplier has a bank account, provided that the confirmation does not include any relevant reservations or conditions. The confirmation is not required to be issued to the recipient of the supply.
- Review and assess publicly available reviews and media coverage relating to the supplier from reliable sources, ensuring that such information is consistent with the nature and size of the supplier’s business and that there are no indicators of suspected Tax Evasion.
Supplies verification requirements
Pursuant to Article 4 of the Decision, taxpayers must also assess each individual supply before input tax recovery. Importantly, such verifications include, amongst others:
- Whether the supplier’s involvement in the transaction has genuine commercial justification;
- Whether payment arrangements are commercially justifiable;
- Whether pricing or profit margins are commercially reasonable and consistent with market conditions;
- Whether the supply falls within the supplier’s ordinary business activities or licence scope;
- Whether the origin, authenticity and ownership of goods can be verified; and
- Where the supplier acts as an intermediary, verifying that there is a clear and justifiable commercial explanation for the supplier’s role in the process of the supply.
In addition to assessing the substantive characteristics of the supply, taxpayers must assess payment conditions and verify that:
- The payment method and payment conditions are justifiable for commercial reasons;
- 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 is a reasonable commercial explanation that does not contradict any information or evidence available to the taxpayer; and
- Consideration is paid by electronic means, or where cash payment is used, the payment is supported by a documented commercial reason, falls within applicable tax legislation thresholds and is easily verifiable.
Procedural and governance requirements
Article 5 requires taxpayers not only to perform the verification measures but also to establish a documented compliance framework. Taxpayers must:
- Verify suppliers when dealing with a supplier for the first time and thereafter where that supplier has not been verified during the preceding 12 months;
- Verify each taxable supply received or accepted;
- Document the verification steps undertaken and retain supporting documents and records enabling the FTA to verify the correctness of their implementation; and
- Maintain a documented policy identifying the persons responsible for implementing, reviewing and supervising the verification procedures, together with their powers and responsibilities, and retain that policy at the designated document retention location.
Exception for small transactions
Article 6 of the Decision provides an exception where the consideration for an individual supply (before VAT) is less than AED 10,000. However, where the aggregate value of supplies received from the same supplier over the previous 12 months exceeds AED 100,000 such exception does not apply. Similarly, if it is expected that the aggregate value of supplies from the same supplier over the upcoming 12 months exceeds the same threshold, the exception does not apply.
Conclusion
In order to manage the risks of potential denial of input tax recovery associated with the provisions of Article 54(Bis) of the UAE VAT Law, UAE VAT registered businesses should review and enhance their supplier onboarding procedures as well as any transaction approval processes and internal control frameworks in order to ensure compliance with the requirements introduced by the Decision which will become effective from 1 October 2026.