Input VAT Recovery UAE

Input VAT Recovery Now Depends on Documented Supplier Due Diligence

The United Arab Emirates (UAE) is providing lucrative opportunities to businesses to boost the economy. The tax situation is getting stricter, but a better policy for verification is needed. The legal implications are regulated by Federal Tax Authority Decision No. 13 of 2026. The new rules introduced in October 2026 have added verification methods that businesses should go through before they claim Value Added Tax (VAT) deduction or refund. They verify the suppliers, ensure transactions and maintain evidence of the action performed. Having no record-keeping in businesses can lead to bigger problems when claiming VAT.

VAT Rule Changed in 2026

Previously, businesses would get VAT as claimed because they met the requirements of VAT. As the new law has passed, businesses must verify the supplier. However, the FTA can refuse the VAT claim if found that the purchase involved tax evasion and both business partners knew about it.

Legal Compliance with VAT

Businesses and individuals registered under the VAT Law have to comply with the new rules. It does not matter if your business is in a free zone or mainland. There is no tax exemption in any sector(Free Zones are a separate debate). Additionally, the turnover does not matter. However, it is complicated for businesses that deal with many suppliers at a time. This could affect distributors, contractors, freight and logistics operators.

VAT Verification Process for UAE Businesses

UAE businesses have to verify VAT in two different ways.

1. Verify the supplier

It is crucial to verify the supplier when doing business with them for the first time. The new tax rules shall be taken into account. A checklist is maintained for verification. It has information about the individual’s Emirates ID or passport and company details. Secondly, the address and place of business shall be verified. Keep a look at red flags, especially if the business has changed its address or transaction volumes. Keep everything documented throughout the whole process for further explanation, if required. If the business partner is purchasing more than AED 375,000 in a year, a bank account confirmation should be obtained, and keep a check on the supplier’s reputation.  

2. Confirm the supply

Not only should the supplier be confirmed, but supplied products and services should also be verified. They should have a license for supplying the goods or the service they intend to supply. Goods are taxable. Therefore, the transactions shall ensure rationality and not just a trail on paper. Payments shall be justified. Third-party payments or international payments shall be explained and documented. Cash payments shall be justified with legal limits; however, payments sent electronically are much better than cash settlements.

How is Business Workload Decided?

The UAE business sector is an integral part of economic growth. Therefore, VAT verification standards are kept very strict by UAE Government. However, supplies valued at AED 10,000 do not require any VAT verification. If the amount reaches AED 100,000, no relief is available for the AED 10,000 threshold. Furthermore, if the value of transactions with a supplier reaches AED 375,000, a written statement from the bank may be required.

Companies Underestimating Documents Requirements

Some companies conduct little or no due diligence before engaging with suppliers. It is legal and allowed by law. When a business neglects these checks, potential problems can arise. Therefore, every final decision should be properly documented and checked. Verification procedures should be reviewed annually. Each document serves as evidence supporting the final decision and should be maintained with due care.

Talk to the UAE Legal Experts

At ASK THE LAW, the online legal platform of Al Shaiba Advocates & Legal Consultants in Dubai help businesses grow fast with transparency. You can book a consultation with us to discuss laws regarding new suppliers and if you need assistance with documentation.

FAQS

The new decision by FTA was introduced in July 2026. Decision No. 13 of 2026 directs every business to verify the supplier for VAT claims. The law has strict rules, including transactions made for more than AED 10,000 and the supplier’s reputation in the current business environment.

The new rule is applied from 1st October 2026.

No. The tax invoice is just a basic requirement. From October 2026, more evidence is required before you can claim VAT.

Yes. The FTA can deny the VAT claim even if the business owner thinks it is not their fault. The supplier may have evaded the tax, and if you were aware of the fact, it would be difficult to get you out of this situation. If you were unaware of tax evasion, then you must provide evidence with documents to evaluate that you could possibly not have known about it.

Invoices above AED 10,000, excluding VAT, do not need strict verification procedures. However, if the same supplier exceeds AED 100,000 in a year, then high verification measures are taken, even if the invoices are individual.

  • Above AED 100,000 from the same supplier: The exception is unavailable if total supplies exceed AED 100,000 during the previous 12 months or are expected to exceed that amount during the next 12 months

The existing supplier shall be verified once a year or if the supply exceeds AED 100,000 in a year.

There is no new set of fines for businesses. At different stages, a business can be penalised. For example, if the existing supplier or the new supplier has not been verified and is involved in tax evasion. Administrative penalties can be imposed if VAT is being underpaid.

  • FTA Decision No. 13 of 2026 does not introduce a separate schedule of fines specifically for supplier verification failures. However, failure to conduct the required checks can affect input VAT recovery. Administrative penalties may also apply under existing UAE tax legislation.

Yes, the VAT law is applied across the UAE, regardless of the business location.

Refusing documents from both ends is a risk indicator. Therefore, businesses should document evidence of the request and the decision of refusal to see whether VAT is recoverable.

No, for past purchases, these rules cannot be applied to UAE businesses. Businesses should therefore avoid treating “existing supplier” as automatically exempt and should ensure the required verification evidence is available for ongoing transactions.

Note:

ASK THE LAW is the Online Legal Entity of Al Shaiba Advocates & Legal Consultants, a full-service Emirati Law Firm. The blog is just for legal knowledge, which can be outdated with time with the inventions of new laws or modifications in previous laws. There might be some human errors too in the blog content. Therefore no liability is taken or owned, and we suggest consulting our experts for any decision or proceedings.