UAE Input VAT Recovery: The Supplier Checks You Must Document

Questions regarding UAE input VAT recovery requirements arise at some point for any company registered for VAT in the UAE. As a general rule, recovering input VAT requires a valid tax invoice, as well as compliance with the other requirements set out in the UAE VAT law. This article addresses what additional steps a UAE company must take in order to preserve its right to recover VAT.

Legal Framework

The UAE VAT regime follows the general principle typical of indirect taxation: a taxpayer may recover input VAT. In 2025, Article 54 bis was introduced into the UAE VAT law, restricting a taxpayer company’s ability to recover VAT in the UAE.

The decision of the UAE Federal Tax Authority (FTA) to deny input tax recovery rests on two elements:

Circumstances of the Supply	Awareness of the Taxable Person
The taxable supply forms part of a supply chain linked to tax evasion.  This element is fixed and must be established by the FTA.	It is necessary to establish the extent to which the recipient of the supply (the taxable person) was aware of the connection between the supply and the tax violation.

It is precisely the taxpayer’s level of awareness that determines the consequences that follow. Article 54 bis distinguishes between the following levels of awareness and their corresponding consequences:

• if the taxable person knew of that connection at the time the recovery was claimed, the FTA must deny the recovery;
• if, in light of the circumstances of the supply, the taxable person should have known of that connection, the FTA may deny the recovery.

A person is deemed to have known of a supply’s connection with tax evasion if that person failed to verify the validity and integrity of the supplies received, in the manner prescribed by the FTA.

In July 2026, the FTA issued Decision No. 13 of 2026 on Measures for the Verification of the Validity and Integrity of the Supplies for the purposes of input VAT recovery, setting out the measures, procedures, and conditions that taxable persons must comply with. In essence, this Decision sets out the concept of VAT supplier due diligence in the UAE and defines the measures to be taken.

Decision No. 13 enters into force on 1 October 2026.

Levels of Supplier Due Diligence in the UAE

Decision No. 13 establishes two levels of supplier due diligence in the UAE:

• verification of the supplier itself (whether an individual or a legal entity), and
• verification of the supply.

Supplier Verification File in the UAE

The following steps must be taken to verify the supplier in a proper way:

• establishing the supplier’s identity;
• confirming that the supplier has an actual place of business;
• checking the supplier for risk indicators; and
• taking additional measures where certain conditions apply.

These measures must be carried out when establishing a relationship with a new supplier, and repeated every 12 months thereafter. The results of such checks must be properly documented.

Supplier’s Identity

The scope of verification differs depending on whether the supplier is an individual or a legal entity:

Individual Supplier	Legal Entity
obtain a copy of an identity document (passport or Emirates ID); conduct a meeting with the supplier, either in person or by video, before the supply begins.	check the supplier’s registration through official registers, or obtain a copy of the certificate of incorporation; obtain copies of identity documents for the director or other employee authorised to represent the supplier.

Confirmation of the Place of Business

For the supplier’s place of business to be considered genuine, it is necessary to:

• verify its actual existence, either electronically or through an on-site visit; and
• verify that the location is consistent with the nature of the supplier’s business.

Accordingly, a formal address stated in the documents is not sufficient. A UAE taxpayer company must hold documentary evidence of the steps taken. This may include, for example:

• dated screenshots and the results of the electronic verification; or
• an on-site inspection report and photographs.

Assessment of Risk Indicators

At this stage, it is necessary to confirm that none of the following risk indicators apply to the supplier:

• the supplier has changed address more than twice in the preceding 12 months;
• the supplier has changed key personnel (managers or contact persons for the UAE taxpayer) more than twice in the preceding 12 months; and
• the supplier has entered into transactions that are disproportionate or unexpected in terms of volume, value or nature compared to the size or history of its business.

At the same time, the mere presence of any of these elements does not, in itself, affect the eligibility of the supply for VAT recovery purposes in the UAE. The taxpayer must, however, provide the FTA with a clear and well-reasoned explanation of why such indicators apply.

Additional Measures

Additional supplier verification measures are required if:

• the value of supplies from that supplier exceeded AED 375,000 over the preceding 12 months; or
• that threshold is expected to be exceeded within the following 12 months.

These additional measures consist of:

• obtaining a written confirmation from a licensed UAE bank that the supplier holds a bank account with it; and
• reviewing publicly available customer feedback and media coverage of the supplier, to assess their consistency with the nature and scale of the supplier’s business, and to check for any indications of suspected tax evasion.

Verification of the Supply

The taxpayer must verify each supply received across the following areas:

• general assessment of the supply’s conditions, including the subject matter of the supply; and
• issues relating to price and settlement with the supplier.

General Assessment of the Supply’s Conditions

These measures are intended to demonstrate that the transaction has a commercial rationale and that the choice of the supplier is justified. This requires:

• carrying out a general assessment of the conditions of the transaction;
• confirming that the supply of goods or services falls within the supplier’s ordinary business activities, or activities permitted under its commercial license;
• verifying the authenticity and origin of the goods received, and confirming that the supplier lawfully owns or has the right to dispose of such goods.

As regards the supplier itself, it should be confirmed that its participation in the transaction is justified by genuine commercial reasons. Where the supplier acts as an intermediary, a clear and well-reasoned explanation of its role in the supply chain must be obtained.

Price and Payment Conditions

The price and the margin should not deviate significantly from market conditions without a clear reason, and should, in general, be commercially justified.

The method and terms of payment must likewise be commercially justified. Additional explanations will be required in the following cases:

• a third party is involved in processing or receiving the payment; or
• the payment is made to a bank account outside the supplier’s country of incorporation.

Payment for the supply must be made by electronic means. Cash payment is not prohibited, but must meet the following conditions:

• a documented commercial justification is required for a cash payment;
• the amount of such payment must not exceed the limits set out in the tax legislation (specific thresholds are established by decisions of the Minister of Finance); and
• the payment must be readily verifiable, i.e. the taxpayer company must hold documents evidencing that the payment was made (for example, receipts, invoices, etc.).

When Verification May Be Waived

By default, Decision No. 13 applies to all companies, regardless of their size or field of activity.

The only exception is based on the value of the supply: a company is not required to apply the measures set out in the Decision if the value of the taxable supply received is less than AED 10,000, excluding VAT.

This exception does not apply, however, if:

• the total value of supplies from a single supplier exceeded AED 100,000 over the preceding 12 months; or
• that threshold is expected to be exceeded within the following 12 months.

Accordingly, the AED 10,000 threshold is of practical relevance to companies that deal with the same counterparty only occasionally. Once the cumulative volume of purchases from a single supplier exceeds AED 100,000, the verification obligations extend to all supplies from that supplier, regardless of the value of any individual supply.

Risks for the UAE Taxpayer

Decision No. 13 itself provides for only one adverse consequence of failing to comply with the verification requirements: denial of input VAT recovery in the UAE.

In practice, however, a denial of input tax recovery triggers a reassessment of the tax liability for the period in which the recovery was claimed. FTA VAT penalties, established under the general regime of administrative sanctions for violations of tax legislation (UAE Cabinet Decision No. 40 of 2017, as subsequently amended), may then apply to the underpaid amount of tax.

For example, failure to pay the tax within the specified timeframe incurs a penalty of 14% per year, accrued monthly on the unpaid amount of tax.

Recommendations for the UAE Taxpayer Company

The requirements of Decision No. 13 can be summarised as a consolidated VAT compliance checklist containing the documents that a UAE taxpayer company needs to collect in respect of the supplier and the supply itself.

Documents Relating to the Supplier

• identification documents (copies of identity documents; a copy of the certificate of incorporation; minutes of the meeting held with an individual supplier);
• documents relating to the supplier’s place of business (on-site inspection reports, photographs, screenshots);
• where risk indicators apply – a written justification for each indicator;
• where the volume of supplies exceeds AED 375,000 – a written confirmation from a UAE bank that the supplier holds an account with it, together with any customer feedback or media coverage of the supplier.

Documents Relating to the Supply

• a contract or agreement setting out the commercial rationale for the transaction;
• a copy of the supplier’s commercial license or an equivalent document reflecting the nature of its activities;
• for goods – documents evidencing the origin of the goods and the supplier’s right to dispose of such goods;
• a justification for the price, where it deviates from market conditions;
• a written explanation of the payment arrangements, where a third party is involved or payment is made to an account outside the supplier’s country of incorporation;
• for cash payments – receipts or acknowledgements of receipt from the payment recipient.

To organise the collection of these documents more effectively, it is advisable to put the relevant internal workflows in place in advance. In particular, it is necessary to:

• carry out an analysis of the existing supplier base;
• develop written policies for the collection and retention of documents;
• appoint persons responsible for conducting the verifications and define their duties.

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