The UAE Federal Tax Authority (FTA) has issued Decision No. 13 of 2026 — the implementing act under Article 54 bis of the VAT Law, added to the main law by Federal Decree-Law No. 16 of 2025. From 1 October 2026, every VAT-registered business in the UAE must run a documented two-tier verification — on the supplier and on each transaction. Without it, the right to recover input VAT is exposed. About ten weeks remain before the rules go live.
What happened
FTA Decision No. 13 of 2026 (issued on 22 July 2026) is the first act to spell out concrete due diligence steps a VAT registrant must take to preserve the right to recover input VAT. The legal base is Article 54 bis of the VAT Law, added by Federal Decree-Law No. 16 of 2025. In substance, the article says that if a supply was part of a chain connected to tax evasion, the FTA can deny the recipient the input-tax credit — even where the tax invoice itself is technically correct.
As Thomas Vanhee, partner at Aurifer Middle East Audit and Tax, has commented, ‘I didn’t know’ is no longer an automatic defence — the burden shifts to demonstrating that a proper verification process was built and executed in good faith. Professional commentary picked up on 20–21 August 2026 (Khaleej Times, DLA Piper, VATupdate), but the regulatory step itself was taken by the FTA.
Two levels of verification: supplier + supply
Decision 13 splits due diligence into two independent blocks that must run in parallel.
Supplier verification — ‘who is my counterparty’
Supplier due diligence is carried out the first time you deal with a supplier and repeated whenever 12 months have passed since the last check. The baseline set:
- identity documents cross-checked against official databases;
- powers of the authorised representative (who signs, and on what basis);
- confirmation of the actual place of business — not a PO box or empty office;
- assessment of three risk indicators: frequent address changes, frequent personnel changes, disproportionate (out-of-pattern) transactions.
Where aggregate annual flow with the supplier exceeds Dh375,000, an enhanced layer applies: the supplier’s bank account is additionally verified, and the supplier’s public footprint is reviewed — media and open-source coverage.
Supply verification — ‘does this specific transaction make sense’
The second tier is no longer about the counterparty as such but about each individual transaction. What must be assessed per supply:
- a genuine commercial rationale for the supplier’s role in the chain;
- pricing and margins that are not out of line with the market without explanation;
- alignment of goods or services with the supplier’s licensed activity;
- sound title and origin of the goods;
- a commercially explicable intermediary role, if the deal goes through one;
- electronic settlement — cash payment is only allowed with a documented reason.
Dirham thresholds: 10,000, 100,000, 375,000
The thresholds are the backbone of Decision 13 and decide whom the rule affects right now.
| Threshold | Meaning | Trigger |
|---|---|---|
| Dh10,000 per transaction (excluding VAT) | De minimis | Transactions below this are exempt from verification — provided the annual flow with the same supplier stays under the next threshold |
| Dh100,000 over 12 months with a single supplier | De minimis disapplied | Once aggregate flow with a supplier crosses this line, the exemption falls away — even small transactions must be verified |
| Dh375,000 annual flow with a supplier | Enhanced check | Additional bank account verification and public/media screening required |
The practical effect: a ‘small’ transaction on its own guarantees nothing. If the supplier is regular and the total flow is material, the rules apply to every line — including the one worth Dh500. For the baseline UAE VAT regime — the mandatory registration threshold, and what actually counts toward turnover — see our detailed UAE VAT 5% guide for entrepreneurs.
Sanction: ‘knew’ is mandatory, ‘should have known’ is discretionary
The sanction mechanism is not binary but graduated. It splits into two scenarios:
- If the recipient actually knew that the supply was linked to a chain of tax evasion, denial of the input VAT credit is mandatory.
- If the recipient should have known under proper diligence, denial is at the FTA’s discretion.
That is exactly why the documented due diligence process is no longer a ‘nice to have’ — it becomes part of the right to recover. Absent traces of verification, the FTA is likely to read the situation as ‘should have known’ and put the credit into discretionary territory.
Who is affected and what to do before 1 October
The rule affects every VAT-registered business in the UAE, regardless of sector. Sectors with long supply chains and many small counterparties are especially exposed: F&B and hospitality, retail, services and agency models, distribution, construction. A practical plan for the weeks that remain:
- Supplier inventory. Export the list of active suppliers and total the flow over the last 12 months. Bucket them by the three thresholds: under Dh10,000 per transaction and under Dh100,000 per year — de minimis; over Dh100,000 per year — mandatory verification; over Dh375,000 per year — enhanced verification.
- Policy and checklists. Approve an internal due diligence policy: which documents you collect, where you store them, who signs off, what you do when a risk indicator fires.
- Electronic settlement. Audit cash payments to suppliers. Every remaining cash line must carry a documented reason. Align this with the upcoming rollout of the mandatory UAE e-invoicing regime — both regimes lean on the same electronic-payment and record-keeping discipline.
- Evidence retention. Build the archive: supplier check results, per-transaction rationales, screenshots from official databases, bank confirmations. Retention should match your other VAT records.
- Team training. Procurement, finance and the AP team need to understand the check criteria and the escalation points.
Bottom line
FTA Decision No. 13 of 2026 shifts the centre of gravity from ‘the right invoice’ to ‘the right counterparty and the right transaction’. Formally it is a subordinate act under Article 54 bis of the VAT Law, but in substance it sets a new tax-discipline standard for any business dealing with many suppliers. About ten weeks remain to build the process, checklists and evidence archive before 1 October 2026. Those who leave preparation to the last week face a very concrete risk — the denial of input VAT recovery, which hits cash flow directly.
This article is for information only and is not legal or tax advice. Sync the exact wording, annexes and transitional provisions of FTA Decision No. 13 of 2026 with the official Federal Tax Authority resource (tax.gov.ae) and with a qualified adviser.
