FTA New Supplier Due Diligence Requirements: What Businesses Must Do Before Claiming Input VAT

The United Arab Emirates Federal Tax Authority has introduced additional “supplier and supplies” verification checks for claiming input Value Added Tax (VAT) recoveries. According to the Article 54 of FTA’s Decision No. 13 of 2026, published on July 22, 2026, the new regulation changes the existing measures, procedures, eligibility, and conditions for determining the validity and integrity of the supply chains. The new regulations mandate the UAE-registered companies to implement strict due diligence on their suppliers and supplies to maintain their right to input VAT recovery.

The new rule is particularly essential for companies with complex supply chain, high transaction volume, or transactions involving higher-risk suppliers. The new requirements will come into effect from 1^st October 2026.

What Prompted this Decision?

According to the Article 54, FTA has a right to reject the recovery claim of a taxable person for input VAT if a supply is a part of a supply chain connected to tax evasion, even if the recipient business is not directly involved in the tax evasion.

The primary objective of this decision is to prevent any risk of fraud and tax evasion. Previously, the invoices were enough to claim input VAT recovery. However, this approach had some basic drawbacks; claiming input VAT through fake invoices on non-existing supplies or operating as “fly-by-night vendors”.

FTA has shifted the burden on businesses to actively check who they are dealing with and that the transactions have a genuine commercial rationale. By doing so, FTA can achieve their goal of creating a more robust and accountable financial framework.

The Previous Approach

Businesses registered for VAT in 2018 were following a simple order to claim input VAT: collect invoices, reconcile with bank records, verify purchase orders, and file every quarter. Supplier’s verification was considered a one-time task and not a continuing obligation.

That approach was substandard; this is how things worked before:

• Businesses only needed a valid tax invoice to claim input VAT, as proof.
• There was no need to verify what and who you bought from, no need for supplier’s identity and legitimacy check.
• Repeating the verification checks of suppliers or supplies was not specifically required.
• No additional verification or check tied to transactional value.
• No specific verification was required to check whether or not the supplied goods or services match the supplier’s licensed activity.
• Cash payments, without any specific documentation requirements, were allowed.

The Two Step Review Process You Must Now Complete

The decision imposes obligations at two levels, supplier verification and supply verification.

Step 1 – Supplier Verification

The rule mandates the businesses to verify the identity of the person they are dealing with. The supplier verification is not a one-time process, instead the verification needs to be done after every 12 months.

The verification process covers:

• Verify the supplier’s identity documents (Emirates ID or passport) if it’s a natural person
• Verify the vendor’s identity documents (trade license, TRN certificate) if its legal/juridical person
• Check whether or not the business genuinely operates from a supplier’s claimed place and address.
• Confirm the identity of director, agent, or employee officially assigned to represent the supplier.
• Monitor any risk indicator, specifically the change of address or key employees more than twice in a year, or the transactions that do not match the size and history of supplier’s business.

Step 2 – Verification of the Supply

A taxable person is required to confirm and verify every single supply they receive, not limited to the new suppliers.

Following conditions are to be met for general assessment of the supplies:

• Confirm and verify commercial rationale for the transactions
• The prices and profit margins of the supplies are commercially justifiable and do not diverge significantly from the market value.
• The goods and services provided must be in accordance with the licensed category the supplier holds.
• In case of a middleman or distributer, their roles must make business justification in the process of supply.

Who is Accountable for Implementing This Change?

The new rules will be implemented on all VAT-registered businesses that claim input-VAT in the UAE regardless of size and sectors. This includes a wide range of industries like trading companies, manufacturers, services firms, and professional firms. This decision is particularly significant for companies that:

• Are dealing with suppliers whose place of operation changes frequently
• Deals with middleman or trading partners for supplies
• Have significant cash transactions with the suppliers
• Rely only on invoices to claim input VAT

Verification of Supplier’s Identity

The first step involves the verification of the suppliers. The requirement may differ depending on weather the supplier is a Natural Person or a Legal person.

If supplier is a natural person, in this regard the taxable person must produce its valid identification in the form of either the Emirates ID or passport. In addition, the taxable person should arrange the meeting either by physically visiting or virtually before making the supply deal.

If supplier is a legal Person, then the company or taxable person required to verify their incorporation. There are generally two methods to verify the supplier’s incorporation: either through official data base or obtaining (copy) certificate of incorporation. Furthermore, make sure the incorporation details are valid and correspond with information such as entity’s name, name and address, employees, and other related information. In addition to this, obtain the valid identification of directors, agents, and employees as they are authorized to represent the suppliers.

Verifications of the Suppliers’ Business Address

The decision also underscores the requirements of assessing the address and business location of the supplier. Taxable persons should confirm that the supplier is actually operating its business from a real, physical location. This can be carried out by one of two means, either electronically or a field visit of the supplier’s place of business. Another thing the taxable person should ensure that whether the supplier’s premises are compatible with the nature of its activity. For example, a supplier entity may claim to have a manufacturing facility, but available information suggests no operational capacity or appropriate premises may raise the concern and warrant further investigation as well as documentation.

Verification of Supplier Risks Indicators

The decision establishes specific risk indicators the taxable persons are required to consider while assessing risks associated to the suppliers. In this regard, the taxable person should ensure that the business address and key employees of the suppliers have not been changing frequently. If a supplier changed their registered address more than twice in a year or changed the key employees, including managers or directors (whom the taxable person deals with) more than twice in preceding 12 months, the taxable person should retain a fully intact and justified explanation for the circumstances and provide that explanation to tax authority upon request. Furthermore, transactions that appear to be unusual or disproportionate when compared with the size and history of suppliers’ business are also categorized into the list of risk indicators.  The presence of risk indicators or unusual characteristics does not prevent the taxable persons to deal with suppliers; instead it urges the companies to understand the circumstances, identify the potential risk and retain appropriate explanation (supporting evidence) where applicable.

Verification of Bank Account for High Value Suppliers

Additional checks are obligatory where the value of supplies received from a supplier is exceeding AED 375,000 during the preceding 12 month or expected to exceed AED 375,000 in the upcoming 12 months. Furthermore, taxable persons are required to obtain a bank confirmation indicating that supplier have an active UAE bank account. In addition, businesses should also review the publicly available information such as relevant public reviews, website, and media coverage associated with concerned suppliers. The objective of this information is to identify whether the supplier’s business nature, size of business, and commercial activities are according to the information provided and there isn’t any indicator of suspected tax evasions.

Verification of the Supply Itself

The new requirements are not limited to suppliers’ verification. It is also required to assess the validity and integrity of each taxable supply received or accepted. It typically involves verification of the commercial purpose of the transactions, reviewing the payment conditions, profits & margins, authenticity of goods, ownership of goods, and intermediary’s role.

Assessing the “Commercial Purpose of Transactions”

In this regard, a taxable person should make sure that supplier’s transactions are carried out for genuine commercial reasons instead of paper exercise. The transactions without logical commercial grounds may be concerning. In short, the taxable person should be clear to explain “why the transaction occurred” and “why the supplier was engaged”.

Reviewing Payment Conditions

For this purpose, a business is needed to review the payment methods and terms. Checks are required where a third party is being involved in receiving payments or the payments are made to bank account specifically outside the supplier’s country of incorporation. More importantly, consideration for supplies must be paid by electronic means. Cash payments are allowed but under certain conditions. The business has to provide documentation explaining the valid reason for cash use; the amount should be within the threshold set by FTA and should be easily verifiable. Therefore, the businesses are required to review their cash payment methods before the rules become effective (October 1, 2026).  

Pricing and Profits

The businesses are required to check whether the pricing or profit margins are commercially reasonable, i.e., it should be commercially justifiable and significantly match the market prices. In case of unusual (under or over) pricing, the taxable persons are necessarily required to retain evidence supporting the commercial rationale, typically including special volume discounts, introductory pricing, urgent procurements, long-term contractual arrangements, related commercial circumstances or any other legitimate business reason.  

Check the Suppliers Licensed Activities

A taxable person should verify that the supplies are consistent with the supplier’s normal business activities or activities are permitted under their commercial license. For example, if a company selling raw material as their licensed activity starts supplying intermediate goods, the buyer should monitor such changes and consider whether this supplier should be used for such supplies.

Companies are required to obtain the copy of relevant commercial license and periodically review to ensure that supplier’s activities are aligned with the nature of goods and service received.

Verification of the Authenticity and Origin of the Goods

If there are goods involved, the taxable person should check the origin, ownership, and supplier authenticity or legal right to dispose of the goods. These requirements are necessary for businesses engaged in trading and distribution of commodities or other related sectors involving multiple intermediaries.

Additional Checks for Intermediaries

Where a supplier acts as intermediary (middleman), the business is required to verify that there are commercially justifiable reasons for the role of the supplier. In this regard taxable persons must understand the commercial supply chain instead of just relying on immediate supplier invoices. For intermediaries, supporting documents (correspondence, contracts, purchase orders, payments) and other transactional record may be helpful in demonstrating the commercial rationale.

How Often Must a Supplier Be Verified?

The taxable person must verify a supplier during first time purchases, and for existing suppliers once every 12 months. Furthermore, each supply received (accepted) also needs to be verified according to the requirements applicable to the supply. So, this creates two different levels of control; i.e., supplier level verification performed at the start of the deal and refreshed when required, and supply level verification performed for each taxable supply. For businesses, there is a need to design their systems in a way that “supplier due diligence” and “transaction level-check” can be documented separately. 

Verification Must be Documented

One of the must have tasks the businesses need to perform is documenting the verification procedure and retaining the supporting documents and records, ensuring that there is fully intact evidence allowing the tax authority to verify compliance. Furthermore, the decision doesn’t suggest any specific form or template for documentation; you can use any method to keep a record of verification as far as you are following and maintaining a risk-based approach that indicates how verification procedures were performed.

Requirement of A Written Internal Policy

Business should maintain “documented policy” setting out their verification procedure. The policy should clearly outline the individuals undertaking, reviewing and supervising the verification process. Also, the powers and responsibilities of each person are clearly defined.

The AED 10,000 Exceptions

Businesses are exempted from due diligence and verification requirement where the transactions are below the threshold of AED 10,000 excluding VAT. However, this exception doesn’t apply necessarily where the value of supplies, received from a supplier, is exceeding AED 100,000 during the preceding 12 month or expected to exceed AED 100,000 in the upcoming twelve months. Therefore, the business shouldn’t verify the ten-thousand-dirham threshold only on an invoice-by-invoice basis.

What Businesses Need to do Before October 1, 2026

The supplier due diligence rule will be effective from October 1, 2026, but businesses need not to wait for the implementation date to take action. Proactive preparation is necessary to navigate the new obligations effectively. Businesses should opt for a systematic approach that focuses on process, technology integration, and staff training to ensure accurate and compliant filing for VAT.

1. Identify all the current suppliers you are dealing with and mark out those who have already exceeded or are near to exceed AED 100,000 or AED 375,000 rolling 12-month threshold.
2. Formulate a framework to categorize the suppliers according to their risk levels and assign appropriate due diligence intensity.
3. Collect and confirm all supporting documents (trade license, VAT registration, etc,) to verify the identity of the suppliers you marked out earlier.
4. For suppliers exceeding the threshold of AED 375,000, collect banking details to verify their bank accounts.
5. Review your current payment methods, and check if there are any cash payments that require detailed documentation.
6. Maintain a clear written verification policy stating names of persons responsible for each task (performing the checks, reviewing, and supervising the verification process).
7. Train your staff beforehand to assess and identify high-risk indicators of potential fraud.

Consequences of Non-compliance

The most immediate and dire consequence of non-compliance is the rejection of the input VAT recovery by the FTA. Businesses failing to comply with the new due diligence requirements of suppliers will not be able to recover input VAT resulting in a direct reduction of the profit margin. Losing the right to claim input VAT directly affects your cash flow, turning expected refund into an unexpected loss.

Even if you were genuinely unaware of supplier’s fraudulent activities, you’ll still lose your right to claim input VAT recovery. That means now it’s your major responsibility to do your homework before dealing with the supplier as a mere ignorance excuse will not be acceptable.

Failing to comply not just cost financial losses but also puts your company’s reputation at risk. Being associated with fraudulent suppliers, even unintentionally, can cost you a loss of trust with partners, customers, and the banking partners. Additionally, you may face more frequent and intense audits from tax authorities that may result in the disruption of your business operation.

Implementation Timeline

The new due diligence regulations will take effect from October 1, 2026. While the date may seem distant, the magnitude of system upgrade required, processes, and staff training is of considerable effort and time-consuming. It is highly advisable for businesses to start reviewing their processes and implementation strategy as soon as possible to ensure compliance before the effective date. Unnecessarily delaying the process may lead to significant operational interruptions and non-compliance risks once the regulations will take effect.   

Conclusion

The FTA Decision No. 13 of 2026 has made due diligence of suppliers a mandatory legal obligation. This means it is now compulsory for businesses to check and verify that the suppliers they are dealing with are legal, registered, and are not involved in any type of fraudulent activities. FTA has taken this step to minimize the possibilities of the tax evasion and to maintain the integrity of the tax system.

Businesses failing to comply with the new rules not only lose their VAT recovery rights, but may also have to face financial penalties and possible operational interruptions. This means that now verification of the supplier’s legitimacy and authenticity has become an important part of every UAE registered business’s operational and financial process.

Now businesses need to proactively embrace new changes and create strict internal controls to verify the persons they are dealing with. That involves a written policy for new suppliers, training the staff, and adoption of the new technology (software) for tracking and verifying the suppliers.

In this evolving new regulatory environment, dealing with these new complicated laws can be quite challenging. Professional guidance is inevitable to implement a robust due diligence framework and ensure it complies with the FTA’s requirements. An expert’s help will ensure that the transaction goes smoothly, secure your financial interest, and minimize risks in the long run.    

Frequently Asked Questions (FAQs)

1 – Do I need to verify every single supply?

Not particularly. Supplies under AED 10,000 are generally exempted. However, if the supply’s value, from the same supplier, exceeds AED 100,000 over the period of 12 months, a full check will be required.

2 – How often do I need to verify the supplier?

Businesses need to verify when dealing with the supplier for the first time and repeat the verification process after every 12 months upon recurrent dealing with the supplier.

3 – What happens if the purchase of goods or services exceeds AED 375,000?

If the supplies from a particular supplier exceed 375,000 during the past 12 months or are expected to exceed that value during the next 12 months, additional verification checks are required.

4 – What are the consequences of non-compliance? 

Businesses failing to comply with the new requirements will lose their right to claim input VAT. Businesses may also face financial penalties and reputational damages impacting cash flow and profitability. Additionally, they may have to face a rigorous scrutiny by the FTA, even if the business is not directly involved in tax evasion or was unaware of the fraudulent activities of the supplier.

5 – What documents are required for due diligence of the supplier? 

These documents include TRN certificate, trade license, Emirates ID or copy of passport (if supplier is a natural person), copy of a certificate of the incorporation (if supplier is a legal person), and bank confirmation letter.