From 1 October 2026, a Tax Invoice alone will nolonger support input tax recovery
The Federal Tax Authority (FTA) has issued Decision No. (13) of 2026. It was approved by the FTA Board of Directors on 23 June, issued on 22 July, and comes into effect on 1 October 2026.
The Decision sets out how Article 54 bis of the VAT Law — introduced by Federal Decree-Law No. (16) of 2025 — will operate in practice. The change is straightforward: to recover input tax, it is no longer sufficient to hold a valid Tax Invoice from your Supplier. You must be able to demonstrate that you carried out due diligence on that Supplier.
What the Decision provides
Where a Supply forms part of a chain connected to Tax Evasion, the FTA may disallow the recipient’s input tax recovery — provided the Taxable Person knew, or should have known, of that connection.
The critical point: failure to perform the prescribed verification procedures is itself treated as “should have known”. Good faith is no longer presumed — it must be documented in advance.
| Value over a rolling 12-month period | Requirement |
|---|---|
| Up to AED 10,000 per Supply (exclusive of Tax) | No verification procedures required |
| Above AED 100,000 from a single Supplier | The AED 10,000 relief ceases to apply — full verification regardless of the value of the individual Tax Invoice |
| Above AED 375,000 from a single Supplier | In addition: written confirmation of the Supplier’s bank account details and a reputation check against open sources |
Scope of the required verification
In respect of the Supplier:
- Identity and legal capacity — identification documents in the case of a natural person, or trade licence and commercial registration details verified against the official registers, together with documents evidencing the authority of the authorised signatory;
- Registered address and actual place of business — verified electronically or by physical site visit;
- Risk indicators — frequent changes of address or of key personnel, and transaction volumes inconsistent with the size and trading history of the entity.
In respect of the Supply:
- Genuine commercial substance to the transaction, and not merely supporting documentation;
- Justification for the payment terms — payments to third parties, or to accounts held outside the Supplier’s country, require written explanation;
- Preference for settlement through banking channels; cash only where there is clear commercial justification and within the prescribed limits;
- Pricing and margins consistent with prevailing market terms;
- The Goods or Services supplied must fall within the Supplier’s licensed activity;
- Transparency as to the origin of the Goods and the role of any intermediary.
Governance requirements
The Decision requires not only that the verification be performed, but that it be evidenced:
- Verify the Supplier at the first transaction, and re-perform the verification where more than 12 months have elapsed since the last check;
- Retain the supporting records in a form capable of being reviewed by the FTA;
- Maintain a documented internal policy identifying the persons responsible for performing the verification procedures, for their review, and for oversight of the process.
This last requirement is frequently underestimated. The FTA’s interest extends beyond
whether the check was performed to whether a documented internal procedure with
designated owners is in place.
Action points before 1 October
- Extract your active Supplier listing and flag those exceeding the AED 100,000 and AED 375,000 thresholds on a rolling 12-month basis.
- Obtain or refresh trade licence, registration and identification documents for the flagged Suppliers.
- Confirm that each Supplier’s actual activity is consistent with what is stated on its Tax Invoices.
- Review your settlement arrangements — cash payments and payments to third parties will require written justification.
- Prepare an internal verification policy and assign responsibility for it.
- Brief your accounts and procurement functions.
- Establish a record-keeping system for verification documentation.
How we can assist
The drafting of the Decision leaves considerable scope for interpretation: what depth of verification is sufficient for a given sector, how the justification for cash settlement should be documented, what constitutes acceptable evidence of a place of business, and how a policy should be structured so as to withstand FTA review.
MDL Advisers advises on the practical application of Decision No. (13) of 2026: we review your Supplier settlement structure, determine which verification mechanisms are required in your particular case, prepare the internal policy and onboarding checklists, and carry out a review of your existing Supplier base against the thresholds.
There is limited time before the Decision takes effect. Contact us and we will review your position and propose a specific set of procedures.
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