UAE tightens input VAT recovery rules: what the new due diligence decision means for your business
A new UAE decision adds supplier due diligence obligations to input VAT recovery, raising the compliance bar for all VAT-registered businesses.
# A quiet decision with loud consequences
The UAE Federal Tax Authority has issued a new decision introducing formal due diligence requirements as a condition for recovering input VAT. The change, reported by EY on 27 August 2026, means that simply holding a valid tax invoice is no longer sufficient. Businesses must now demonstrate that they took reasonable steps to verify the legitimacy of their suppliers before a VAT reclaim will be accepted.
The practical implication is straightforward: input VAT that was previously recoverable on the basis of documentary compliance alone may now be challenged if the FTA determines that a business failed to conduct adequate checks on the counterparty.
# What the due diligence obligation actually requires
The decision places the burden of verification on the purchasing business. While the FTA has not published a prescriptive checklist, the EY analysis indicates that the framework draws on internationally recognised standards: confirming that a supplier holds a valid TRN, that the TRN corresponds to the entity named on the invoice, and that there are no obvious indicators of fictitious or non-resident suppliers operating outside the VAT net.
This matters most in three situations. First, where a business transacts with a large number of suppliers and has relied on invoice-level controls only. Second, where procurement is decentralised, meaning different departments or subsidiaries are approving purchases without a standardised vendor onboarding process. Third, where businesses source goods or services from suppliers who are near the mandatory VAT registration threshold under current rules, because those entities are most likely to have registration lapses.
The FTA retains discretion to assess whether the due diligence performed was proportionate to the transaction size and risk profile. A one-off purchase from a small supplier does not demand the same scrutiny as a recurring contract worth hundreds of thousands of dirhams. That said, the burden of proof sits with the taxpayer, not the authority.
# The broader tax compliance picture
This development arrives alongside two related shifts. Arabian Business reported on 29 August that the FTA has clarified which entities continue to qualify for the 0% corporate tax rate, a question that has created uncertainty among free zone operators since the Corporate Tax Law came into force. Separately, UPPERNEWS reported on 28 August that the UAE has introduced new tax reporting requirements for multinationals, tightening country-by-country and transfer pricing obligations.
Taken together, these three developments point in the same direction. The UAE tax framework is moving from a light-touch, documentation-based system toward one that expects businesses to demonstrate substantive compliance. Holding a piece of paper is no longer the finish line.
# What to do about it
The immediate priority is a supplier register audit. Any business that files VAT returns should verify, for its active supplier list, that each TRN is valid and matches the invoicing entity. The FTA's TRN verification tool on the EmaraTax portal makes this straightforward for individual checks; businesses with large supplier bases should consider a bulk verification exercise before the next return period.
Procurement and finance teams need a shared protocol. Vendor onboarding should include TRN verification as a mandatory step, with the result documented and retained alongside the invoice. If a supplier's registration status changes mid-contract, the business needs to know before the next invoice is processed.
For businesses with decentralised purchasing, the policy needs to travel beyond the finance function. Department heads who approve supplier relationships should understand that a failed VAT reclaim is a cash cost, not a paper adjustment.
Finally, businesses that have already filed returns without conducting this level of verification should consider a voluntary review of historical reclaims, particularly for high-value transactions. Identifying and disclosing an exposure proactively carries less regulatory risk than having it surfaced during an FTA audit.