FTA Decision No. 13 of 2026, FTA Decision No. 17 of 2026 and Cabinet Decision No. 149 of 2026 took effect on 1 October 2026, tightening the conditions under which VAT-registered businesses can recover input tax on purchases from suppliers and on costs incurred for employees.

Until now, input VAT recovery in the UAE has largely depended on two questions: is there a valid tax invoice, and was the cost incurred for taxable business purposes? From 1 October 2026, businesses must also be able to demonstrate who they bought from, that the transaction was commercially genuine and, for employee costs, that the expense falls within one of the cases prescribed by the Federal Tax Authority (FTA).

Three instruments came into effect on the same day. Read together, they move input VAT recovery from a document-based exercise to one that depends on internal controls.

Why is the FTA focusing on supplier due diligence?

Article 54 bis of the VAT Law, introduced by Federal Decree-Law No. 16 of 2025 with effect from 1 January 2026, allows the FTA to deny input tax recovery where a supply is connected to tax evasion and the taxable person knew, or should have known, of that connection.

FTA Decision No. 13 of 2026 now sets out the verification measures that taxable persons are expected to carry out before deducting input tax. In practice, these measures define what "should have known" is likely to mean during an FTA review.

What does Decision No. 13 require?

The Decision operates at two levels. Supplier verification must be performed when dealing with a supplier for the first time, and repeated where the supplier has not been verified in the previous 12 months. It includes:

·        For individuals, obtaining a valid identity document and meeting the supplier in person or virtually before the supply.

·        For legal entities, verifying incorporation details through official databases, verifying the identity of the authorised representative and confirming that the supplier has an actual place of business consistent with its activities.

·        Assessing risk indicators, such as a supplier changing its address or key employees more than twice in 12 months, or transactions that are inconsistent with its size and history.

·        Where supplies from a supplier exceed, or are expected to exceed, AED 375,000 in 12 months, obtaining confirmation of a UAE bank account and reviewing reliable public information about the supplier.

Supply verification applies to each supply received and requires businesses to check, among other things, the commercial rationale for the transaction, the payment flow, whether the price is consistent with market value, whether the goods or services fall within the supplier's licensed activities and, where relevant, the origin and ownership of the goods. Consideration is expected to be paid electronically. Cash, third-party or offshore payments will require a documented commercial justification.

Supplies below AED 10,000 (excluding VAT) may be excluded from these checks, but this de minimis does not apply where supplies from the same supplier exceed, or are expected to exceed, AED 100,000 in 12 months. Businesses must also maintain a documented internal policy identifying who is responsible for the verification process and how it is implemented, reviewed and supervised.

What changes for employee expenses?

Cabinet Decision No. 149 of 2026 amended Article 53(1)(c ) of the VAT Executive Regulation. Input tax on goods or services provided free of charge to employees may be recovered where there is a contractual obligation or a documented policy to provide them, but only in the cases and under the conditions specified by the FTA.

FTA Decision No. 17 of 2026, issued on 9 September 2026, sets out those cases. There are six, and the conditions in each case are cumulative:

·        Transport between the employee's residence and the workplace or clients, or for work purposes, with no personal use and no option to take a cash allowance instead.

·        Food and beverages, only where employees live in a remote or isolated location without cooking facilities or nearby restaurants.

·        Accommodation provided for operational reasons rather than as remuneration, where the job requires the employee to live close to the workplace, without a cash alternative and without significant recreational elements.

·        Temporary accommodation for new employees, for up to 30 days.

·        Mobile phones, airtime, data and home internet that are necessary for work, with incidental personal use only, a documented policy and monitoring mechanisms.

·        Parking for business purposes only, under a documented reimbursement policy and supported by receipts showing the date, time, amount and VAT.

Where an employee benefit falls outside these cases, or does not meet all of the relevant conditions, input tax recovery may be denied, even if the benefit is provided under the employment contract.

What else changed on 1 October?

Cabinet Decision No. 149 of 2026 also introduces other relevant changes to the VAT Executive Regulation, including:

·        A new restriction on input tax recovery for supplies paid in cash above a threshold to be set by Ministerial Decision. The threshold has not yet been published.

·        A composite supply rule, under which economically inseparable components are taxed as a single supply.

·        A requirement for tax credit notes to show the words "Tax Credit Note".

·        A revised input tax apportionment mechanism, which will only apply from the first Tax Year commencing after 1 October 2027.

What should businesses do now?

VAT-registered businesses should consider:

·        Identifying suppliers above the AED 375,000 and AED 100,000 thresholds and prioritising their verification.

·        Updating supplier onboarding procedures and keeping evidence of each check performed.

·        Approving a written verification policy and assigning clear responsibility within finance and procurement.

·        Reviewing payment practices and limiting cash payments to suppliers.

·        Reviewing employment contracts, HR policies and allowance options against the six cases in Decision No. 17.

·        Updating ERP tax codes so that non-recoverable employee costs are not claimed by default.

·        Reviewing tax credit note templates.

Altair Tax Insight

From 1 October 2026, a valid tax invoice is still necessary, but it is no longer enough. Businesses should be able to show that they knew who they were dealing with and that the transaction made commercial sense.

This is not only a tax department issue. Supplier due diligence sits with procurement and accounts payable, employee benefits sit with HR, and payment methods sit with treasury. Businesses that review these processes now are more likely to protect their input VAT position in a future FTA audit. The application of these rules will depend on each business's facts and should be reviewed on a case-by-case basis.