From 1 January 2026, a major change has taken effect in the UAE VAT law: businesses can lose their right to claim input VAT if the tax authority believes they “knew or should have known” that a transaction was connected to VAT fraud.
This doesn’t mean a business has done anything intentionally wrong. Instead, it puts greater responsibility on companies to check who they deal with and make sure transactions are genuine. The idea is simple: if something looks suspicious and a business ignores it, they could face consequences later.
It means the tax authority expects companies to act as a reasonable, careful business. A denied input VAT claim becomes a direct cost to the business. This can add up quickly, especially for high-value or frequent transactions.
But the good news is: Protecting the business doesn’t require complex systems. It just requires basic, sensible checks.
How Businesses Can Protect Themselves
Here are the essentials — simple, practical, and easy to follow:
- Know Who You’re Dealing With
Every business should have a clear picture of who they are transacting with.
This starts with the basics — making sure the supplier is real, registered, and operating legitimately. Checking their trade license, TRN, address, and business profile should become routine.
Today, this is easier than ever because simple low-code tools can be integrated into existing systems to automatically validate TRN details with the FTA portal. These small automations reduce human error and strengthen compliance without slowing down the business.
- Introduce Risk Profiling and Vendor Categorisation
Not all suppliers pose the same level of risk.
A smart way to stay protected is to categorize suppliers into different risk segments, such as:
- Low-risk (e.g., long-standing suppliers with stable activity, regulated sector etc.)
- Medium-risk (e.g., new suppliers etc.)
- High-risk (e.g., unorganised sectors etc.)
Risk profiling allows businesses to apply stronger checks where they matter most while keeping processes simple for routine suppliers. For higher-risk categories, companies should consider: Enhanced due diligence, more frequent license/TRL/identity validation, additional documentation, periodic review of trading patterns etc. This makes compliance more efficient and more targeted.
- Notice Red Flags Early
Red flags don’t automatically mean fraud, but they definitely mean pause and review. Examples include:
- Very new companies offering unusually large deals
- Prices far below market value
- Payments requested to accounts unrelated to the supplier
- Missing, altered, or inconsistent documents
When red flags appear, it’s simply a sign to slow down, ask questions, and gather more information.
- Strengthen Purchase Contracts
Contracts can play a major role in protecting your tax position. Businesses should start including:
- Right-to-Audit Clauses
Adding such ‘right to audit’ clauses in the procurement contacts/ Purchase Orders could provide leverage to a taxpayer.
This gives you the legal ability to review a supplier’s compliance, documents, specific VAT obligation
- Proof-of-Payment or FTA Confirmation Requirements
For higher-risk vendors, businesses can request evidence from time to time that VAT collected has actually been paid to the FTA — adding an extra layer of protection.
- VAT-Compliance Obligations
Suitable declarations should be obtained from suppliers explicitly committing to:
- Correct taxability
- VAT registration
- Maintaining complete and accurate records
- Cooperating with reasonable compliance requests
Well-drafted contract terms strengthen a company’s position if ever questioned by the tax authority.
- Keep Good Records
If you checked something, keep proof of it — even a screenshot or short email is enough.
If the tax authority ever asks, you need to show you acted responsibly.
- Train Your Team
Anyone handling procurement, finance, or payments should understand the basics of the new rule.
One small oversight by one team member can lead to a major VAT issue later.
Preparation, not reaction, will define how well businesses manage this change.
A structured review of vendor risk, contractual protections, and internal processes can significantly reduce exposure and support sustainable compliance.
