VAT in the UAE: New October regulation will change how you manage compliance

The Federal Tax Authority in the UAE has announced a new regulation set to take effect on October 1, 2026, which will significantly alter how businesses manage VAT compliance. This regulation impacts how businesses must manage supplier invoicing and will have financial implications if not correctly implemented and maintained. The regulation introduces two types of suppliers: natural persons who are VAT registered and licensed companies.

For natural persons, businesses must verify the individual's identity in person or virtually with a copy of their identity proof, such as a passport or Emirates ID, before claiming VAT input reclaim. This requirement applies even if the individual is a landlord paying rent, as they must register for VAT if their earnings exceed the threshold.

For licensed companies, businesses must verify that the company is legally incorporated, using a copy of their certificate of incorporation, which never expires. This document confirms the supplier's name and address against the trade licence they've provided. However, the regulation mentions employees and other related information, implying that the names of managers and shareholders may change over time. Businesses must ensure that suppliers update this information promptly and forward the updated documents.

Additionally, businesses must verify the identity of the person representing the supplier, who must be empowered to contract on their behalf, such as a manager or shareholder. This narrows down the pool of individuals who can be trusted to act on behalf of the supplier. Businesses may also need to verify shareholding, notarised power of attorney, or board resolutions related to the supplier.

For both types of suppliers, businesses must verify the supplier's place of business, either through online proof or a visit to the location. If the supplier's premises are not suitable for delivering goods or services, this could raise concerns during an audit. Businesses must also ensure that each supplier has a bank account where the value of annual purchases exceeds the VAT registration threshold or is expected to over the subsequent 12 months.

This involves obtaining a letter of confirmation from the supplier's bank, which may not be addressed to the business but should still be relevant to the transaction.

Finally, businesses must ensure fair market prices for purchases, with margins achieved, and confirm that suppliers have the right to sell the goods and services being purchased. This regulation requires businesses to appoint someone internally to manage VAT compliance, with purchases less than Dh10,000 before VAT falling outside the guidelines unless they surpass Dh100,000 in total within a 12-month period.