New due diligence requirements for input VAT recovery in tax evasion cases

The Federal Tax Authority (FTA) has issued Decision No. 13 of 2026. The scope of the Decision is stated to be for the purposes of Article 54(bis) of the Federal Decree-Law No.8 of 2017 on Value Added Tax and is effective from 1 October 2026. Article 54(bis) specifically relates to the recovery of input tax in relation to the receipt of supplies that are part of a supply or chain of supplies related to tax evasion.  

The Decision sets out the measures, procedures and conditions that taxable persons are required to apply to verify the validity and integrity of supplies. If these checks are not carried out before input tax is recovered, the FTA can deny recovery where it establishes that the input tax relates to a supply chain involving tax evasion. Please note we do not expect these requirements to have broader application outside of tax evasion cases, but they nonetheless may provide helpful guidance on additional governance controls taxpayers can adopt.

The Decision introduces a more formal due diligence framework to support input tax recovery, with VAT recovery at risk where the required steps are not taken in supply chains involving tax evasion. To help protect VAT recovery from being blocked on this basis, businesses should assess whether existing supplier onboarding, procurement and accounts payable and VAT return review processes are sufficient to evidence compliance with the new requirements.

This assessment should identify where additional procedures are needed and how responsibility for supplier and supply verification will be documented before 1 October 2026. Given the current focus on e-invoicing readiness, now is an appropriate time for businesses to consider these requirements alongside broader work on data quality, supplier master data and transaction-level controls.

KPMG can support businesses by performing an impact assessment, mapping the new requirements against existing controls, and helping design practical governance enhancements.