New UAE VAT Rules on Cash Payments and Input Tax Recovery: What Changes on 1 October 2026

A Quiet Change With Real Cash Flow Consequences

From 1 October 2026, two separate pieces of UAE tax legislation change how businesses recover input VAT — and both point in the same direction. If you cannot trace a payment and evidence who you paid it to, the Federal Tax Authority may not let you recover the VAT on it.

The first is Cabinet Decision No. 149 of 2026, issued on 1 September 2026, which amends the VAT Executive Regulation. The second is FTA Decision No. 13 of 2026, which makes supplier due diligence a precondition for claiming input tax. Taken together, they are the most operationally demanding VAT change UAE businesses have faced since VAT was introduced in 2018.

For most SMEs, the difficulty isn't the tax rate. It's the payment habits and paperwork sitting behind every input tax claim. None of it applies until you hold a TRN, so if you are still below the line, start with the thresholds on our UAE VAT registration page.

Change One: Input VAT on Large Cash Payments

Cabinet Decision No. 149 introduces a new Article 54(3) to the Executive Regulation. In plain terms: input tax may become non-recoverable on supplies above a specified value where payment is made — or is intended to be made — in cash.

Two details matter more than they first appear.

The threshold hasn't been announced yet. The Ministry of Finance will set the cash limit in a separate Ministerial Decision, which had not been published at the time of writing. That puts businesses in an awkward position: the rule takes effect on 1 October, but the number that triggers it is still pending. The sensible response is not to wait for it — it is to reduce your reliance on cash payments now, so that wherever the threshold lands, you are already below it.

"Intended to be paid" is doing a lot of work. The wording captures intent, not just execution. Splitting a single large purchase into several smaller cash payments to stay under a limit is precisely the behaviour this language is designed to catch.

Who is most exposed

• Construction and contracting businesses paying subcontractors or day labour in cash

• Retail and F&B operations with significant site-level petty cash

• Trading companies settling smaller suppliers in cash for speed

• Any business running cash-on-delivery arrangements

• Companies where a branch or site manager holds a cash float with limited oversight

Change Two: You Now Have to Verify Your Suppliers

FTA Decision No. 13 of 2026 takes effect the same day and implements Article 54 bis of the VAT Law. Its core principle is a significant departure from how most businesses operate: a valid tax invoice is no longer sufficient on its own. You must also be able to show that you verified the supplier and the commercial substance of the supply before claiming the input tax.

The thresholds that decide how much work you do

• Below AED 10,000 per supply — a low-value exception applies and verification may be skipped

• AED 100,000 from one supplier over 12 months — the low-value exception falls away, and full verification applies regardless of how small the individual invoices are

• AED 375,000 from one supplier over 12 months — enhanced checks kick in, including written confirmation of the supplier's UAE bank account and a review of publicly available reviews and media coverage

That middle threshold is the one businesses will trip over. A supplier you pay AED 9,000 a month is nowhere near AED 10,000 per invoice, but crosses AED 100,000 within a year — and the exception disappears.

What verification actually involves

For individuals, you need a valid Emirates ID or passport copy, and you must meet the supplier — physically or virtually — before the supply. For companies, you verify incorporation through official databases and confirm the identity of the authorised representative. Beyond identity, you are expected to confirm the supplier has a real place of business appropriate to its activity, check that pricing is commercially reasonable against market conditions, and confirm the goods or services fall within the supplier's licensed activities.

The Decision also names specific risk indicators to watch for: a supplier that has changed address more than twice in 12 months, changed key personnel more than twice in 12 months, or whose transaction volumes look disproportionate to the size of its operations.

Verification isn't a one-off. Suppliers must be re-verified if they haven't been checked in the previous 12 months, and you must keep a written internal policy naming the person responsible for the process.

Where the Two Rules Meet

Cash payments sit exactly at the intersection of both changes, which is why they deserve attention ahead of everything else.

Under Article 54(3), cash payments above the pending threshold may simply block recovery outright. Under FTA Decision No. 13, even cash payments below that threshold need a documented commercial reason, must fall within the limits set by tax legislation, and must be readily verifiable. The Decision also expects you to justify payments made to third parties on a supplier's behalf, or to bank accounts outside the supplier's country of incorporation.

The consequence for getting this wrong is serious. Where proper checks haven't been performed and the supply chain turns out to be connected to tax evasion, the FTA can deny input VAT recovery permanently — not defer it, not penalise it, deny it. That denial shows up in your next VAT return, as a claim you can no longer make in the input tax boxes of Form 201.

A Practical Checklist Before 1 October

• Pull a report of every cash payment made in the last 12 months, ranked by value, and identify which suppliers are involved

• Move recurring cash suppliers onto bank transfer or card before the deadline — this is the single highest-value action available to you

• Run your supplier ledger and flag everyone above AED 100,000 and above AED 375,000 over a rolling 12 months

• Start a verification file per supplier: trade licence, incorporation proof, ID of the authorised representative, address confirmation, and bank confirmation where required

• Write the internal verification policy and name the person accountable for it

• Diarise the 12-month re-verification cycle so it doesn't lapse quietly

• Brief whoever controls petty cash at site or branch level — this rule will be broken at the edges of the business, not in the finance office

From Invoice-Based to Evidence-Based Compliance

The underlying shift is worth naming clearly. For eight years, UAE input VAT recovery has been essentially invoice-based: hold a valid tax invoice, claim the tax. From 1 October 2026, it becomes evidence-based. The invoice is the starting point, and the burden of showing the transaction was genuine, traceable and properly checked now sits with you. The move to mandatory e-invoicing pushes in the same direction.

Businesses with clean, current books and organised supplier records will absorb this with relatively little pain. Businesses running on informal processes, cash convenience and a shoebox of invoices will find the first FTA review after October considerably less comfortable.

If you're unsure how much of your input VAT is currently exposed, the useful first step is simple: a review of your cash payments and your top suppliers against these new thresholds, done before the deadline rather than after a query lands. That review, and the monthly bookkeeping that keeps the evidence in place afterwards, is work we do for UAE businesses every month. Book a consultation to get started.