UAE Businesses Face VAT Refund Freeze From October 2026 Over Supplier Tax Evasion
FTA Decision No. 13 of 2026 lets the authority deny refunds for purchases tied to tax evasion anywhere in the supply chain from October 1, 2026.
The UAE Federal Tax Authority (FTA) will be able to withhold VAT refunds from October 1, 2026, when unpaid VAT in the supply chain is linked to a business's purchases. A refund can be frozen if those purchases are connected to tax evasion at any point in the chain — including points the claiming business never touched directly. The freeze applies to the claim, not to the evading party.
The change is not a narrow enforcement tweak. VAT, a 5% levy applied to most goods and services in the UAE, has been in force since 2018. For businesses, refunds have been automatic in that time: pay the levy to a supplier, reclaim the input tax on a return, and the money flows back. Under the new rules, that flow stops being automatic. A claim can be denied when the underlying transaction connects to tax evasion elsewhere in the supply chain. It can be denied even when the business making the claim did nothing wrong.
New Legal Basis
The FTA's power comes from Article 54 bis of the VAT Law. Federal Decree-Law No. 16 of 2025 inserted that article. FTA Decision No. 13 of 2026 gives effect to it, setting out the obligations businesses must meet and the due diligence steps they must follow under the new provision. The decision takes effect on October 1, 2026.
In practice, the decision changes how a refund is proved. A supplier's invoice will no longer justify a claim on its own. A company must check that VAT has been properly accounted for up the chain, and must be able to show the FTA the steps it took. The invoice becomes evidence of a relationship, not proof of a clean transaction. That shifts work onto the buyer: verification, documentation, and judgment about who is safe to do business with.
The FTA's authority is not limited to the supplier a business buys from directly. The framework reaches any point in the supply chain. A business that sources from a wholesaler, which sources from an importer, which sources from a manufacturer with an unpaid VAT liability, can find its own refund frozen. The claimant may never have met the party at fault.
Compliance Before October
UAE businesses now have a new incentive to scrutinize their suppliers, and a short runway to get their compliance in order. Procurement and finance teams have to decide how far up the chain their checks will reach, what records they will keep, and what contract terms will give them protection when a supplier fails to pay VAT. Some companies will need to redesign supplier onboarding. Others will need to audit existing supplier books, a task that grows harder the longer a chain is. Neither job can be put off: the rules begin on a fixed date.
The consequence of delay is direct: a frozen refund for someone else's unpaid tax. That is a new kind of exposure for companies that have planned around VAT refunds since 2018. Supplier selection is becoming a tax-risk decision as much as a commercial one. By October 1, every refund decision will be a supply-chain decision.
