The United Arab Emirates (UAE) Federal Tax Authority has introduced new rules for recovering Value-Added Tax (VAT) on six categories of employee expenses. As of October 1, 2026, businesses in the UAE can recover input VAT on expenses related to employee transport, accommodation, food, phones, internet, and parking.
VAT Recovery Rules
The new rules, outlined in Federal Tax Authority Decision No. 17 of 2026, apply to taxable businesses that provide goods and services to employees free of charge, under a contractual obligation or documented policy. The six areas covered by the decision come with specific conditions that businesses must satisfy before recovering the VAT.
For example, businesses can recover input VAT incurred on employee transport if the service is provided between an employee’s home and workplace, or for business-related purposes. However, the transport cannot be used for the employee’s personal benefit, and employees must not have the option of receiving a cash allowance instead.
Food and Beverages
VAT on food and beverages provided to employees can be recovered, but only in specific circumstances. The employee must live in a remote area with limited access to food preparation services or facilities, and the food must be directly linked to the period the employee is required to work or live there due to the job.
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Additionally, employees cannot have the option of taking a cash allowance instead of the food, and the provision of food must be necessary for the employee to perform their job.
Businesses can also recover input VAT on qualifying accommodation provided to employees, if the accommodation is linked to operational requirements and not part of the employee’s normal benefits or compensation.
Accommodation and Phones
The accommodation must be exclusively for the employee, unless they are required to live permanently near the workplace, and must be appropriate to the requirements of the job and basic residential needs. New employees can receive up to 30 days of accommodation, as long as it is temporary and provided for no longer than 30 days.
Businesses can also recover input VAT incurred on mobile phones, airtime, data packages, and home internet, if these services are necessary for employees to perform their jobs. Employers must have a documented internal policy setting out permitted use and the consequences of unauthorized use.
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Input VAT can also be recovered on qualifying employee parking costs, if the parking fees are incurred solely for business purposes and directly related to employees carrying out their job.
Employers need a documented internal policy governing when employees can be reimbursed for parking and how those expenses are approved, and must retain evidence of payment, such as receipts showing the date, time, amount of the parking fee, and VAT paid.
Implementation
The new FTA decision came into effect in the UAE on October 1, 2026, and businesses must comply with the new rules to recover input VAT on the specified employee expenses. As businesses adapt to the new rules, they must ensure that they have the necessary documentation and policies in place to satisfy the conditions for VAT recovery.
