UAE VAT rules change: Businesses can recover tax on 6 employee expenses
UAE Federal Tax Authority sets new rules for recovering VAT on employee transport, accommodation, food, phones, internet and parking expenses.
UAE Federal Tax Authority sets new rules for recovering VAT on employee transport, accommodation, food, phones, internet and parking expenses
Businesses in the UAE can recover input VAT on six categories of employee expenses under new Federal Tax Authority rules that came into effect on October 1.
Federal Tax Authority Decision No. 17 of 2026 sets out the cases and conditions under which taxable businesses can recover or deduct input tax incurred on goods and services provided to employees free of charge.
The rules apply where the business has a contractual obligation or documented policy to provide the goods or services to employees.
The six areas covered by the decision are:
- Employee transport
- Food and beverages in specified circumstances
- Accommodation
- Temporary accommodation for new employees
- Mobile phones and internet services
- Business-related parking.
UAE VAT rules for employee transport
Businesses can recover input VAT incurred on employee transport where the service is provided between an employee’s home and workplace, to clients’ premises or for another purpose directly related to performing their job.
The transport cannot be used for the employee’s personal benefit.
Employees must also not have the option of receiving a cash allowance or other financial compensation instead of the transport service.
UAE VAT rules on employee food
VAT on food and beverages provided to employees can be recovered, but the conditions are considerably narrower.
The employee must live in a remote, distant or isolated area where appropriate food preparation services or facilities are unavailable at their home or workplace and there are no nearby restaurants or facilities from which food and beverages can easily be obtained.
Providing the food must be directly linked to the period the employee is required to work or live there because of the job.
Again, employees cannot have the option of taking a cash allowance instead.
UAE employee accommodation VAT rules
Businesses can also recover input VAT on qualifying accommodation provided to employees.
The employee cannot be offered cash or financial compensation instead of the accommodation, and the housing must be linked to operational requirements rather than forming part of the employee’s normal benefits or compensation.
The nature or requirements of the job must necessitate the employee living near the workplace, work site or client’s location.
Generally, the accommodation must be exclusively for the employee and not family members or other personal use. The decision provides an exception where an employee is required to live permanently near the workplace and the accommodation becomes their usual residence.
Accommodation must also be appropriate to the requirements of the job and basic residential needs, without significant recreational or personal features going beyond its work-related purpose. New employees can receive up to 30 days of accommodation
The FTA decision separately covers accommodation for new employees. Businesses can recover the relevant input VAT when the accommodation is temporary and provided for no longer than 30 days.
It must also be appropriate to the requirements of the job and the employee’s basic residential needs.
UAE VAT rules for employee phones and internet
Businesses can recover input VAT incurred on mobile phones, airtime, data packages and home internet supplied through a modem or router when they are necessary for employees to perform their jobs.
That includes requirements to work outside normal working hours or away from the workplace, such as remote working or work-related communications.
Use must be restricted to work, although incidental and insignificant personal use is permitted.
Employers must have a documented internal policy setting out permitted use and the consequences of unauthorised use.
They must also demonstrate reasonable monitoring mechanisms to track usage and verify employee compliance, while keeping relevant records and justifications where unauthorised use occurs.
UAE VAT returns on employee parking
Input VAT can also be recovered on qualifying employee parking costs.
The parking fees must be incurred solely for business purposes and directly related to employees carrying out their job, business visits or related assignments.
Employers need a documented internal policy governing when employees can be reimbursed for parking and how those expenses are approved.
They must also retain evidence of payment, such as receipts showing the date, time, amount of the parking fee and VAT paid.
The new FTA decision came into effect in the UAE on October 1, 2026.
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