UAE VAT: New Conditions for Recovering Input Tax on Employee Expenses
- 02.10.2026
- Posted by: Uwe Hohmann
- Categories: Tax, Dubai
The FTA (Federal Tax Authority) has issued Decision No. 17 of 2026, which sets out the cases and conditions under which a business may recover the VAT (Value Added Tax) it pays on goods and services provided to employees free of charge. The Decision was issued on 09.09.2026 and took effect on 01.10.2026. If you run a business in the UAE and pay for staff transport, accommodation, meals, phones, or parking, these conditions are already in force.
Why the FTA Has Clarified Input Tax Recovery
Input tax is the VAT a business pays on its own purchases, which it can normally deduct in its VAT return. Employee-related costs are one of the more sensitive areas. Under Article 53 of the VAT Executive Regulation (Cabinet Decision No. 52 of 2017), input tax is generally blocked where goods or services are given to employees at no charge for their personal benefit. One of the exceptions applies where the employer has a contractual obligation or a documented policy to provide them.
That exception is written in general terms. Decision No. 17 of 2026 now names six cases and attaches a list of conditions to each one, all of which must be met. For businesses, the practical message is that a clause in an employment contract or a line in a staff handbook is only the starting point. You also need to show that the specific conditions for that type of expense are satisfied.
Staff Transport and Meals
Input tax on employee transport can be recovered where the service runs only between the employee’s home and the workplace or a client’s premises, or serves another purpose directly related to the job. It must not be used for the employee’s personal benefit, and the employee must not be able to choose a cash allowance or other financial compensation instead of the service.
The conditions for food and beverages are considerably narrower. The employee must live in a remote, distant, or isolated area, with no suitable facilities to prepare food at the residence or workplace and no nearby restaurants or outlets where food can easily be obtained. The meals must be directly linked to the work period, or to a period of residence required by the job, and again there can be no cash alternative. In practice, this case fits site-based and remote operations. Routine office catering in a city is unlikely to meet these conditions.
Employee Accommodation
Accommodation carries the longest list. The employee must not be able to take a cash allowance or financial compensation instead. The housing must be tied to the operational requirements of the work and must not form part of the employee’s benefits or ordinary compensation arrangements. The nature of the work must require the employee to live near the workplace, the work site, or the client’s location. The accommodation must also be in proportion to the job and to basic residency needs, without significant recreational or personal features.
In addition, the accommodation must be for the employee alone, and not for family members or any other personal use. The one exception is where the employee is required to live permanently near the workplace, so that the accommodation becomes the usual place of residence.
A separate case covers new employees. Here, input tax can be recovered on temporary accommodation provided for no longer than 30 days, as long as it is in proportion to the job requirements and basic residency needs. This gives businesses a clear rule for the arrival period of new hires, while housing offered as part of a wider remuneration package falls outside the conditions.
Additional Checks for Larger Supplier Relationships
Where your purchases from a single supplier have exceeded AED 375,000 over the past 12 months, or are expected to exceed that amount over the coming 12 months, further checks apply. Many business owners will recognise this figure, as it mirrors the mandatory VAT registration threshold.
For these suppliers, you need a written letter from a bank authorised in the UAE confirming that the supplier holds an account with it. An IBAN (International Bank Account Number) verification letter is the usual form this takes. The letter should not carry any relevant conditions or reservations, although it does not have to be addressed to you. You should also review what reliable public sources say about the supplier, including reviews and media coverage, and satisfy yourself that the picture is consistent with the size and nature of its business and does not suggest possible tax evasion.
Mobile Phones, Data, and Home Internet
The Decision covers mobile phones, airtime, data packages, and internet access at the employee’s residence through a modem or router. These must be necessary for the employee to do the job, including outside normal working hours or away from the workplace, for example when working remotely. Use must be limited to work purposes, or any personal use must be incidental and insignificant.
Two further conditions are about evidence. The employer must have a documented internal policy that regulates use, defines what is permitted, and states the consequences of unauthorised use. The employer must also be able to show reasonable monitoring mechanisms that track use and check compliance with the policy, and must keep records and justifications where unauthorised use occurs. An informal understanding about company phones will not be enough to support the claim.
Documentation and a Written Internal Policy
The decision sets out how these checks fit into your routine. You must carry out supplier checks when you first start working with a supplier. For ongoing relationships, they must be checked whenever you deal with a supplier who has not been verified in the previous 12 months. This is not quite the same as an annual review, as a supplier you have not used for some time needs to be checked again before the next transaction rather than on a fixed date. Supply checks apply to every taxable supply you receive.
Every step must be documented, and supporting records kept, so that the FTA can confirm the checks were actually done. You also need a written policy that names the people responsible for carrying out, reviewing and supervising the verification process, and sets out their authority and responsibilities. This policy should be stored alongside the other records you are required to keep for tax purposes.
Parking Fees
Input tax on parking spaces allocated to employees can be recovered where the fees are incurred solely for business purposes and relate directly to the employee’s duties or to business visits and assignments. The employer needs a documented internal policy that sets out when parking fees are reimbursed and how they are approved. Proof of payment must be kept, such as receipts showing the date, time, amount, and the tax paid.
What This Means for Your Business
Three themes run through the Decision. The expense must serve a business purpose and not the employee’s private benefit. For transport, meals, and accommodation, the employee must not have the option of taking cash instead. For phones and parking in particular, you need written policies and records that demonstrate compliance.
Now is a sensible time to review employment contracts, staff policies, and allowance structures against the six cases, and to check how these expenses are coded in your accounting system. Where the conditions are not met, the input tax should not be claimed, and any VAT recovered on these items from 01.10.2026 onwards should be checked before the next return is filed.
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