UAE sets conditions for VAT recovery on six types of employee expenses
VAT-registered businesses in the UAE can reclaim tax on six categories of employee expenses under Federal Tax Authority rules that took effect October 1, 2026. Eligibility depends on the business need for the expense and the conditions attached to each category.
Layla Haddad
What businesses can claim
Federal Tax Authority Resolution No. 17 of 2026 covers transportation, food and beverages, work-related housing, temporary lodging for new employees, mobile phone and internet services, and parking. It permits recovery of the VAT charged, not reimbursement of the underlying expense: for a qualifying service costing Dh105, including Dh5 in VAT, the recoverable amount is Dh5.
Across these categories, employers need a contractual obligation or documented internal policy requiring them to supply the goods or services free of charge. They must also have evidence linking the expense directly to their business activities and work requirements.
Crowe UAE identifies Article 53(1)(c)(2) of the UAE VAT Executive Regulation, Cabinet Decision No. 52 of 2017, as the legal basis for this contractual or policy route. Simply paying an employee's costs does not automatically make regular daily meals, housing or transportation allowances, or mainly personal services eligible.
The FTA Board approved the decision at its 45th meeting on June 23, 2026, before its issuance on September 9, according to Crowe UAE. Crowe UAE and Alvarez & Marsal give October 1, 2026, as its effective date.
Transportation and parking
Qualifying transportation is limited to commuting between home and work, trips to clients' premises, and other journeys directly connected to an employee's duties. The employer-provided service cannot confer a personal benefit, and employees cannot have the choice of taking cash or other financial compensation in its place.
Parking has a separate business-use requirement: the company must incur the charge exclusively for business, with a direct link to job duties, external visits or meetings.
To recover parking VAT, employers must document when reimbursement is allowed and how it is approved. Supporting receipts must record when the space was used, including the date and time, along with the charge and VAT paid.
Meals tied to working conditions
Food and beverage costs qualify only in specified circumstances. These include employees living in remote, distant or isolated areas who lack suitable food-preparation facilities both at home and at work, as well as nearby restaurants or other outlets where food and drinks can easily be obtained.
The meals must be linked directly to working or living arrangements required by the job, with no option for employees to receive a cash allowance instead.
This does not extend to staff entertainment. Crowe UAE says team dinners and celebrations remain ineligible under the general rule in Article 53 and fall outside the decision.
Housing required by the job and lodging for new hires
For work-related accommodation, the employer must establish an operational need rather than provide housing as part of regular pay or employment benefits. The work must require the employee to live near the workplace, project site or client's location, and a cash housing allowance cannot be offered as an alternative.
The housing must be assigned to the employee concerned. Family accommodation and other personal use are excluded, except when the job requires the employee to live permanently near work and the property becomes the employee's usual residence.
Facilities must be suitable for the job and meet basic living needs. Recreational amenities or personal features that exceed the accommodation's purpose do not meet the conditions.
A separate provision allows VAT recovery on temporary lodging for new employees for no more than 30 days. That lodging must likewise be suitable for the job and the employee's basic accommodation needs. Crowe UAE notes that the decision leaves unclear whether a stay exceeding 30 days prevents recovery for the entire stay or just the excess days.
The tax treatment of the property also matters. Crowe UAE explains that residential building leases are generally VAT-exempt, leaving no input tax to recover. The decision is therefore mainly relevant to accommodation on which VAT is charged, including hotels, serviced apartments and related services.
Phones and internet require usage controls
Mobile phones, calls, data packages and home internet delivered through a router can qualify when employees need them to carry out their work. The provision includes remote work and job-related communications outside normal working hours.
Business must remain the primary use. Limited, occasional personal use is allowed, but it cannot become the main reason for supplying the service.
Employers must set out permitted use and the consequences of unauthorized use in a documented internal policy. They also need reasonable ways to monitor usage and must keep the necessary records and supporting evidence.
How the rules changed and what remains unresolved
According to Alvarez & Marsal, the contractual or policy route previously relied on employers assessing whether a benefit was necessary for the employee's role and represented normal business practice. From October 1, 2026, Decision No. 17 replaced that general test with conditions for individual expense categories.
EY places the decision after Cabinet Decision No. 149 of 2026, issued September 1, which amended the VAT Executive Regulations effective October 1, 2026. Changes to the default input tax apportionment methodology have a later start: the first tax year beginning on or after October 1, 2027.
Crowe UAE also identifies an unresolved issue in Decision No. 17 itself: it does not explain how to apportion an expense that only partly meets a qualifying case, or specify an approach to partial recovery.
