The UAE Federal Tax Authority (FTA) has issued FTA Decision No. 17 of 2026, setting out the cases and conditions under which businesses may recover input VAT on certain employee-related expenses.
Issued on 9 September 2026 and published on 28 September 2026, the decision takes effect from 1 October 2026. It is particularly relevant for businesses that provide employees with accommodation, transportation, meals, communication services, or parking as part of their employment arrangements.
The decision follows amendments to Article 53 of the UAE VAT Executive Regulation under Cabinet Decision No. 149 of 2026. These amendments clarify that input VAT on employee-related goods and services may be recoverable where the benefit is mandatory under applicable labor legislation, or where it is a contractual obligation or documented company policy and satisfies the conditions specified by the FTA.
Input VAT on employee expenses: Understanding the new framework
Input VAT incurred on goods and services provided to employees for their personal benefit is generally restricted under the UAE VAT regime. However, certain employee-related expenses may qualify for recovery where they are required by law, connected to employment obligations, or necessary because of the business’s operating environment.
FTA Decision No. 17 of 2026 provides greater clarity by identifying six categories of employee expenses that may qualify for input VAT recovery:
- Employee transportation.
- Food and beverages provided in remote areas.
- Employee accommodation.
- Temporary accommodation for new employees.
- Mobile phones and home internet services.
- Employee parking.
The availability of recovery is not automatic. Businesses must satisfy the conditions applicable to the relevant category and retain adequate documentation to support the VAT claim.
Six categories covered by the decision of Input VAT on employee expenses
Employee transportation
Input VAT may be recoverable on transportation provided to employees where it is connected with their employment or required because of the location and operational nature of the business.
This may be particularly relevant to companies operating in remote industrial areas, construction sites, logistics zones, or locations where public transportation is unavailable or impractical.
Businesses should maintain transportation contracts, supplier tax invoices, employee records, schedules, and evidence explaining why the service is provided.
Food and beverages in remote areas
Businesses may also recover input VAT on food and beverages provided to employees who work or live in remote areas.
The purpose of this provision is to address situations where employees cannot reasonably access food outlets or other facilities because of the location of the worksite or accommodation.
Companies should be able to demonstrate the location involved, the reason for providing food, the employees covered, and the connection between the expense and business operations.
Employee accommodation
Employee accommodation is another important area covered by the decision. However, accommodation should not be treated as recoverable merely because it appears in an employment contract or benefits policy.
The amended Article 53 clarifies that accommodation provided by an employer is excluded from the general mandatory-benefit exception unless it is required under decisions or directives issued by the Ministry of Human Resources and Emiratization.
Businesses should therefore distinguish between accommodation that is legally required, accommodation necessary for operational reasons, and accommodation provided as an optional benefit or remuneration alternative.
Temporary accommodation for new employees
The decision also covers temporary accommodation provided to new employees for up to 30 days.
Businesses should document the employee’s joining date, the duration of accommodation, the reason it was required, and the related invoices. Temporary accommodation should not become an indefinite housing arrangement if the business intends to rely on this specific category.
Mobile phones and internet services
Input VAT may be recoverable on mobile phones and home internet services provided to employees where the services are connected with business activities and meet the applicable conditions.
Companies should maintain a clear policy covering eligibility, business use, personal use, approved limits, and the employees or roles entitled to the service.
Where a service is used for both business and private purposes, the business should carefully assess whether full input VAT recovery is justified.
Employee parking
Input VAT on employee parking may qualify for recovery where the parking is connected to the workplace or required because of the business’s location and operating conditions.
Relevant records may include parking agreements, access records, invoices, employee lists, and internal documentation explaining the business purpose of the arrangement.
Why documentation matters for Input VAT?
One of the most important implications of the decision is that contractual wording alone may not be enough.
An employee benefit may be included in an employment contract, HR handbook, or company policy. Nevertheless, the business must still establish that the expense falls within one of the defined categories and that all applicable conditions have been met.
For example, a company may provide accommodation to employees at a remote project site. To support input VAT recovery, it should retain evidence of the site’s location, the operational need for accommodation, the employees assigned to the project, the terms of the arrangement, and the related tax invoices.
How MS can help?
Businesses should begin by listing all employee-related expenses on which input VAT is currently recovered. Each category should then be tested against the decision, with supporting contracts, policies, invoices, and operational evidence reviewed.
MS can support businesses in translating the new VAT requirements into practical compliance procedures.
