New UAE Rules Allow VAT Recovery on Six Staff Expenses

The UAE’s Federal Tax Authority (FTA) has introduced new guidelines defining six specific categories of employee-related expenses for which businesses can recover or deduct input VAT. Making the accommodation their usual residence, an exception applies where the nature of the work requires an employee to live permanently near the workplace.

These rules, detailed in FTA Decision No.

17 of 2026, ensure that tax recovery is limited to goods and services provided for legitimate business purposes rather than as personal employee benefits.

Companies should note that they cannot reclaim the full cost of these expenses.

Instead, they are permitted to recover or deduct only the VAT portion included in the transaction.

For instance, if an eligible service costs Dh105, including Dh5 in VAT, the recoverable amount is strictly the Dh5 tax component, provided all stipulated regulatory requirements are satisfied.

Eligible Employee Expenses for VAT Recovery

• Transport ServicesRecoverable when provided exclusively for travel between home and work, transit to client premises, or other direct work-related journeys. This is ineligible if employees have the option to choose a cash allowance instead.
• Food and BeveragesClaims are permitted if provided in remote or isolated locations lacking suitable food preparation or dining facilities, and where the meals are directly linked to required work periods.
• Work-Related AccommodationAllowed when housing is required by job operational demands and is not part of an employee’s standard remuneration package. The property must be designated solely for the employee and be proportionate to basic living needs without personal amenities.
• Temporary HousingBusinesses may recover VAT on temporary accommodation provided to new recruits for a maximum period of 30 days.
• Mobile and Internet ServicesCosts for phones, data packages, and home routers are eligible if necessary for job duties, including remote work or communications outside regular hours, provided usage remains primarily business-focused.
• Parking FeesRecoverable when the employer covers these costs specifically for business-related activities, such as client meetings or external work visits.

To qualify for these deductions, companies must maintain documented internal policies that clearly define when these benefits are provided and the procedures for approval.

For parking, employers must retain receipts showing the date, time, total charge, and the VAT amount paid. They must also implement reasonable monitoring mechanisms and retain the necessary records and justifications.

The decision generally ties eligibility to a formal contractual obligation or a transparent internal policy stating that the employer provides these services free of charge.

Furthermore, the company must demonstrate a clear connection between the expenses and their core operational activities.

It is important to note that these provisions do not extend to general daily meals, cash housing allowances, or services predominantly used for personal purposes, even if the employer manages the payment.

Related Business Updates and Deadlines

• Corporate TaxThe annual corporate tax filing deadline remains set for September 30.
• VAT AdjustmentsNew VAT regulations are scheduled for further implementation starting January 2026.
• Technological ShiftsRecent developments in the sector include the launch of Microsoft-backed AI accounting solutions and improvements in the efficiency of tourist VAT refund systems.

• UAE VAT rules change staff expense claims: What to know.
• UAE to introduce VAT rule changes from January 2026.
• Now get UAE tourist VAT refunds in a day.