UAE VAT on Employee Expenses: Six Categories Businesses Can Claim Under FTA Decision No. 17 of 2026

Businesses in the UAE regularly incur expenses on behalf of their employees. These may include transportation, accommodation, mobile phones, internet services, meals and parking.

However, an important question arises: Can a VAT-registered business recover the VAT paid on these employee-related expenses?

The answer depends on the nature of the expense and whether it satisfies the conditions prescribed under UAE VAT legislation.

On 9 September 2026, the Federal Tax Authority (FTA) issued FTA Decision No. 17 of 2026 on Cases and Conditions for the Recovery of Input Tax on Employee Expenses. The Decision was published on 28 September 2026 and came into effect on 1 October 2026.

It identifies six categories of employee-related expenses for which taxable persons may recover input tax, provided the prescribed conditions are satisfied.

The Decision is particularly relevant to employers, finance departments, HR teams and businesses that provide employee benefits or reimburse work-related expenses.

1. What Does FTA Decision No. 17 of 2026 Provide?

The Decision applies to taxable persons seeking to recover or deduct input tax incurred on goods or services provided to employees free of charge, where the employer has a contractual obligation or documented internal policy to provide those goods or services.

Its legal basis is Article 53(1)(c)(2) of Cabinet Decision No. 52 of 2017 concerning the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended.

Previously, the relevant provision relied on a broader test concerning whether providing the employee benefit was necessary for the employee to perform their role and constituted normal business practice.

The revised approach, together with FTA Decision No. 17 of 2026, establishes specific categories and conditions for recovery under this route.

Importantly, having an employment contract or an internal HR policy is not, by itself, sufficient. The expense must fall within one of the six recognised categories and satisfy all the conditions applicable to that category.

2. Six Categories of Employee Expenses Eligible for Input VAT Recovery

Article 2 of FTA Decision No. 17 of 2026 identifies six categories.

A. Employee Transportation

Businesses may recover input VAT on transportation services provided to employees where the transportation is used exclusively for qualifying work-related journeys.

The following conditions must be met:

• Transportation must be between the employee's residence and workplace, to clients' premises, or for other purposes directly related to the performance of job duties.

• The service must not be used for the employee's personal benefit.

• The employee must not have the option to receive a cash allowance or other financial compensation instead of the transportation service.

Practical example:

A company arranges daily transportation for employees between their residences and its office or project site. If the transportation is provided for qualifying work-related purposes and the other conditions are met, the business may recover the input VAT incurred.

However, where employees are given a cash transport allowance instead, this particular recovery provision will not apply.

B. Food and Beverages for Employees

Input VAT on food and beverages provided to employees may be recoverable in specific circumstances, particularly where employees are required to work or reside in remote, distant or isolated locations.

The conditions include:

• The employee's residence must be in a remote, distant or isolated area.

• Appropriate facilities for preparing food must not be available at the employee's residence or workplace.

• There must be no nearby restaurants or facilities from which employees can easily obtain food and beverages.

• The food and beverages must be directly connected to the work or residence period required by the job.

• Employees must not have the option to receive a cash allowance instead.

Practical example:

A construction company operates a project in a remote location where employees are required to stay for extended work periods. The company arranges meals because there are no suitable cooking facilities or nearby restaurants.

If all the conditions are satisfied, the VAT incurred on those meals may qualify for recovery.

This provision should not be interpreted as allowing businesses to recover VAT on ordinary office lunches, routine staff refreshments or general employee meal allowances.

C. Employee Accommodation

The Decision also addresses VAT recovery on accommodation or places of residence provided to employees.

This category is subject to several conditions:

1. Employees must not have the option to receive a cash allowance or financial compensation instead of the accommodation.

2. The accommodation must be provided because of operational requirements and must not form part of the employee's ordinary compensation or benefits arrangement.

3. The nature or requirements of the job must necessitate that the employee resides near the workplace, project site or client's location.

4. The accommodation must generally be designated for the relevant employee and must not include accommodation for family members or other personal use.

5. An exception applies where the employee is required to reside permanently near the workplace and the accommodation constitutes their usual place of residence.

6. The accommodation and its facilities must be appropriate to the job requirements and basic residential needs, without significant recreational or personal features beyond the work-related purpose.

Practical example:

A company operates an industrial facility outside a major residential area. Employees are required to live close to the facility to perform their duties, and the employer provides basic accommodation for operational reasons.

If the accommodation satisfies all the prescribed conditions, the business may recover the input VAT incurred.

However, accommodation provided as an ordinary employee benefit or as part of a remuneration package does not automatically qualify under this provision.

D. Temporary Accommodation for New Employees

A separate category covers temporary accommodation provided to newly recruited employees.

The conditions are:

• The accommodation must be temporary and must not exceed 30 days.

• The accommodation must be appropriate to the employee's job requirements and basic residential needs.

Practical example:

A UAE company recruits an employee from outside the country and arranges temporary accommodation for the first 20 days while the employee completes relocation arrangements.

The input VAT may qualify for recovery if the accommodation satisfies the prescribed conditions.

The 30-day limit is important. Businesses should maintain records of the accommodation period and ensure that the arrangement remains within the permitted duration.

E. Mobile Phones, Airtime, Data Packages and Internet Access

The Decision recognises that employees may require mobile phones and internet services to perform their work, including remote working and communication outside normal working hours.

Input VAT on these services may be recoverable where:

• The goods or services are necessary for employees to perform their job duties.

• They are required for work-related communication, remote working or duties performed outside the workplace.

• Their use is limited to work purposes, or any personal use is incidental and insignificant.

• The employer maintains a documented internal policy specifying the permitted use and consequences of unauthorised use.

• The employer has reasonable monitoring mechanisms to verify compliance and retains relevant records and justifications where unauthorised use occurs.

Practical example:

A company provides employees with mobile phones and data packages to communicate with clients, access business systems and perform work outside office hours.

The company also maintains an internal usage policy and monitors compliance.

If the prescribed conditions are satisfied, the input VAT incurred may be recoverable.

However, where mobile or internet services are primarily provided for personal use, the arrangement may not qualify.

F. Parking Expenses

The final category concerns parking fees incurred for employees.

Businesses may recover input VAT where:

• Parking expenses are incurred solely for business purposes.

• The parking is directly connected to the employee's job duties, business visits or related assignments.

• The employer maintains a documented policy explaining when employees may be reimbursed for parking and the applicable approval process.

• Supporting documents are retained, including receipts showing the date, time, amount paid and VAT.

Practical example:

An employee visits a client's office for a business meeting and pays for parking. The employer reimburses the employee under an approved company policy and retains the parking receipt.

If all the requirements are met, the VAT component of the parking expense may qualify for recovery.

Parking costs incurred for personal activities or unrelated journeys do not qualify under this category.

3. Does This Mean Businesses Can Recover VAT on All Employee Benefits?

No.

FTA Decision No. 17 of 2026 does not introduce a general entitlement to recover VAT on every expense incurred for employees.

The recovery is restricted to the six categories and their respective conditions.

For example:

• Ordinary employee meal allowances do not automatically qualify.

• Cash allowances provided instead of qualifying transportation, meals or accommodation do not satisfy the relevant conditions.

• Accommodation forming part of ordinary employee remuneration does not automatically qualify.

• Mobile and internet services primarily used for personal purposes may not qualify.

• Parking expenses unrelated to business activities are excluded from this recovery category.

Businesses must also continue to satisfy the wider input tax recovery requirements under the UAE VAT legislation.

It is equally important to distinguish between the cost of an expense and its VAT component.

Example:

If an eligible business expense amounts to AED 105, including VAT at 5%, the potential input tax recovery is AED 5, not AED 105.

The recovery remains subject to the applicable VAT requirements and the conditions of the relevant category.

4. What Should UAE Businesses Do Now?

Since the Decision became effective on 1 October 2026, businesses should review their existing employee expense arrangements and ensure that their VAT recovery practices comply with the prescribed conditions.

The following steps can help:

Review employment contracts and HR policies

Check whether employee benefits are supported by contractual obligations or documented internal policies. The relevant documents should clearly identify the benefits being provided.

Review transportation and accommodation arrangements

Confirm that transportation and accommodation are provided for qualifying work-related or operational reasons. Check whether employees have the option to receive cash allowances instead.

Check temporary accommodation periods

Maintain records of accommodation provided to new employees and monitor the 30-day limit.

Introduce mobile and internet usage policies

Where businesses provide mobile phones, data packages or internet services, establish written rules governing permitted usage and unauthorised personal use.

Maintain monitoring and supporting records

Employers should retain relevant records demonstrating that the services are being used for their intended work-related purposes.

Strengthen parking reimbursement procedures

Introduce a clear approval process and ensure that receipts contain the required payment and VAT details.

Review VAT recovery calculations

Finance teams should identify which expenses qualify under the Decision and ensure that only eligible input VAT is claimed.

Conclusion

FTA Decision No. 17 of 2026 provides greater clarity on when UAE businesses may recover input VAT on certain employee-related expenses.

By identifying six specific categories and prescribing conditions for each, the Decision places greater importance on the actual purpose of employee benefits, the terms under which they are provided and the supporting documentation maintained by employers.

For businesses, the key consideration is not simply whether an expense was paid on behalf of an employee. It is whether the expense falls within a recognised category and satisfies every applicable condition.

Employers should therefore review their employment contracts, HR policies, reimbursement procedures and VAT records to ensure that their input tax recovery practices are aligned with the requirements effective from 1 October 2026.

MLC can assist businesses in understanding UAE tax and regulatory developments, reviewing contractual and internal policy requirements, and identifying compliance considerations arising from changes in UAE legislation.