The UAE Federal Tax Authority (FTA) has issued Decision No. 17 of 2026 (“Decision”), setting out the circumstances in which businesses may recover input VAT on certain expenses incurred for their employees.
Effective 1 October 2026, the decision introduces specific conditions for recovering input VAT on six categories of goods and services provided to employees free of charge.
Businesses should assess their existing employee benefit arrangements against these requirements to identify potential VAT recovery opportunities and ensure that any claims are appropriately supported.
Key Updates
The Decision covers six categories of employee-related expenses for which input VAT recovery may be permitted, subject to the applicable conditions being satisfied.
The changes may create opportunities to recover VAT on certain expenses that businesses have previously treated as non-recoverable. However, eligibility depends on the nature of the expense, the relevant conditions and the supporting documentation maintained.
The following table summarises the key requirements and their practical implications for businesses:
| Transaction Type | Relevant Update/Conditions to be fulfilled | Rethink Comments |
|---|---|---|
| Employee Transportation | Input tax is recoverable where: • Transport is provided between the employee’s residence and workplace, to clients’ premises, or for employment-related duties. • The transport is not for personal use. • The employee cannot opt for a cash allowance or other financial benefit instead. | Businesses can recover VAT on staff shuttles and business-related trips only where no cash alternative is available for the employees. Businesses must maintain clear trip logs to substantiate each journey and its business purpose. |
| Food and Beverages | Input tax is recoverable where all the following conditions are met: • The employee resides in a remote or isolated area. • Suitable food preparation facilities and nearby food outlets are unavailable at the residence or workplace. • The provision of food is directly linked to work or job-related residence requirements. • No cash alternative is available to the employee. | The conditions are cumulative and restrictive. VAT recovery is likely limited to remote sites or labour accommodation with no easy access to food outlets. Staff lunches and team meals in urban locations are unlikely to qualify. Businesses should retain evidence of site conditions, food arrangements, and the absence of cash alternatives to support any VAT recovery. |
| Accommodation for Employees | Input tax on employee accommodation is recoverable where: • Accommodation is required for work or operational purposes, with no cash alternative available. • The employee needs to reside near the workplace, worksite, or client location. • The accommodation meets basic residency needs and excludes family or significant personal or recreational use. | Input tax may be recoverable where accommodation is operationally necessary and used solely by the employee, such as for site-based assignments. However, input tax recovery is blocked for accommodation exceeding basic needs, such as executive villas with private pools, or provided for family use. Each arrangement should be assessed separately, with evidence of the operational need retained. |
| Accommodation for New Employees | Input tax is recoverable where accommodation is provided for no more than 30 days and is appropriate to the employee’s job requirements and basic residency needs. | This relief covers temporary accommodation for new joiners, such as hotels or serviced apartments, while permanent housing is arranged. The 30-day limit is strict, with input VAT attributable to any excess stay disallowed. Employers should track check-in and check-out dates and apportion VAT accordingly. |
| Mobile Phones, Airtime, Data and Home Internet | Input tax is recoverable where: • Mobile phones, airtime, data, or home internet are necessary for employees’ duties. • Usage is primarily business-related, with only incidental personal use. • A documented usage policy, reasonable monitoring, and records of unauthorised use are maintained, with consequences for misuse. | Input tax recovery on mobile phone and related expenses depends on evidence and governance, not only on the nature of the expense. Businesses should maintain a formal usage policy, device and plan records, and evidence of personal-use monitoring. Blanket VAT recovery without appropriate controls may be difficult to substantiate. |
| Employee Parking Fees | Input tax is recoverable where: • Parking is solely for business purposes and related to job duties or business visits. • A documented reimbursement and approval policy is in place. • Valid tax invoices evidencing the date, amount and VAT paid are retained. | VAT recovery is limited to business-related parking. Businesses should maintain a documented approval process and receipts detailing the date, amount, and VAT paid. Inadequate documentation or an unsubstantiated business purpose may render the input tax non-recoverable. |
Next Steps – What Businesses Must Do Now?
- Review employee expenses: Check which expenses fall within the six categories and whether the conditions for VAT recovery are met.
- Update policies where needed: Review transport, accommodation, mobile phone and expense reimbursement policies.
- Keep the right records: Ensure invoices, receipts, approvals and other supporting documents are available.
- Check VAT claims: Review current practices and make any necessary changes to VAT recovery and reporting.
- Review exceptions: Pay particular attention to extended accommodation stays and expenses involving personal use.
How can we help?
We can carry out a focused VAT Health Check on your employee expenses to identify recovery opportunities and compliance gaps. This includes reviewing which costs fall within the six recoverable categories, refining related policies (transport, accommodation, mobile phones and reimbursements), ensuring proper supporting records are maintained, assessing current VAT claims and reporting practices, and examining higher-risk areas such as extended stays and expenses with personal use.
Who we are
Re/think is an award-winning regional multi-service business advisory and outsourced services firm providing accounting, regulatory and compliance, tax and VAT advisory, audit, HR consultancy and recruitment services to regulated firms, multi- and single-family offices, and other operating businesses.
Established in the UAE in 2013, the firm has 80+ staff across three offices in Dubai and Abu Dhabi providing clients with timely, proactive and customized business solutions – from set-up and early development to the latest stages of a business lifecycle.
