UAE VAT rules: Six employee expenses businesses can now claim tax back on

Abu Dhabi: The UAE's Federal Tax Authority (FTA) has identified six categories of employee expenses on which businesses subject to value-added tax (VAT) may recover or deduct input tax, including transport, food and beverages, work-related accommodation, temporary housing for new employees, mobile phones and internet services, and parking fees.

The provisions, outlined in FTA Decision No. 17 of 2026, which took effect last month, establish detailed conditions to ensure that the goods and services are provided for business purposes rather than as personal benefits to employees.

The decision does not allow companies to recover the full cost of eligible expenses. Instead, they may reclaim or deduct only the VAT included in those costs.

For example, if an eligible service costs Dh105, including Dh5 in VAT, the recoverable or deductible amount is the Dh5 tax component alone, provided all relevant requirements are met.

Transport expenses

The decision allows businesses to recover input VAT paid on employee transport services, provided they are used exclusively for journeys between an employee's home and workplace, travel to client premises or other journeys directly related to their duties.

The transport service must not be used for personal benefit, and employees must not have the option of receiving a cash allowance or financial compensation instead of the transport provided by their employer.

Food and beverages

Companies may also recover VAT paid on food and beverages provided to employees in specific circumstances.

These include cases where employees live in remote, distant or isolated areas without suitable facilities for preparing food at their accommodation or workplace, and where there are no nearby restaurants or facilities from which they can easily obtain meals and drinks.

The provision of food must be directly linked to the period of work or residence required by the nature of the job.

Employees must also have no option to receive a cash allowance instead of the meals provided.

Work-related accommodation

The decision establishes more detailed requirements for recovering VAT on employee accommodation.

Housing must be provided because of operational work requirements and must not form part of an employee's regular remuneration or employment benefits.

The nature of the job must require the employee to live near the workplace, project site or client premises, with no option to receive a cash housing allowance.

Accommodation must be designated for the employee concerned and must not include family members or other personal uses.

An exception applies where the nature of the work requires an employee to live permanently near the workplace, making the accommodation their usual residence.

The accommodation and its facilities must also be proportionate to the requirements of the job and the employee's basic living needs, without recreational or personal amenities beyond the primary purpose for which the housing is provided.

Temporary housing for new employees

Companies may recover input VAT on temporary accommodation provided to newly recruited employees for a period not exceeding 30 days.

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

Mobile phones and internet services

Eligible expenses also include mobile phones, calls, data packages and internet services provided at an employee's residence through a router, where these are necessary for carrying out work duties.

This includes remote working and job-related communications outside normal working hours.

The services must be used primarily for business purposes, although limited and incidental personal use is permitted.

Employers must establish a documented internal policy specifying permitted usage and the consequences of unauthorised use.

They must also implement reasonable monitoring mechanisms and retain the necessary records and justifications.

Parking fees

The decision also permits input VAT recovery on parking fees incurred for employees where the company bears the cost exclusively for business purposes.

The parking must be directly related to the performance of work duties, including external visits and meetings.

Employers must maintain a documented internal policy specifying when employees may be reimbursed for parking fees and the procedures for approving such claims.

They must also retain receipts showing the date and time of parking, the amount charged and the VAT paid.

Conditions for VAT recovery

In general, the decision links eligibility for input VAT recovery to a contractual obligation or documented internal policy requiring employers to provide goods or services to employees free of charge.

Companies must also demonstrate that the expenses are directly connected to their business activities and operational requirements.

The provisions do not automatically cover ordinary daily meals, cash housing or transport allowances, or services primarily intended for personal use, even if the employer pays for them.