Dubai, UAE: The Federal Tax Authority (FTA) has issued Decision No. 17 of 2026, setting out the cases and conditions for recovering input VAT on employee expenses. The decision was issued on 9 September 2026 and published on the FTA website on 28 September 2026. The new rules take effect from 1 October 2026, making the change an immediate VAT compliance issue for UAE businesses.
The decision does not mean that businesses can no longer recover VAT on employee expenses. Instead, it defines when input VAT recovery is allowed and sets conditions that businesses need to meet before making a claim.
Which Employee Expenses Are Covered?
FTA Decision No. 17 covers six main areas of employee expenses. These include employee transportation, food and beverages, permanent accommodation, temporary accommodation for new employees, mobile and internet services, and parking fees.
For each category, the expense must meet the relevant conditions under the decision. Businesses should therefore avoid treating every employee-related cost as automatically recoverable.
For example, employee transportation can qualify where it is linked to the employee’s work and the relevant conditions are met. Food and beverages can also fall within the rules in specific work situations, such as where employees work at remote or isolated locations.
Accommodation Rules Need Attention
Employee accommodation is another key area covered by the new rules. Permanent accommodation may qualify where the nature of the employee’s work requires the employee to live near the workplace or work site and the other conditions are satisfied.
The decision also covers temporary accommodation for new employees. This type of accommodation can qualify for input VAT recovery for up to 30 days, subject to the applicable conditions.
Businesses should therefore review how employee accommodation is recorded and claimed, especially when a new employee stays in temporary housing during the onboarding or relocation period.
Cash Alternatives Can Affect VAT Recovery
Another important condition concerns situations where an employee can receive cash or financial compensation instead of the benefit.
Businesses should review employment terms, employee policies and expense arrangements to make sure they understand whether a cash alternative is available. This is particularly relevant for transportation, accommodation and other employee benefits covered by the decision.
A VAT claim should not be made simply because the business has a valid tax invoice. The expense must also meet the conditions for input VAT recovery under the applicable rules.
What Happens If Businesses Ignore the New Rules?
If a business claims input VAT without meeting the relevant conditions, the claim may not qualify for recovery. This can create tax compliance issues and may require the business to review or correct its VAT treatment.
The practical impact will be greatest for businesses with regular employee expenses across transport, accommodation, food, telecom services or parking.
What Should Businesses Do Now?
With the rules taking effect on 1 October 2026, businesses should review their employee expense processes before the effective date.
Tax and finance teams should check employee policies, contracts, expense claims, invoices and supporting records. Accounts payable processes should also clearly identify employee expenses and the conditions that apply to each type of claim.
Businesses should maintain clear bookkeeping records and review their VAT compliance procedures to support input VAT claims. Where businesses need help understanding how the updated rules affect their tax position, business tax advisory support can also help them review the relevant requirements.
How DBTA Can Help
These changes make it important for businesses to understand which employee expenses qualify and what conditions apply to each claim.
Dubai Business and Tax Advisors (DBTA) can help UAE businesses with VAT compliance, bookkeeping, accounts payable and receivable, and business tax advisory requirements. Its UAE-focused advisory approach can help businesses review employee expense processes, supporting records and VAT treatment as the new rules take effect.
For businesses claiming input VAT on employee expenses, 1 October 2026 is an important date. Reviewing policies, records and expense procedures now can help ensure that VAT claims are handled in line with the new requirements.
