Dubai, UAE: UAE businesses providing accommodation to employees need to review their VAT treatment before new input tax recovery rules take effect on 1 October 2026. The Federal Tax Authority (FTA) has issued FTA Decision No. 17 of 2026, setting out specific cases and conditions for recovering input VAT on employee expenses. The decision was issued on 9 September 2026 and published on 28 September 2026.
The development follows Cabinet Decision No. 149 of 2026, which amended the UAE VAT Executive Regulation and clarified the treatment of employee accommodation for input tax recovery. For businesses, the key point is that VAT recovery on employee accommodation is not automatically available. Specific conditions must be met.
What Are the New VAT Conditions for Employee Accommodation?
Under FTA Decision No. 17, businesses seeking to recover input VAT on employee accommodation must meet several conditions.
The accommodation must be linked to the operational requirements of the business. The nature of the employee’s work must require them to live near the workplace, work site, or client’s location. It should not simply be provided as an ordinary employee benefit or part of general compensation.
Another important condition is that the employee must not have the option to receive cash or financial compensation instead of accommodation. Businesses should therefore review how accommodation is described in employment arrangements and related policies before claiming input VAT.
These requirements make it important for businesses to carry out a proper VAT compliance review of their employee accommodation arrangements.
Family Use and Accommodation Standards
The new rules also address how employee accommodation is used.
The accommodation should generally be provided for the relevant employee and should not be used by the employee’s family or for personal purposes. However, an exception applies where an employee is required to live permanently near the workplace and the accommodation becomes their usual place of residence.
The accommodation should also be suitable for the employee’s job requirements and basic residential needs. It should not include significant recreational or personal features that go beyond the main purpose of providing accommodation.
For businesses, keeping clear bookkeeping records and supporting documents can help show how accommodation costs and related input VAT have been treated.
30-Day Rule for New Employees
FTA Decision No. 17 also introduces specific conditions for temporary accommodation provided to new employees. VAT may be recovered where the accommodation is temporary and provided for no more than 30 days, subject to the other requirements under the decision.
This is particularly relevant for businesses that arrange temporary accommodation during the onboarding or relocation of new employees. Companies should review these arrangements before making VAT claims under the updated rules.
Other Employee Expenses Are Also Covered
The decision does not only address accommodation. It also sets conditions for input VAT recovery on employee transportation, food and beverages, mobile phones, airtime, data and internet services, and employee parking. Each category has its own requirements under the decision.
Businesses should therefore avoid treating all employee-related expenses in the same way. Each expense should be assessed against the relevant VAT recovery conditions.
What Should Businesses Do Before 1 October?
Businesses providing employee accommodation should review their VAT records, accommodation arrangements, employment policies, and expense treatment before the new rules take effect.
They should confirm that accommodation is connected to operational needs, employees cannot choose financial compensation instead, and temporary accommodation for new employees remains within the 30-day limit. Businesses should also ensure that their supporting records clearly reflect the basis of their VAT claims.
If these conditions are not met, the related input VAT recovery may not be available. Reviewing the arrangements before 1 October can help businesses avoid making claims that do not meet the new requirements.
For businesses that need support with VAT and tax compliance, Dubai Business and Tax Advisors (DBTA) can help review employee-related expenses and assess whether the business’s VAT treatment aligns with the updated requirements. Professional business tax advisory support can also help businesses understand how the new rules apply to their existing arrangements.
