UAE Clarifies VAT Recovery Rules for Employee Expenses Under Decision No. 17

The UAE Federal Tax Authority (FTA) issued Decision No. 17 of 2026, setting specific conditions under which VAT-registered businesses may recover input VAT on employee-related expenses. Effective 1 October 2026, the rules apply where an employer provides goods or services free of charge under a contractual obligation or documented policy across six categories: transport, food and beverages, accommodation, temporary housing for new staff, mobile and internet services, and parking.

Under the decision, input VAT on transport is recoverable when connected to work duties and where no cash allowance option exists. Food and beverage VAT recovery is strictly limited to remote or isolated locations lacking nearby food facilities. For accommodation, recovery requires operational business necessity, excluding general housing allowances, while temporary accommodation for new hires is eligible if limited to 30 days. Business-related mobile and internet expenses, as well as business parking, require documented internal policies and supporting proof of expenditure.

Separately, the FTA published guidance establishing operational procedures for the Qualified Domestic Minimum Top-up Tax regime aligned with OECD Pillar Two standards. The regime mandates an effective corporate tax rate of at least 15 percent for multinational enterprise groups reporting annual consolidated revenues of €750 million or more in at least two of the four prior fiscal years, while wholly domestic UAE companies are excluded.