UAE Enforces Stricter Input VAT Recovery Rules on Employee Benefits

According to International Tax Review, tax professionals highlighted newly enforced UAE Federal Tax Authority (FTA) guidelines and Decision No. 17 of 2026, which introduce stricter criteria for deducting input VAT on employee benefits.

Following amendments to Article 53(1)(c)(2) of the VAT Executive Regulations, an employment contract or internal HR policy is no longer sufficient on its own to support VAT recovery. Input VAT claims are now subject to specific conditions across six categories of employee expenses, which include accommodation, transport, meals, communications, and parking.

Under the new rules, if an employer provides these perks without meeting the FTA's detailed regulatory requirements, the input tax cannot be reclaimed and must be absorbed directly as a business expense. Advisory firms have urged companies operating in the UAE to update their procurement, expense management, and payroll compliance systems.