UAE Sets Strict Conditions for Input VAT Recovery on Employee Expenses

The United Arab Emirates Federal Tax Authority (FTA) has issued FTA Decision No. 17 of 2026, establishing specific conditions for taxable businesses seeking to recover input VAT on employee-related expenses under Article 53(1)(c)(2) of the VAT Executive Regulation. Taking effect on October 1, 2026, the decision operationalizes broader reforms introduced under Cabinet Decision No. 149 of 2026 amending the VAT Executive Regulations.

The framework applies when an employer provides goods or services free of charge under an explicit contractual obligation or a documented company policy. Covered benefits include employee transportation, food and beverages, accommodation, medical insurance, and other designated supplies. To qualify for input VAT recovery, the expenditure must serve an established commercial necessity, and taxpayers are disqualified if a cash alternative is offered or if the provision has a personal-benefit character.

For employee transportation, recovery is specifically permitted for travel between an employee's residence and workplace or client premises, as well as travel directly connected to job duties. This remains conditional on the transport not serving personal benefit and not being replaceable by a cash allowance. For food and beverages, recovery requires that the provisions occur in remote, distant, or isolated locations lacking adequate food preparation facilities or nearby restaurants, directly linking to work or required residency periods without any cash alternatives.