Can You Still Claim VAT on Employee Expenses? The New UAE Rules, Expense by Expense

UAE VAT · EMPLOYEE BENEFITS · FROM 1 OCTOBER 2026

Last updated: November 2026 · Reflects FTA Decision No. 17 of 2026 and Cabinet Decision No. 149 of 2026

If your business pays for staff transport, meals, housing, phones or parking, your VAT returns probably need to change. From 1 October 2026, FTA Decision No. 17 of 2026 sets out a closed list of employee expenses where input VAT can be recovered, and strict conditions for each. Anything outside the list is generally not recoverable.

Most businesses we see were either over-claiming (recovering VAT on everything with a receipt) or under-claiming (blocking everything to be safe). Both cost money. Here is the expense-by-expense picture.

What changed

The UAE VAT Executive Regulation has always restricted input VAT on goods and services provided to employees for their personal benefit. In practice, the boundary between "business cost" and "staff perk" was blurry, and businesses read it very differently.

Two decisions now draw the line:

• Cabinet Decision No. 149 of 2026 amended the VAT Executive Regulation, including the rules on employee benefits, from 1 October 2026.
• FTA Decision No. 17 of 2026, issued on 9 September 2026 and effective 1 October 2026, lists the specific cases and conditions for recovering input VAT on employee expenses.

The effect: from your Q4 2026 return onwards, every employee-related VAT claim should be tested against this list.

The conditions every claim must meet

Before looking at individual expenses, four tests run through the whole Decision. If any one fails, the VAT is not recoverable:

1. It's required by contract or a documented policy. The employer must be obliged to provide it, either in the employment contract or in a written company policy.
2. There's a genuine business purpose. The cost exists because the job needs it, not as a reward.
3. No cash alternative. If the employee can choose cash or an allowance instead, the VAT is blocked.
4. Minimal personal benefit, backed by records. Personal, family or recreational benefit must be incidental, and your records must match your policy.

Quick table: what's claimable from 1 October 2026

Expense	VAT recoverable when…	Not recoverable when…
Transport	Used only for travel between home, work, client sites or other job locations	Any personal use; cash or travel allowance paid instead
Food & drinks	Staff live in remote or isolated areas with limited access to food, linked to their work	Office lunches, snacks and meals in normal city locations; cash meal allowance
Staff accommodation	The job requires living near the work site or client location; basic needs only	Part of the salary or benefits package; housing allowance; significant personal or family benefit
New-hire accommodation	Up to 30 days, reasonable for the role	Day 31 onwards
Mobile, airtime, data, home internet	Needed for work (e.g. remote work, after-hours calls), used mainly for business, with a usage policy and monitoring	Mainly personal use; no policy or monitoring
Parking	Incurred only for business, under a reimbursement policy, with proof of date, time, fee and VAT	Daily commuting or personal parking

Each expense in detail

1. Staff transport

Company buses, shuttles and taxis for work travel qualify when the service is used only for job-related journeys, such as home to site, office to client. The moment the service is used for personal trips, or employees are given a transport allowance in place of it, the VAT on it is blocked.

Practical tip: keep route logs or booking records that show the journeys were for work.

2. Food and drinks

This is the tightest category. VAT on food is recoverable only for employees whose residence is in a remote, distant or isolated area with limited access to food, and where the provision is tied to their work. Think construction camps, desert sites, offshore locations.

For a typical Dubai office, VAT on staff lunches, pantry supplies and team meals should be treated as not recoverable.

3. Staff accommodation

Accommodation qualifies when it's provided purely for operational needs: the job genuinely requires the employee to live near the workplace or client site, and the housing is limited to essential needs. Labour accommodation for site workers is the classic case. Under the amended Executive Regulation, recovery for employer-provided housing is also tied to cases where the Ministry of Human Resources and Emiratisation (MOHRE) requires it.

Blocked: housing that forms part of an employee's pay package, a housing allowance, or accommodation with significant personal, family or recreational benefit (for example, a family villa for a senior manager).

4. New-hire accommodation (the 30-day rule)

Hotel or serviced apartment stays for new joiners are recoverable for a maximum of 30 days, provided they're reasonable for the role and cover basic needs. Anything past day 30 is outside the rule. If you regularly house new staff for six or eight weeks, split the invoices by date so only the first 30 days are claimed.

5. Mobile phones, airtime, data and home internet

Recoverable where the service is needed for work, for example remote working or being reachable outside normal hours, and is used primarily for business. The Decision expects a documented usage policy and reasonable monitoring to pick up unauthorised use. No policy, no recovery.

6. Parking

Recoverable only when the parking is solely for business, such as a client visit, under an internal reimbursement policy, and the evidence shows the date, time, fee and VAT paid. Regular commuting parking near the office doesn't qualify.

What's not on the list

If an employee expense isn't covered by one of these cases, treat the input VAT as not recoverable unless a specific rule allows it. Common items that fall outside include:

• Staff entertainment, parties and team outings
• Gym memberships and wellness benefits
• Personal travel, including family flights home
• Office meals in normal locations
• Cash allowances of any kind

Separately, health insurance and other items have their own rules under the VAT Executive Regulation. If you're unsure, ask before you claim. An over-claim found in an audit costs far more than the VAT itself. (Our guide on correcting filed returns explains how penalties work when errors are found.)

What to do this quarter

1. Review your Q4 2026 claims. Any employee-related VAT on returns covering October 2026 onwards should be tested against the list above.
2. Write or update your benefits policy. Transport, accommodation, telecoms and parking each need a documented policy that makes the benefit an obligation and rules out cash alternatives.
3. Check employment contracts. Make sure what's written matches what you provide. A "housing allowance" clause will block VAT recovery on housing.
4. Set up separate expense codes in your accounting system for recoverable and non-recoverable employee costs.
5. Split long new-hire stays so only the first 30 days are claimed.
6. Brief whoever approves expense claims on the parking and telecoms evidence rules.

The bottom line

Decision No. 17 actually gives businesses something useful: clarity. You now know exactly which employee costs can carry a VAT claim, and what paperwork you need. Get the policy and coding right once, and the monthly process becomes straightforward. Ignore it, and every staff-related claim since 1 October 2026 is a potential audit adjustment.

Want your employee expense VAT reviewed? We'll go through your expense codes, contracts and policies, tell you what's claimable from 1 October 2026, and set up your books so it's handled automatically every month.

Speak to a partner about VAT on employee costs →

This article is general information, not tax advice. It is based on FTA Decision No. 17 of 2026, Cabinet Decision No. 149 of 2026 and published professional commentary as of November 2026. Your position depends on your contracts, policies and facts. Verify current requirements with the FTA or a qualified UAE tax adviser before acting.