Abu Dhabi: The Federal Tax Authority (FTA) has identified six categories of employee expenses on which VAT-registered companies may recover input tax, subject to specific conditions ensuring that the goods and services are provided for business purposes rather than as personal benefits.
The categories cover transportation, food and beverages, work-related accommodation, temporary accommodation for new employees, mobile phone and internet services, and parking.
The provisions are set out in Federal Tax Authority Resolution No. 17 of 2026, which came into effect last month.
The decision does not mean companies can recover the full value of eligible expenses. Instead, they may reclaim or deduct the VAT included in those expenses.
For example, if an eligible service costs Dh105, including Dh5 in VAT, only the Dh5 VAT component may be recovered, provided all requirements are met.
Employee transportation
The decision allows businesses to recover input tax on employee transportation services when they are limited to travel between an employee’s residence and workplace, travel to clients’ premises, or journeys directly related to the performance of job duties.
The transportation service must not provide a personal benefit to the employee, and the employee must not have the option of receiving a cash allowance or other financial compensation instead of the transportation provided by the company.
Food and beverages
VAT paid on food and beverages provided to employees may be recovered in specific circumstances.
These include cases in which the employee lives in a remote, distant or isolated area and there are no suitable facilities for preparing food at their residence or workplace, as well as no nearby restaurants or other establishments from which food and beverages can easily be obtained.
The food must be directly connected to working or living arrangements imposed by the nature of the job. Employees must also not have the option of receiving a cash allowance instead of the meals provided.
Work-related accommodation
The decision establishes detailed conditions for recovering VAT on employee accommodation.
The accommodation must be connected to the operational requirements of the job and must not form part of the employee’s regular remuneration or employment benefits.
The nature of the work must require the employee to live close to the workplace, project site or client’s location, and the employee must not have the option of receiving a cash housing allowance instead.
The accommodation must be allocated to the employee concerned and must not include accommodation for family members or other personal use, except where the nature of the job requires the employee to reside permanently near the workplace and the accommodation becomes their usual residence.
The accommodation and its facilities must also be appropriate to the requirements of the job and the employee’s basic living needs, without recreational or personal features that go beyond the purpose for which it is provided.
Temporary accommodation for new employees
Companies may recover input tax on temporary accommodation provided to new employees for a period not exceeding 30 days.
The accommodation must be appropriate to the requirements of the job and the employee’s basic accommodation needs.
Mobile phones and internet
Eligible expenses also include mobile phones, calls, data packages and internet services provided at an employee’s residence through a router when they are necessary for the employee to perform their job.
This includes remote working and job-related communications outside normal working hours.
Use of these services must primarily be for business purposes, although occasional and limited personal use is permitted, provided it does not become the main purpose for which the services are supplied.
Employers must establish a documented internal policy defining permitted use and the consequences of unauthorised use. They must also implement reasonable mechanisms to monitor usage and retain the necessary records and supporting evidence.
Parking fees
VAT paid on employee parking fees may also be recovered when the company incurs the costs exclusively for business purposes and they are directly connected with job duties, external visits or meetings.
Employers must have a documented internal policy specifying the circumstances in which employees can be reimbursed for parking fees and the process for approving them.
They must also retain receipts showing the date and time the parking space was used, the amount charged and the VAT paid.
Business purpose is key
More broadly, the decision links the right to recover input tax to the existence of a contractual obligation or documented internal policy requiring the goods or services to be provided to the employee free of charge, as well as evidence demonstrating their direct connection to the company’s activities and work requirements.
The rules therefore do not automatically cover regular daily meals, cash allowances for housing or transportation, or services primarily intended for personal use, even when the company bears the cost.
The decision does not allow companies to recover the full value of eligible employee expenses. It allows them to recover or deduct the VAT included in those expenses, subject to the applicable conditions.
