The rule affects VAT-registered businesses that bear staff costs. According to an international firm's analysis, it applies from 1 October 2026. The official text on the tax authority's website has yet to be verified.
What happened
According to an analysis by Alvarez & Marsal, the Federal Tax Authority (FTA, the UAE federal tax authority) issued Decision No. 17 of 2026 on 9 September 2026. From 1 October 2026 it sets out the cases in which a business may recover the VAT it pays on costs incurred for employees (input VAT, the VAT charged on purchases). Please note that the source is a professional analysis. The official text on the FTA website has not yet been archived and compared, so the item remains to be verified.
What changes in practice
Recovery is allowed in six cases only, and in each one every condition set for that category must be met. The six cases are: 1) transport to and from work; 2) meals in remote locations; 3) operational accommodation; 4) temporary accommodation, for a maximum of 30 days; 5) phone and data, where a usage policy exists; 6) parking for business travel. There is no cash alternative: the benefit must be provided in kind. A cost that falls outside the six cases, or meets only some of the conditions, does not give a right to recover the VAT.
Who it applies to
VAT-registered businesses that pay for staff accommodation, phones, transport or parking. The decision concerns recovery of input VAT on purchases only. It should not be confused with the treatment of benefits for the employee's personal tax purposes in any jurisdiction.
The exposure
If a business currently deducts input VAT on benefits that do not fall within the six cases, that VAT may be challenged in an audit and the deduction disallowed. The risk is higher where VAT is deducted in bulk, without a written policy linking each cost to a permitted case. As the source is not yet the official text, it should not be treated as final: confirmation against the original document is needed.
What to do now
First, list the employee costs on which input VAT is currently deducted. Second, match each cost to one of the six cases and check that the conditions are met. Third, where it is missing, draft the usage policy for phone and data. Fourth, download the official text of the Decision from the FTA website and compare it with this summary before the quarterly VAT return due on 28 October 2026, the first under the new rules.
Sources
Published 5 October 2026 on the basis of public sources and official United Arab Emirates instruments. This is not legal or tax advice. Verify your position with a qualified professional before acting.