Starting October 1, 2026, the UAE is introducing new rules that change how companies can claim input VAT on employee expenses. These updates come from FTA Decision No. 17 of 2026 and finally clarify what businesses can recover—and what they can't. The goal is simple: allow VAT recovery only when the expense is genuinely for business purposes and backed by strong internal policies.
Below is an easy breakdown of the six major areas affected.
1. Telecom Expenses: You Must Monitor Usage
Companies can now claim VAT on mobile phones, data packages, and home internet provided to employees—but only if the company monitors usage. The FTA requires a clear internal policy and proof that personal use is minimal. As the decision states, employers must have “reasonable monitoring mechanisms to track the use of these Goods and Services.” This means businesses need tools like usage logs, bill reviews, or employee declarations. If misuse occurs, keep written records.
2. Permanent Employee Housing: Only When It’s Operational
VAT on employee accommodation is recoverable only when housing is required for work—not when it’s part of a benefits package. Five strict conditions apply, including:
- No option for cash instead of housing
- The employee must live near the worksite
- Housing must be basic, not luxurious
If an employment contract offers a housing allowance option, VAT recovery is automatically blocked.
3. Temporary Housing for New Hires: 30 Days Only
Companies can claim VAT on temporary accommodation for new employees, but only for up to 30 days. After Day 31, VAT becomes non‑recoverable unless the housing shifts into a qualifying operational category. HR teams must track start dates carefully.
4. Work Transportation: No Cash Alternatives Allowed
VAT is recoverable on transport provided for commuting or business travel—but only if employees cannot choose cash instead. If a company offers a flexible benefits system where staff can swap transport for money, VAT recovery is lost.
5. Meals: Only for Remote or Isolated Worksites
VAT on food and beverages is recoverable only in rare cases—mainly remote sites with no access to restaurants or cooking facilities. Office snacks, catering, and team lunches in cities do not qualify.
6. Parking Fees: Receipts Must Be Perfect
VAT on parking is recoverable if:
- The parking is for business use
- There is a clear reimbursement policy
- Receipts show date, time, amount, and VAT
Missing any of these details means the VAT claim will be rejected.
Final Thoughts
These new rules shift VAT recovery from a simple accounting exercise to a policy‑driven compliance process. To stay compliant by October 2026, companies must update contracts, tighten internal policies, monitor telecom usage, and ensure proper documentation for every claim.
If your business hasn’t started preparing, now is the time.
Preparing for the October 2026 VAT changes requires more than policy updates — it demands precise documentation, compliant employment structures, and airtight internal controls. Imperium Accounting & Tax Consultants helps businesses navigate these new rules with clarity and confidence.
Whether you need:
- A full VAT compliance review
- Updated employee benefit policies
- Contract restructuring to meet “no‑cash” requirements
- Expense workflow redesign
- Audit‑ready documentation and governance frameworks
Our team ensures your business is fully aligned with FTA expectations before the effective date.
Stay compliant. Avoid penalties. Protect your input tax recovery.
Imperium Editorial Team
Accounting & Tax Insights
Research and analysis from the Imperium Accounting & Tax Consultants LLC team, reviewed for accuracy before publication.