Shareholder and Intercompany Loans in UAE: Corporate Tax Rules Every SME Should Know
02/11/2026
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Your company pays for employee mobile phones, provides transport, reimburses parking expenses and arranges accommodation for certain workers.
These expenses are recorded as business costs.
But does that automatically mean your company can recover the VAT paid on them?
Not necessarily.
The UAE Federal Tax Authority introduced Decision No. 17 of 2026, effective from 1 October 2026, specifying conditions for recovering input VAT on certain employee expenses provided free of charge under a contractual obligation or documented policy.
The decision is particularly relevant to businesses that provide staff accommodation, transportation, internet services and other employee facilities.
For UAE employers, it creates an important opportunity to review existing expense policies and strengthen VAT recovery procedures.
Input VAT recovery on employee-related expenditure has always required careful consideration.
Businesses cannot automatically recover VAT on every benefit simply because the company pays for it.
The updated framework introduces more specific requirements for certain categories of employee benefits.
These rules apply to the contractual-obligation or documented-policy route addressed by the decision. Other statutory recovery provisions may apply separately, depending on the circumstances.
Companies should therefore review the nature of each benefit and the legal basis for any input VAT claim.
Some UAE businesses provide transport between employee accommodation and workplaces or arrange vehicles for employees travelling to client locations.
Under the relevant provisions of Decision No. 17, transport expenses may qualify for input VAT recovery when prescribed conditions are satisfied.
These include requirements relating to the purpose of the journey, restrictions on personal use and the absence of a cash alternative.
For example, a manufacturing business may arrange transportation for employees between their accommodation and the factory.
The employer should maintain supporting records showing the business arrangement and verify that all applicable conditions are met.
A company should not assume that providing a monthly transport allowance is equivalent to providing qualifying transportation services.
The VAT treatment of an allowance and an employer-provided transport arrangement can differ.
Employee accommodation is a significant expense for businesses operating in construction, industrial services, logistics and other labour-intensive industries.
However, the VAT treatment depends on the specific circumstances.
Decision No. 17 includes conditions for accommodation provided for operational reasons rather than as ordinary remuneration.
Relevant considerations include:
Whether the employee needs to live near a workplace or project site
Whether the employee can choose a cash allowance instead
Whether the accommodation is suitable for operational needs
Whether the accommodation is used for the permitted purposes
Whether the prescribed requirements concerning personal and family use are satisfied
For example, accommodation arranged for workers at a remote project site may require a different VAT assessment from a residential allowance provided as part of an executive's compensation package.
Businesses should review employment contracts, accommodation agreements and the applicable conditions before claiming VAT.
The new decision also addresses qualifying temporary accommodation provided to new employees.
This can be particularly relevant when businesses recruit employees from overseas and arrange short-term accommodation during onboarding.
Under the decision, the relevant temporary accommodation period must not exceed 30 days, and the accommodation must satisfy the prescribed suitability conditions.
For example, a company hiring an overseas engineer might arrange temporary accommodation while the employee completes relocation formalities.
The business should document the employee's arrival, accommodation period and purpose of the arrangement.
Providing accommodation for more than the permitted period does not automatically qualify under this particular category.
The correct tax treatment must be assessed based on the actual circumstances.
Many companies pay for employee phone connections, mobile data and internet access.
These expenses have become increasingly relevant as employees work remotely, communicate with customers and access business systems outside the office.
However, VAT recovery requires more than showing that the invoice was paid by the employer.
The decision introduces conditions relating to business necessity, restrictions on substantial personal use, written policies and monitoring.
A company should establish a clear communication-expense policy explaining:
Which employees qualify for employer-provided connectivity
Why the connection is required for their job
What personal use is permitted
How usage is monitored
How policy violations are handled
For example, a sales manager using an employer-provided mobile connection to communicate with customers may have a genuine business requirement.
However, the company should maintain appropriate supporting evidence instead of assuming that every mobile expense is automatically recoverable.
Providing meals to employees is common in certain industries.
Factories, remote worksites and specialised operations may provide food where alternative facilities are unavailable.
The new decision contains specific conditions for food and beverages provided to employees.
These include requirements relating to remote or isolated locations, the absence of suitable food-preparation or restaurant facilities and the lack of a cash alternative.
This is an important distinction.
Ordinary office refreshments, restaurant meals and general employee entertainment do not automatically qualify under this category.
Businesses should consider the actual location, purpose and circumstances of the food supplied.
The applicable VAT treatment must be determined separately from the company's normal accounting classification.
Employee parking costs are another area that may create uncertainty.
Businesses sometimes reimburse employees for parking while travelling to customer meetings, visiting project sites or performing other work duties.
Decision No. 17 includes conditions for certain parking expenses connected with business activities.
These include maintaining an appropriate reimbursement policy, approval procedures and supporting receipts showing the relevant transaction details.
For example, an employee visiting three customer locations may incur parking charges during approved business travel.
The employer should retain documentation supporting the business purpose and reimbursement.
General parking provided for personal commuting should not automatically be treated in the same way.
A frequent mistake is assuming that every employee-related expense is recoverable because it appears in the company's profit and loss statement.
Accounting treatment and VAT recovery are different questions.
Other common mistakes include:
Claiming input VAT without reviewing the relevant conditions
Maintaining incomplete employee benefit policies
Failing to distinguish business and personal use
Providing cash alternatives without assessing the VAT implications
Accepting insufficient invoices or receipts
Applying the same VAT treatment to different benefit arrangements
Failing to review employment contracts after regulatory changes
Employers should also consider whether a benefit is provided free of charge or involves a salary deduction, because this can affect the applicable VAT treatment.
The most practical approach is to conduct an employee-expense VAT review.
Start by identifying the benefit categories currently provided by the company.
Compare each category against the relevant legal conditions. Review employment agreements and company policies, and verify that invoices and supporting records are available.
Finance teams should then classify expenses according to their VAT treatment and establish a consistent approval process.
Where the treatment is uncertain, professional advice can help prevent unsupported claims.
Young & Right Accounting & Tax Consultancy helps UAE businesses manage VAT compliance, accounting and financial reporting.
Our team can assist with reviewing employee expenses, reconciling input VAT claims, identifying documentation gaps and supporting changes to accounting procedures.
An employee-benefits review may help businesses identify both potentially recoverable VAT and claims that require further investigation.
The October 2026 changes make it important for employers to review how they recover VAT on selected employee benefits.
Recovery depends on satisfying the applicable legal conditions, not simply on whether the business incurred the cost.
The right expense policy, supporting records and VAT review process can help businesses make more reliable input tax claims.
Contact Young & Right for professional VAT advisory and compliance assistance in the UAE.
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