UAE VAT Changes for Employee Benefits and Cash Purchases

Cabinet Decision No. 149 of 2026 amends the UAE VAT Executive Regulation, with most changes taking effect on 1 October 2026. The amendments affect how businesses recover VAT on staff costs, cash purchases and certain assets. The Federal Tax Authority (FTA) has also issued FTA Decision No. 17 of 2026, which explains when VAT on employee benefits can still be recovered.

Employee Benefits and Accommodation

VAT on benefits provided free of charge to employees is generally not recoverable unless the business is legally required to provide them, for example under labour law. Under the amended rules, employer-provided accommodation is no longer covered by this exception unless the Ministry of Human Resources and Emiratisation (MoHRE) requires it. Recovery of VAT on other employee benefits now follows the cases and conditions set by the FTA.

Six Cases Where Recovery Is Allowed

FTA Decision No. 17 of 2026 lists six cases in which VAT on employee benefits provided under a contract or documented policy can be recovered, provided the set conditions are met. These are work-related transport, food and drinks at remote or isolated locations, accommodation needed for operations, temporary accommodation for new employees for up to 30 days, mobile phones and internet, and business-related parking. Common conditions include a genuine business purpose, limited personal benefit, no cash allowance alternative and proper records.

Cash Purchases and Other Changes

Input VAT will not be recoverable where payment above a threshold set by the Minister of Finance is made in cash, with the threshold to be announced separately. Other amendments clarify that composite supplies are taxed at the rate of their principal component, introduce a single term for medical products and define a capital asset as a business asset costing AED 5 million or more, excluding VAT. Changes to the input tax apportionment method apply from the first tax year starting after 1 October 2027.

Preparing for the New Rules

Businesses should compare their employee costs with the six permitted cases, update HR and expense policies and avoid large cash payments for business purchases. Keeping tax invoices and supporting documents in order will make VAT returns easier to prepare, particularly for tax periods that include 1 October 2026.