Introduction
On 09 September 2026, the Federal Tax Authority (“FTA“) issued Decision No. 17 of 2026 on the Cases and Conditions for the Recovery of Input Tax on Employee Expenses (the “Decision“). The Decision took effect on 01 October 2026.
The Decision follows Cabinet Decision No. 149 of 2026 Amending Certain Provisions of Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value-Added Tax (the “Cabinet Decision“), issued on 01 September 2026. The Cabinet Decision amended the wording of Article 53(1)(c)(2) of the Executive Regulation, introducing a new delegation of authority to the FTA to specify the cases and conditions under which input tax on employee expenses may be recovered in limited circumstances. The FTA issued the Decision shortly thereafter, exercising this delegated authority to set out the specific cases and conditions that taxpayers must satisfy to recover such input tax.
Article 53(1)(c) of Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value-Added Tax, and its amendments (the “Executive Regulation“), provides that input tax is generally non-recoverable where goods or services are purchased to be used by employees for no charge to them and for their personal benefit, except in certain cases. One of these cases, under Article 53(1)(c)(2), is where there is a contractual obligation or documented policy to provide those goods or services to employees, in accordance with the cases and conditions specified by the FTA. The Decision prescribes those cases and conditions.
This article outlines the key provisions of the Decision.
Scope of Application
The Decision applies to Taxable Persons when recovering or deducting input tax incurred on the purchase of goods or services to be used by employees for no charge to them, where there is a contractual obligation or documented policy to provide such goods or services to those employees.
Cases and Conditions for Recovery
The Decision identifies six cases in which input tax may be recovered on such employee expenses. Each case is subject to specific conditions, all of which must be satisfied for recovery to apply.
- Employee Transportation Expenses
Input tax on employee transport may generally be recovered where the service is provided only between the employee’s residence and the workplace, to clients’ premises, or for any other purpose directly related to the performance of their duties. The service must not be used for the employee’s personal benefit, and the employee must not be able to opt for a cash allowance or any financial compensation in its place.
- Food and Beverages for Employees
Input tax on food and beverages provided to employees may generally be recovered where the employee’s place of residence is in a remote, distant, or isolated area, with no appropriate food preparation facilities at the residence or workplace, as the case may be, and no nearby restaurants or similar facilities. The provision must also be directly linked to the work period or a job-required period of residence, and the employee must not be able to opt for a cash allowance instead.
- Employee Accommodation
Input tax on employee accommodation may generally be recovered where the work requires the employee to reside near the workplace, work site or client’s location, and the accommodation meets operational requirements rather than forming part of the employee’s benefits or ordinary compensation. The accommodation must be for the employee’s exclusive use, without family members or other personal use, unless the employee must reside permanently near the workplace. It must also be commensurate with the job requirements and basic residency needs, without significant recreational or personal elements, and the employee must not be able to opt for a cash allowance or financial compensation instead.
- Accommodation for New Employees
Input tax on accommodation provided to new employees may generally be recovered where the accommodation is provided on a temporary basis for no longer than 30 days. The accommodation must also be commensurate with the job requirements and basic residency needs.
- Mobile Phones, Airtime, Data Packages and Internet Access in Limited Circumstances
Input tax on mobile phones, airtime, data packages and internet access from the place of residence via a modem or router provided to employees may be recovered where these are necessary for the employee to perform their duties, including outside working hours or remotely, and any personal use is incidental and insignificant. The employer must also have a documented internal policy setting out the permitted use and the consequences of unauthorised use, and must demonstrate reasonable monitoring of compliance, keeping records where unauthorised use occurs.
- Parking Fees for Employee Parking Spaces
Input tax on parking fees for spaces allocated to employees may be recovered where the fees are incurred solely for business purposes, such as the performance of job duties or business visits. The employer must also have a documented internal policy setting out when parking fees may be reimbursed and the approval process, and must retain proof of payment, such as receipts showing the date, time, amount and tax paid.
Effective Date
The Decision is to be published in the Official Gazette and came into effect from 01 October 2026.
Practical Considerations and Recommendations for Businesses
Businesses are strongly encouraged to review their employee benefit arrangements against the conditions set out in the Decision. In particular, businesses should ensure that a contractual obligation or documented policy is in place to provide the relevant goods or services to employees, where applicable, and that adequate records and supporting documentation are maintained.
As the Decision applies from 01 October 2026, businesses should make any necessary adjustments promptly to support their input tax recovery positions.
Seek Legal Counsel
Our expertise in tax law and regulations allows us to provide clients with effective and accurate tax advice, taking into consideration their unique circumstances and needs.
Our tax and financial crimes team, led by our Head of Tax and Financial Crimes, Mohamed El Baghdady, has successfully advised and represented clients across various industries, including, but not limited to, consumer goods and retail, services, real estate, oil & gas and banking and finance, before the Government authorities, tax tribunals and courts. Our clients have been successful in multiple tax disputes before the committees and courts.
For further information, please contact, Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes.
Disclaimer
The content provided in this article is intended for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy and completeness of this information, the article does not offer a guarantee or warranty regarding its content. The matters discussed in this article are subject to interpretation, and legal outcomes may vary based on specific facts and circumstances. We recommend that readers seek individual legal counsel before making any decisions based on the information provided. If you require specific legal advice, please contact us directly.
