Conditions for input VAT recovery on employee expenses

The Federal Tax Authority (FTA) has issued Decision No. 17 of 2026, setting out the cases and conditions for recovering input VAT on certain goods and services provided to employees free of charge under a contractual obligation or documented policy. The Decision applies for the purposes of Article 53(1)(c)(2) of the UAE VAT Executive Regulation and is effective from 1 October 2026.

The Decision covers six categories of employee expenses provided free of charge. Businesses should assess each arrangement against the relevant conditions, as a contractual obligation or documented policy alone no longer establishes eligibility for recovery. It is also important to note that any salary deduction will constitute a taxable supply, and the related scenarios will fall outside the scope of this decision.

All conditions applicable to the relevant category must be satisfied. The Decision does not provide a general entitlement to recover VAT on all employee benefits, and the wider input VAT recovery requirements continue to apply.

KPMG’s team of experienced tax specialists can support businesses in assessing the impact of the Decision on input VAT recovery, reviewing employee benefit arrangements and related policies, and identifying necessary changes to compliance processes and supporting documentation. We can also assist with preparing clarification requests and representing businesses before the FTA through our registered tax agents.

We would be pleased to discuss how the Decision may affect your business and help determine the appropriate next steps. Please contact your usual KPMG representative or any of the tax professionals listed below.