As we explained in our earlier alert, following the amendment to Article 53(1)(c)(2) of the VAT Executive Regulation, an employment contract or documented company policy providing for employee benefits is not sufficient on its own to support input VAT recovery. The expense must also meet the cases and conditions specified by the FTA.
FTA Decision No. 17 of 2026 now sets out those conditions for six categories of employee expenses. It takes effect on 1 October 2026.
Expense | Key conditions for recovery |
Employee transport | Transport must be between the employee’s residence and workplace, to a client’s premises, or for another purpose directly related to job duties. It must not be used for personal benefit, and the employee must have no option to receive cash or other compensation instead. |
Food and beverages | The employee must live in a remote, distant or isolated area. There must be no suitable food preparation facilities or easily accessible food outlets near their residence or workplace. The provision must be linked to the period of work or required residence, with no cash alternative. |
Employee accommodation | The accommodation must be required by the work, rather than provided as ordinary pay or a benefit, and the employee must have no cash alternative. The job must require residence near the workplace, work site or client. The accommodation must be for the employee alone and limited to basic needs, without significant personal or recreational features. Family residence or other personal use is permitted only where the employee must live there permanently and it is their usual residence. |
Temporary accommodation for new employees | The accommodation must be provided for no more than 30 days and be proportionate to job requirements and basic residential needs. |
Phones, airtime, data and home internet | These must be necessary for job duties. Personal use must be incidental and insignificant. The employer must have a documented use policy, reasonable monitoring measures, and records supporting any unauthorised use. |
Employee parking fees | The fees must be incurred solely for business purposes and relate directly to job duties or business visits. A documented reimbursement and approval policy, together with payment records showing the date, time, amount and tax, is required. |
What should businesses do? The Decision applies from 1 October 2026, so employers should act now to avoid claiming input tax that may be denied on audit. In particular, they should:
Map existing benefits to the six categories. Check each benefit against the relevant conditions. Pay particular attention to benefits that fall outside these categories, because the Decision doesn’t set conditions for them.
Remove cash alternatives where recovery is intended on expenses incurred towards employeetransportation, food and accommodation.
Document the operational need. Keep records showing why the benefit is required for the role, for example a remote work location, residence near a site or client, or duties that need a phone or data plan.
Put the required policies and controls in place. This includes a phone and internet use policy with reasonable monitoring, and a parking reimbursement and approval policy.
Keep supporting records. These include parking payment records (date, time, amount and tax), records of any unauthorised device use, and move-in and move-out dates to show temporary accommodation stays within 30 days.
Update and model input tax review processes to block input tax on employee expenses that don’t meet the conditions.
Businesses should also factor in the cost of any VAT that can no longer be recovered, and consider whether some benefits should be restructured.
Copy of the decision can be found here.
