New VAT rules are coming to the UAE that will change how companies handle tax on staff housing and employee benefits. These rules start on October 1, 2026. The UAE Ministry of Finance announced these new VAT regulations to change input tax recovery on staff housing. Cabinet Decision No. 149 of 2026 was issued on September 8, 2026. These amendments bring stricter tax rules for businesses. Affected sectors include construction, contracting, hospitality, logistics, oil and gas, and facility management.
- New VAT regulations take effect on October 1, 2026.
- Stricter rules apply to staff housing and employee benefits.
- New limits are set for large cash payments to stop tax evasion.
The main change is about input tax recovery eligibility.
Employers cannot claim input tax recovery on company-provided housing unless the accommodation is required by specific directives from the Ministry of Human Resources and Emiratisation. The new rules also set fresh limits on input tax recovery for large cash payments. The Minister of Finance will decide the specific spending limits to stop tax evasion. VAT recovery on employee benefits now needs proof. These benefits must be in an employment contract or a written company policy. They must also follow conditions set by the Federal Tax Authority.
These changes will affect many people.
About 1.5 million workers in the UAE live in labor accommodation according to Ministry of Human Resources and Emiratisation figures. In the past, many companies reclaimed the 5 percent VAT paid on these housing costs. Now, companies may face higher costs. This could lead to higher service charges for labor camps, fewer free housing provisions, or tighter profit margins for smaller contractors and subcontractors. Workers who earn less than AED 1,500 must get mandatory housing by law, so they are expected to stay protected. Mid-level staff housing is still a point of concern.
The Federal Tax Authority will check these tax recovery claims very closely with audits.
Companies should review their employment policies, payment processes, and VAT positioning right now. Experts advise employees to check if their housing is required by the Ministry of Human Resources and Emiratisation. Employees must make sure their housing benefits are written clearly in their employment contracts. Companies and workers should also switch from cash salary payments to bank transfers to keep proper records.
