From 1 October 2026, accommodation an employer provides to employees is excluded from recoverable input tax unless providing that accommodation is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation. The change comes from Cabinet Decision No. 149 of 2026, which clarifies the employee accommodation position in the Executive Regulation.
For a construction company housing 400 workers under labour accommodation requirements, this is good news written down. For a company renting an apartment for a senior hire, it is the opposite. Most businesses sit somewhere between the two, with no clear record of which units belong in which bucket.
The rule in one line
Employer-provided accommodation is outside recoverable input tax, except where MOHRE decisions or directives make providing it mandatory.
That is a legal obligation test, not a commercial necessity test. “We had to house them because nobody would take the job otherwise” is a business reality, not a MOHRE directive. The question is whether a decision or directive requires you to provide the accommodation.
The distinction that matters is not how essential the housing is to you. It is whether providing it is mandated. Two companies can house the same workers for the same reasons and land on opposite sides of this line, depending on the category of employment and the applicable requirements.
Which side is your accommodation on?
| Typical arrangement | Likely position | What decides it |
|---|---|---|
| Labour accommodation for site workers, provided under MOHRE requirements | Likely within the exception | The applicable MOHRE decision or directive and your evidence of it |
| Company-provided villa or apartment for a manager or director | Likely outside — a benefit | No mandate; provided as part of a package |
| Housing allowance paid in salary | Different question entirely | Not a supply of accommodation by you at all — the employee contracts directly |
| Mixed labour camp also housing supervisors and admin staff | Needs splitting | Which occupants fall within the mandate and which do not |
| Accommodation charged to the employee at cost or deducted from salary | Take advice | Whether there is a supply for consideration, which changes the analysis |
The fourth row is where most of the work is. A single labour camp is usually treated as one cost line in the accounts, and it frequently houses people in more than one category. If the recovery position differs by occupant, the cost has to be apportioned on a basis you can defend — and headcount is usually more defensible than floor area, though it depends on the facts.
What the file needs to contain
Whichever side you land on, the position has to be evidenced at the time, not asserted afterwards. For accommodation you treat as within the exception, we would expect to see:
- The MOHRE decision or directive being relied on, identified specifically rather than referred to in general terms.
- Evidence the requirement applies to your workforce — contract category, employment type, the nature of the work.
- An occupancy record tying units to employees, so a mixed facility can be apportioned.
- The tenancy or supply documents and the tax invoices supporting the input tax claimed.
- A short written basis for the treatment, dated, from before the return was filed.
That last item is the one businesses skip and then wish they had. A one-page note explaining the reasoning is worth more in a review than a folder of leases with no analysis attached. Keep it with your other tax records.
The related costs people forget
Accommodation rarely arrives as a single invoice. Around it sit utilities, maintenance, cleaning, security, furniture, transport to site and catering. Those follow the treatment of what they relate to, so if the accommodation itself is outside recovery, the input tax on the associated costs generally goes with it.
Practically, that means the coding matters. If maintenance on labour accommodation and maintenance on the office both post to one repairs account, the VAT treatment cannot be derived from the ledger. Splitting the account codes before October is a small change that saves an unpleasant reconstruction later — and it is the same discipline that keeps a chart of accounts useful for tax rather than just for reporting.
How this sits with the rest of your VAT position
Three connections worth drawing.
It is not the same as blocked input tax. The UAE already denies recovery on certain entertainment and motor vehicle costs. Employee accommodation now has its own carve-out with its own test, so do not simply fold it into your existing blocked input VAT analysis without checking the reasoning.
Apportionment may be affected. If you make exempt supplies as well as taxable ones, non-recoverable accommodation costs interact with your residual input tax calculation — and the apportionment method itself changes for tax years starting after 1 October 2027.
Payroll and VAT now share a fact pattern. Whether accommodation is provided in kind or paid as an allowance changes both the VAT answer and the payroll and WPS treatment. Those two decisions are usually made by different people who do not speak to each other, which is how businesses end up with a payroll structure that quietly costs them recoverable tax.
What to do before 1 October
- List every accommodation cost you incur, with the annual VAT on each.
- Classify each one as MOHRE-mandated, discretionary benefit, or needs-splitting.
- Find the mandate for anything in the first category and save it to the file with the specific reference.
- Build the occupancy split for anything mixed, and write down the apportionment basis you have chosen and why.
- Separate the ledger codes so accommodation and its related costs can be identified without a manual trawl.
- Write the position note and date it before your next return.
If your accommodation spend is material and the classification is genuinely unclear, that is a reasonable thing to take advice on rather than guess — the annual VAT on a large labour camp is not a rounding error, and a VAT health check will catch the adjacent costs at the same time.
Where we would push back on ourselves
The amendment clarifies the treatment, but “mandatory under decisions or directives issued by MOHRE” will need working through against specific facts, and reasonable advisers may read the boundary differently for particular employment categories.
If your position is finely balanced, say so in the file, state the basis you adopted, and keep the alternative reasoning on record. A documented, considered position that later turns out to be wrong is a very different conversation from a claim nobody can explain.
Frequently asked questions
From 1 October 2026, employer-provided accommodation is excluded from recoverable input tax unless providing it is mandatory under decisions or directives issued by the Ministry of Human Resources and Emiratisation.
It may, where the applicable MOHRE decision or directive makes providing the accommodation mandatory for that workforce. The exception turns on the legal obligation, so the file needs to identify the specific requirement rather than describe the housing as necessary in general terms.
Accommodation provided as part of a remuneration package, with no MOHRE mandate behind it, sits outside the exception and the input tax is not recoverable.
Apportion it. Build an occupancy record tying units or beds to employees, decide whether each occupant falls within the mandate, and apply a basis you can defend. Headcount is usually easier to support than floor area, but it depends on the facts.
Generally yes - costs associated with accommodation follow the treatment of the accommodation they relate to. The practical difficulty is that these usually post to shared ledger accounts, so separate the codes before you need the analysis.
No, because you are not supplying accommodation at all. The employee contracts directly and there is no input tax in your hands on the accommodation. That said, the choice between allowance and in-kind provision now has a VAT consequence as well as a payroll one.
1 October 2026, under Cabinet Decision No. 149 of 2026. Periods before that date are governed by the previous position.
The specific MOHRE decision or directive relied on, evidence that it applies to your workforce, an occupancy record for mixed facilities, the tenancy documents and tax invoices, and a dated written note of the basis for your treatment prepared before the return was filed.
Housing staff and unsure what you can recover?
Send us your accommodation costs and employment categories. We will classify them, document the basis and tell you what is at stake.
