Is staff accommodation rented by a company subject to VAT?

Article 53 – Non-recoverable Input Tax 33 1. Input Tax shall be non-recoverable if it is incurred by a Person in the following cases: a. Where the Person is not a Government Entity as specified in a Cabinet Decision in accordance with Article 10 and 57 of the Decree-Law, and there is provision of entertainment services to anyone not employed by the Person, including customers, potential customers, officials, or shareholder or other owners or investors. b. Where motor vehicles were purchased, rented or leased for use in the Business and are available for personal use by any Person. c. Where Goods or Services were purchased to be used by employees for no charge to them and for their personal benefit including the provision of entertainment services, except in the following cases: 1) Where the provision of those Goods or Services to the employees is mandatory under the applicable labour legislation in the State or any free zone, including financial and non-financial free zones, provided that this does not include the accommodation provided by the employer to its employees, unless the provision of such accommodation is mandatory pursuant to the decisions or directives issued by the Ministry of Human Resources and Emiratisation.34 2) Where it is a contractual obligation or documented policy to provide those Goods or Services to the employees, in accordance with the cases and 33 Article amended as per Cabinet Decision No. 100 of 2024. 34 Sub-clause amended as per Cabinet Decision No. 149 of 2026. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 42 conditions specified by the Authority.35 3) Without prejudice to Clause 1 of this paragraph, where the Taxable Person provides health insurance, including enhanced health insurance, to its employees and their family members (as applicable) up to a husband or one wife, and three children younger than eighteen years. 4) Where the provision of goods or services is a deemed supply under the provisions of the Decree-Law. 2. For the purposes of this Article: a. The phrase “entertainment services” shall mean hospitality of any kind, including the provision of accommodation, food and drinks which are not provided in a normal course of a meeting, access to shows or events, or trips provided for the purposes of pleasure or entertainment. b. The phrase “motor vehicle” shall mean a road vehicle which is designed or adapted for the conveyance of no more than 10 (ten) people including the driver. A motor vehicle shall exclude a truck, forklift, hoist or other similar vehicle. 3. Provision of catering and accommodation services shall not be treated as entertainment services where it is provided by a transportation service operator, such as an airline, to passengers who have been delayed. 4. A motor vehicle shall not be treated as being available for private use if it is within any of the following categories: a. a taxi licensed by the competent authority within the State; b. a motor vehicle registered as, and used for purposes of an emergency vehicle, including by police, fire, ambulance, or similar emergency service; c. a vehicle which is used in a vehicle rental business where it is rented to a customer.

3.5. Are Labour camps residential buildings? Labour camps are generally areas where labourers are housed by their employers. They can take many different forms and some may provide residents with additional services on top of the living accommodation. It is therefore necessary to consider on a case by case basis whether a labour camp meets the definition of a residential building. A labour camp will be considered to comprise of lodgings which are to be treated as residential buildings where: • • • • 3.6. The building or lodging is occupied by the employee as their principal place of residence. This means that the building should be the place where that individual usually lives. A person can only have one principal place of residence, although they may share that principal place of residence with other people; It is a building which is fixed to the ground and which cannot be moved without being damaged; The building has been constructed or converted with lawful authority; and It is not a building which is similar to a hotel, motel, bed & breakfast establishment, or serviced apartment for which services in addition to the supply of accommodation are provided. Supply of accommodation in labour camps Where an employer houses its staff in a labour camp which qualifies as residential accommodation, or any other type of residential accommodation, the employer must determine whether it is making an exempt supply of the residential building to its staff. Where the employer charges the employee a form of consideration in exchange for the residential accommodation, this shall be treated as a supply for VAT purposes. The consideration received will either be zero-rated (in respect of the first supply of a residential building) or exempt from VAT. Consideration may be received from an employee in a number of ways, including but not limited to: • • • A direct charge made to the employee for the accommodation; A deduction from the employee’s salary in respect of the accommodation; and Provision of accommodation in lieu of the payment of a housing allowance to the employee. Any costs which directly relate to the provision of that residential accommodation to the employee, for example agent’s fees, shall normally be treated as relating to an exempt supply and shall not be recoverable. Where the employer does not make a charge to the employee for the provision of residential accommodation, it is not making a supply for VAT purposes. In such cases, any VAT incurred on costs relating to the provision of the residential accommodation may be recovered as a general overhead cost of the business. This shall include VAT incurred on costs such as utilities which service the residential accommodation, which 9 VAT Guide | Real Estate | VATGRE1

The type of entertainment expenses which are covered by the restriction include hospitality (e.g. accommodation, food and drinks) which are not provided in the normal course of a meeting, access to shows or events, or trips provided for the purposes of pleasure or entertainment. This means that where a business incurs any such expenses, the business will not be able to recover VAT incurred on the expenses. 10.6.2. Motor vehicles Typically, a taxable person is able to recover VAT incurred on the purchase, lease or rental of a motor vehicle which is used for their business activities and which give right to input tax recovery. However, where the motor vehicle is available for the personal use of any person, the taxable person will lose the right to recover the VAT incurred. For the purpose of this rule, the “motor vehicle” is any road vehicle which is designed or adapted for the conveyance of no more than 10 people, including the driver. “Motor vehicle” does not include a truck, forklift, hoist or other similar vehicles. This ensures that VAT on essentially commercial vehicles is not blocked due to incidental private use. A motor vehicle will not be treated as being available for private use if it is within any of the following categories:    a taxi licensed by a competent authority; a motor vehicle registered as, and used as an emergency vehicle, including by the police, fire brigade, paramedics, or similar emergency services; and a vehicle which is used in a vehicle rental business where it is rented to a customer. 10.6.3. Employee-related expenses The third category of expenses which do not give rise to VAT recovery are certain expenses incurred by a business for the purposes of their employees. VAT on employee-related expenses will not be recoverable by the business where goods or services are purchased to be used by employees for no charge to them and for their personal benefit. There are, however, certain exceptions from the above rule. Thus, the rule will not apply in the following situations: 1. Where the employer has a legal obligation to provide those goods or services to the employees under any applicable UAE labour law. 2. Where it is a contractual obligation or documented policy of the employer to provide those goods or services to employees to enable them to perform their role and where it can be proven to be normal business practice to do so in the course of employment. 40 VAT Guide | Taxable Person | VATG001

institution will need to consider whether the VAT incurred on costs is recoverable. VAT incurred by the educational institution will only be recoverable in the following instances:30 • • • the accommodation was provided under a legal obligation as per the labour laws in the UAE or Designated Zone, the educational institution can demonstrate the following: o there is a contractual obligation or documented policy to provide staff accommodation, o it can be proven to be normal business practice in the course of employing those people, and o the staff accommodation is necessary for the employees to perform their roles. the supply of the Goods or Services is a Deemed Supply. 30 Article 53(1)(c) of the VAT Executive Regulation. VAT Guide | Education | VATGED1 25