There are two parts to this question, the first being recoverability. The company would be entitled to recover in the input VAT incurred on providing transportation to its employees as part of the employee package/policy provided the company does not recover any charges from the employees for such transportation services. Where no charge is levied from the employees in the form of deduction from salary or in lieu of transport/travel allowance as per the employee package, then input incurred can be recovered. However where a charge is levied in a form as mentioned above, the company would be construed as carrying on exempt supply of local passenger transport hence recovery of any input on the costs would be disallowed. Secondly, the transport provider you have engaged will be considered as providing local passenger transport services as per Article 45 of ER where contractually they are providing transportation services and not just lease of vehicle used for transport. In such a case your service provider should not be charging VAT on their invoice as they are providing an exempt supply. You need to raise this with the service provider as to why VAT is being charged by them.

The VAT shall be recoverable only if the company is able to substantiate it has a legal obligation (apart from contractual) or if it necessary to provide the normal course of business. There is little clarity on this aspect and thus detailed analysis may be required or approaching the FTA. The non-cash component is also required to be analyzed as different tax authorities have treated such component different from normal cash allowance which are part of the salary.