Understanding Per Diem Rates and Their Application

When employees travel for work, finance teams face a recurring challenge: how to cover meals, accommodation, and incidental costs without drowning in receipts. One solution widely used across the world is per diem—a fixed daily allowance that replaces the need for line-by-line reimbursements.

The term per diem also appears in other contexts, such as logistics fees (daily container charges) or staffing arrangements (per-day workers). In this article, however, we focus on its meaning in corporate travel—a daily allowance that streamlines expense management.

For global organisations, agencies such as the U.S. General Services Administration (GSA) and the State Department publish standard travel rates. In the UAE, however, no statutory per diem exists. Each employer defines its own rates, which makes policy design critical for cost control, compliance, and employee satisfaction.

Here, we explain what per diem means in corporate travel, how companies calculate the average per diem per day, why UAE finance teams need to set their own allowance structures, and the advantages and risks of adopting per diem compared with reimbursing actuals.

Key Takeaways

• No statutory rates in the UAE: Companies must set their own per diem allowances, often referencing global benchmarks.
• Average per diem per day depends on destination tiers, policy scope (M&IE vs lodging), and proration for first/last travel days.
• Advantages include predictable budgeting and simplified audits; trade-offs include over/under-compensation risks.
• A defensible policy requires clear inclusions/exclusions, destination tiers, proration rules, and FX handling.
• Controls matter: Real-time monitoring, card restrictions, and digital reconciliation keep per diem honest and audit-ready.

Per Diem Meaning in Corporate Travel

The phrase per diem comes from Latin and translates to “per day.” In the business travel context, it refers to a fixed daily allowance that employers provide to employees when they travel on company business. Rather than reimbursing every individual receipt for meals, taxis, or hotel nights, the company pays a pre-set amount per day that is intended to cover the essentials of travel.

Most policies define per diem around three categories:

1. Lodging – hotel or accommodation charges
2. Meals – the cost of breakfast, lunch, and dinner
3. Incidentals – small, miscellaneous outlays such as laundry, tips, or local transport

Some organisations provide a consolidated daily rate covering all three, while others separate M&IE (meals and incidentals) from lodging. The choice usually depends on whether the employer wants tighter control over accommodation spend or more flexibility for travellers.

Also read: Travel Expense Management Guide

How Per Diem Rates Work

Although the concept of per diem is straightforward, the way it is calculated and applied varies across organisations and geographies.

Components of the Rate

Per diem can be structured as:

1. Combined rate: One daily figure covering lodging, meals, and incidentals.
2. Split rate: Lodging reimbursed at actual invoice cost; meals and incidentals provided as a daily allowance.
3. M&IE-only rate: Lodging is paid directly by the company or booked centrally, and employees receive a daily rate for meals and incidentals.

Location-Based Variations

Travel costs differ widely depending on the city or region. High-cost cities (Dubai, London, New York) often justify higher per diem allowances, while lower-cost destinations may be assigned a standard base rate.

• Benchmarking practices: Global firms often reference the U.S. GSA tables or U.S. State Department foreign per diem rates when setting internal policies, even if not legally binding for UAE employers.

Seasonal Adjustments

In some countries, rates vary by season. For instance, accommodation in tourist hubs may cost more during peak months, leading companies to apply adjusted allowances for those periods.

First and Last Travel Days

Best practice is to prorate the allowance for days that are only partly spent travelling. For example, some organisations pay 75% of the daily per diem for first or last travel days, in line with GSA norms.

Average Per Diem per Day

When companies report an “average per diem,” they usually mean the weighted average across all destinations employees travel to. For example, if most trips are domestic within the UAE, the average per diem per day will skew lower than if most trips are to Europe or the U.S.

Also read: Corporate Credit Card Policy Best Practices

Setting an Average Per Diem for Your Organisation

Because the UAE does not issue statutory per diem travel rates, companies must create their own benchmarks. The challenge is to balance employee needs with cost discipline.

1. Benchmark External Sources

Even though they are not binding for UAE businesses, global references provide a useful starting point:

• U.S. GSA tables (for domestic U.S. travel) and U.S. State Department foreign per diem rates are commonly used as benchmarks.
• Travel management firms like Egencia and Concur also publish reports on average corporate travel spend by city.

2. Segment by Destination

Companies often use a tiered model to set rates:

• Tier 1 – High-cost international hubs (e.g., London, New York, Tokyo)
• Tier 2 – Regional business hubs (e.g., Riyadh, Mumbai, Singapore)
• Tier 3 – Domestic/UAE cities (Dubai, Abu Dhabi, Sharjah)

This prevents overpaying for low-cost destinations or underfunding trips to high-cost ones.

3. Decide on Coverage Scope

• Full per diem (lodging + M&IE) works for decentralised organisations that prefer not to book centrally.
• Meals & incidentals only makes sense when hotels are booked and paid directly by the company.
• Hybrid models allow flexibility — e.g., hotels paid directly, but meals covered by per diem.

4. Factor in First/Last Day Adjustments

Providing 75% of the daily rate for partial travel days is standard in global policies. This small adjustment saves costs while aligning with international norms.

5. Calculate the Average Per Diem per Day

Finance teams can calculate the organisation’s “average per diem” by:

1. Summing all per diem disbursed in a period (e.g., one year).
2. Dividing by the total travel days reimbursed.

This produces a single figure for reporting and benchmarking purposes.

Also read: Travel & Entertainment Policy Best Practices

Per Diem Allowance in the UAE

Unlike the United States or Europe, the UAE does not publish government-set per diem tables. Instead, employers define their own allowances through internal travel and expense policies. This creates flexibility, but also places the burden of design, compliance, and fairness squarely on the finance team.

No Statutory Rates

• There are no official daily travel rates mandated by UAE regulators.
• Organisations cannot rely on a government baseline; they must benchmark externally or set rates internally.

Key Policy Considerations for UAE Employers

1. Destination tiers: Distinguish between domestic travel (within the Emirates) and international travel.
2. Proof of travel: Require boarding passes, hotel confirmations, or itinerary approvals before disbursing per diem.
3. First/last day adjustment: Many UAE employers align with international practice of 75% allowances for partial days.
4. Currency and FX handling: For international trips, decide whether to pay per diem in AED or the destination currency. If in AED, establish the exchange-rate mechanism (e.g., Central Bank rate on booking date).
5. Tax treatment: While the UAE has no personal income tax, expatriate staff on overseas assignments may face tax implications in their home jurisdictions if per diem is treated as taxable income. Policies should flag this for employees.

Practical Example

A Dubai-based consulting firm may set:

• AED 900 per day for international Tier 1 cities (London, New York).
• AED 600 per day for Tier 2 regional hubs (Mumbai, Singapore).
• AED 400 per day for domestic travel within the UAE.

This creates clarity for employees while helping finance teams forecast travel budgets accurately.

Also read: Track and Manage Business Expenses

Advantages and Trade-Offs for Finance Teams

Introducing a per diem policy is not simply about convenience. It has real implications for financial control, compliance, and employee experience.

Advantages

1. Predictable Travel Spend
Per diem gives CFOs and finance managers a clear view of maximum daily spend, simplifying budget forecasts for projects or client engagements.

2. Reduced Administrative Work
Instead of auditing every meal receipt, finance teams verify only travel days and per diem rates. This shortens month-end close and reduces disputes.

3. Consistency Across Employees
A standard per diem allowance eliminates arguments over “reasonable expenses.” Employees at different levels or departments operate under the same framework, improving fairness.

4. Faster Employee Reimbursement
Employees don’t wait weeks for expense claims to be processed. Funds can be disbursed in advance, or per diem can be allocated instantly through corporate cards.

Trade-Offs

1. Risk of Overcompensation
In low-cost destinations, the allowance may exceed actual expenses. Without receipts, excess amounts may effectively act as additional compensation.

2. Risk of Underfunding
If rates are too low for high-cost destinations, employees may feel pressured to cover expenses from their own pocket — creating dissatisfaction and compliance risks.

3. Limited Expense Visibility
Per diem policies reduce receipt collection, but this also means less granular data for finance teams analysing spend categories.

4. Tax and Compliance Ambiguity
While the UAE has no personal income tax, expatriates could be taxed abroad if per diem is treated as taxable income in their home countries. This risk is often overlooked.

Also read: Expense Report Filling Guide

Designing a Defensible Per Diem Policy

A well-structured per diem policy protects both the organisation’s finances and the employee’s travel experience. It should be clear, consistent, and defensible during audits or employee disputes.

1. Define the Scope

• Full per diem: One rate covering lodging, meals, and incidentals.
• Meals & incidentals only: Hotels are booked centrally; per diem applies only to food and small out-of-pocket costs.
• Hybrid: Different rules depending on destination or trip type.

2. Establish Destination Tiers

Create rate bands for different geographies:

• Domestic UAE (lower allowance)
• Regional GCC/Asia (medium allowance)
• High-cost international hubs (higher allowance)

This prevents overpaying for nearby trips while keeping allowances realistic abroad.

3. Set Rules for Partial Days

Adopt proration (often 75% of the daily rate) for first and last travel days. This aligns with international norms and avoids overpayment.

4. Clarify Inclusions and Exclusions

Spell out what per diem covers and what it does not:

• Included: meals, tips, laundry, local transport
• Excluded: client entertainment, alcohol, visa fees, major transport (air tickets, long-distance trains, etc.)

5. Determine Payment Method

• Advance disbursement: Funds transferred to employees before travel.
• Corporate cards: Pre-loaded with the allowance, giving finance teams better tracking.
• Post-trip settlement: Less common; can cause dissatisfaction.

6. Document Compliance Expectations

• Require proof of travel (boarding passes, itineraries).
• State currency and FX conversion rules.
• Align per diem disbursement with VAT-compliant invoicing when third-party vendors are involved (e.g., prepaid hotels).

7. Build in Flexibility

• Allow exceptions with CFO approval for unusual destinations or events.
• Revisit rates annually to reflect inflation and market changes.

At Alaan, we help UAE businesses codify these policies directly into spend management systems—linking card controls, approval flows, and reporting—so compliance is automated rather than manually enforced.

Also read: UAE VAT Tax Invoice Format

Controls and Systems That Keep Per Diem Honest

A per diem policy is only as strong as the systems used to enforce it. Without proper oversight, allowances can drift into misuse or create blind spots in financial reporting.

1. Approval Workflows

• Require pre-trip approvals that confirm destination, duration, and applicable per diem tier.
• Use role-based thresholds: for example, a line manager approves short domestic trips, while CFO approval is required for extended international travel.

2. Card and Payment Controls

• Corporate cards preloaded with the allowance give employees flexibility while enabling finance teams to track spend in real time.
• Merchant-category restrictions can block non-travel expenses (e.g., retail shopping, entertainment unrelated to business).

3. Receipt and Itinerary Checks

Even if receipts are not required for meals, companies should still collect proof of travel such as flight bookings, hotel confirmations, or boarding passes. This prevents “phantom trips” where allowances are claimed without actual travel.

4. Real-Time Monitoring

Dashboards should show:

• Total allowances issued by department or project
• Average per diem per day compared against policy
• Variances for high-cost destinations or long-duration assignments

This visibility helps finance teams identify patterns early—such as excessive international allowances concentrated in one business unit.

5. Reconciliation and Audit Trails

• Map disbursed per diem against approved travel dates.
• Keep digital audit logs for compliance reviews, especially for multinationals with cross-border tax exposure.

At Alaan, we embed these controls directly into the expense management platform. From issuing allowances via corporate cards to reconciling trips automatically, finance leaders gain both flexibility for employees and assurance that allowances are compliant.

Also read: Accounts Payable Automation and Invoice Management

Conclusion

Per diem remains one of the most practical tools for managing travel expenses. It gives companies predictability, simplifies reimbursements, and improves employee satisfaction. In the UAE, where no government travel rates exist, the responsibility sits with finance leaders to define allowances, set fair tiers, and enforce them through policy and technology.

Handled well, per diem is not just a cost-control measure but a framework for transparent, efficient travel management. Handled poorly, it can create hidden liabilities, employee dissatisfaction, and audit risk.

At Alaan, we help finance teams turn per diem from a manual burden into a fully automated process. With corporate cards linked to real-time dashboards, AI-powered reconciliation, and policy-based controls, UAE businesses can set fair allowances, enforce compliance, and track spend without the paperwork.

Book a demo with Alaan today to see how leading organisations in the UAE are modernising per diem policies and travel expense management with full visibility and control.

Frequently Asked Questions

1. What does per diem cover?
Per diem usually covers lodging, meals, and incidentals. Some companies provide a single rate, while others separate meals & incidentals (M&IE) from accommodation.

2. How is the average per diem per day calculated?
It’s calculated by dividing the total per diem paid in a given period by the number of travel days. Many companies also use tiered averages by destination.

3. Are there official per diem travel rates in the UAE?
No. Unlike the U.S. or Europe, the UAE does not publish government per diem rates. Employers must set their own allowances.

4. Is per diem taxable?
In the UAE, personal income tax does not apply, so per diem is generally non-taxable. However, expatriates may face tax obligations in their home countries if allowances are treated as income.

5. What is the difference between per diem and reimbursing actual expenses?
Per diem is a fixed daily allowance, which simplifies processes and ensures predictability. Reimbursing actuals provides precision but adds administrative burden.

6. Should per diem be adjusted for first and last travel days?
Yes. Many companies pay 75% of the daily rate for first or last travel days, aligning with international best practice.