According to UAE VAT law, most taxes paid on goods and services are recoverable, but there are specific services where VAT is non-recoverable. As per Article 53 of the VAT Executive Regulations, VAT on entertainment or hospitality services, accommodation services, food and drinks not provided in the normal course of a meeting, and access to shows, events, or trips for amusement or entertainment is non-recoverable. This blog delves into the conditions for non-recoverable VAT on entertainment services and the exceptions.
Non-Recoverable VAT on Entertainment Services for Non-Employees
A taxable person cannot recover input tax on entertainment or hospitality services provided to non-employees, such as customers, officials, investors, shareholders, owners, or potential customers.
Can VAT Be Recovered for Entertainment Services Provided to Employees?
Generally, when a taxable person purchases goods or services to provide them for free as a reward or organizes events or activities for employees, the input tax is non-recoverable. However, there are exceptions:
- Legal Obligation: When goods or services are provided to employees under any labor law applicable in the UAE or designated zone.
- Contractual Obligation: When goods or services are provided under a contractual obligation or employment policy in exchange for the roles performed by employees.
- Deemed Supply: When goods or services provided are considered deemed supply under UAE VAT law.
Examples of Recoverable VAT Situations:
- Hotel Arrangements: VAT can be recovered on hotel arrangements for a new employee for a short period until they find accommodation.
- Meeting Refreshments: VAT can be recovered on normal lunch, food, and refreshments provided in meetings and the office.
Examples of Non-Recoverable VAT Situations:
- Social Events: VAT incurred on events such as Iftar parties, farewell parties, staff birthday parties, music events, and gala dinners is non-recoverable.
VAT on Catering Expenses for Conferences and Business Events
VAT on catering services provided during a conference or business event can be recovered if attendees are charged a fee inclusive of VAT. If no fees are charged, the input VAT is non-recoverable.
Miscellaneous Expenses with Recoverable VAT
Expenses such as decorations (e.g., flowers in reception and during events), snacks and refreshments during meetings, and tea or coffee provided in the office can have recoverable VAT.
VAT on Gifts of an Entertainment Nature
Gifts valued at more than AED 500 per employee for 12 months are considered a deemed supply under UAE VAT and are taxable. If the value is less than AED 500, it is not deemed supply and is not taxable. However, VAT on gifts of an entertainment nature (e.g., Eid gifts, employee of the month awards, festive occasion gifts, retirement presents) is non-recoverable.
How Unicorn Global Solutions Can Assist
Unicorn Global Solutions, with its team of Accountants and qualified professionals, provides extensive services in a personalized manner. We offer a variety of accounting services in Dubai tailored to meet client needs efficiently. Additionally, we act as advisors and consultants on VAT-related matters.
For more information on how Unicorn Global Solutions can support your business, contact us now. Text us on WhatsApp or call us today.
