- November 29, 2022
- Posted by: Shuraa Tax Consultant
- Categories: Dubai Tax System, UAE Taxation, VAT - Value Added Tax in UAE
The UAE’s taxation system is one of the most favourable tax systems in the world. In fact, it levies no federal income tax – a fact that may come as a surprise to you. This is also one of the significant reasons that draw hundreds and thousands of expats to this region.
However, all businesses in the UAE must levy VAT (Value Added Tax) on all taxable goods. The good part is that the VAT paid on purchases of products and services used for business activities in the UAE can be recovered by registered companies. Unfortunately, this is not for all services. VAT on some special services expenses cannot be recovered by the companies. For instance, entertainment service expenses.
This blog will walk you through all you need to know about the non-recoverable tax on entertainment services in the UAE.
What Is the Definition of Entertainment Services?
According to Article 53(2) of the Executive Regulations, “entertainment services” are “hospitality of any kind,” which includes:
- Food and beverages not typically given at business meetings
- Access to performance shows or events
- Travel arrangements made for amusement or pleasure
However, the legislation cannot classify the service as an entertainment service if a travel agency or transportation service operator provides meals or lodging to its clients in the event of unavoidable delays.
When Can You Not Recover the Input VAT on Entertainment Services?
VAT on Entertainment services offered to the following individuals cannot be recovered by non-Govt registrant:
- Customers and potential customers
- Investors and shareholders
When Can VAT on Entertainment Services Offered to Employees Be Recovered?
Entertainment services can be recovered in the following situations –
- When an employee receives any products or services free of cost that are required to be given by a taxable person / Company under a designated zone regulation or UAE labour law.
- Products and services provided under any contractual obligation or employment policy for the roles played by the employees
- The given items or services are regarded as deemed supplies under UAE VAT rules.
For instance, providing hotel accommodation in UK an employee while he/she has been assigned office work to be performed inside UK.
Food and beverages served in the workplace. These are regarded as entertainment services that are offered at regular meetings; hence the VAT is recoverable.
However, the taxable entity will not be reimbursed for taxes paid on events such as Iftar parties given to staff members and employees, goodbye celebrations, staff birthday parties, music festivals, gala dinners, birthday parties, wedding parties, etc.
When Can VAT on Catering Expenses for Conferences and Business Events Be Recovered?
If attendees pay a fee that includes VAT for the food service given at a conference or business event, the input VAT can be reclaimed by the taxable entity. However, the input VAT cannot be recovered if no attendees pay a fee.
Some other expenses for which the VAT may be reclaimed include:
- Decoration costs of flowers at the welcome desk of office and during business events
- Snacks, chocolates and refreshments served during business meetings
- Tea and coffee offered in the workplace, etc.
When Can VAT on Gifts To Employees Be Recovered?
The VAT on gifts, such as Eid gifts, employees of the month rewards or gifts, gifts given on a special occasion, and gifts given to a retiring employee, etc., won’t be recoverable if they are of an entertainment character. However, if the Company reports such supplies as deemed supply to FTA along with the output VAT, then in this case corresponding input VAT can be reclaimed.
Partner With Shuraa
Shuraa Tax Consultancy is a forerunner in UAE taxes and can help you correctly identify the chances of recovering your VAT on entertainment services. Furthermore, we will help you file your VAT returns on time to avoid legal trouble. Our in-house tax-registered tax agents are well-equipped and proficient to assist you in all necessary ways. All you need to do is get in touch with us on firstname.lastname@example.org or call us on +971508912062.