All about Non-Recoverable Tax on Entertainment Services in UAE
According to the VAT law of the UAE, most of the tax paid on the goods and services are recoverable in nature, but there are some special services on which the VAT is non-recoverable. As per Article 53 of the VAT Executive Regulations, VAT is charged on the entertainment or hospitality services along with accommodation services, food and drinks not provided in the normal course of the meeting, and access or entry to shows, events, or trips with the aim of amusement or entertainment will be Non-Recoverable. The definition provided in regulations clearly states the types of services on which the VAT will be non-recoverable. In this blog, we will discuss different conditions that are applicable for non-recoverable VAT on entertainment services and different exceptions concerned with it.
Can a taxable person recover the input VAT when such entertainment services are provided to anyone not employed by him?
The taxable person cannot recover the input tax on the entertainment services or hospitality services as per the executive regulations provided to someone not employed by him such as customers, officials, investors, shareholders, owners, or potential customers.
Read more: Understanding UAE VAT Recoverable Input Tax
Can VAT be recovered for the entertainment services provided to the employees of the firm?
When a taxable person or an entity purchases goods or services to provide them to the entities for a free charge as a form of reward etc. then VAT charged on such expenses will be non-recoverable. As well as if the taxable person organizes any event or entertainment activities for the employees and the staff then the input tax won't be recoverable on the services.
But there are certain situations where the taxable person can recover the input tax on the entertainment expenses provided to the employees which are as follows:
- When any goods or services are provided to the employees which is an obligation of the taxable person under any labor law applicable in UAE or designated zone.
- When goods and services are provided to the employees under any contractual obligation or any employment policy in exchange for the roles performed by the employees.
- When such goods or services provided are deemed supply under UAE VAT law.
Examples of situations where the input tax can be recovered are as follows:
When a new employee is provided with hotel arrangements for an initial period till, he finds his accommodation for a short period. In such a situation the input tax can be recovered by the taxable entity. It is because this service is provided so that the employee can perform his responsibilities. Similarly, tax incurred on normal lunch provided in the meetings, food, and refreshments in the office can be recovered by the taxable entity. These are considered as entertainment services which are provided in the normal course of meeting hence it is recoverable VAT.
Examples of situations where the input tax cannot be recovered are as follows:
Tax incurred on Iftar party provided to the staff and the employees, farewell party, staff birthday parties, music events, Gala dinner, etc. won't be recovered by the taxable entity.
Can VAT be recovered on the catering expenses incurred for conferences and business events?
VAT on Expenses on the catering service provided in a conference or business event can be recovered if any fee is charged by the attendees which is inclusive of VAT whereas if no fees are charged from the attendees, then the input VAT cannot be recovered by the taxable entity.
Some miscellaneous expenses on which the VAT can be recovered are decoration expenses such as flowers in reception and during events, snacks and refreshments during a meeting, tea-coffee provided in the office, etc.
Can VAT be recovered on the gifts provided to the employees which are services of an entertainment nature?
If gifts are valued at more than AED 500 per employee for 12 months then it will be considered as a deemed supply under UAE VAT and it will be taxable, whereas if the value is less than AED 500 then it will not be a deemed supply hence it won't be taxable. If such gifts are of an entertainment nature, then the VAT on such gifts won't be recoverable such as Eid gifts, an employee of the month awards or gifts, gifts provided on a festive occasion, and presents provided to a retiring employee, etc.
Read More: Input VAT Recovery on Expenses in Dubai
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