Entertainment Services here means those expenses which are incurred for activities which are meant to entertain personnel. One of the examples to understand this is free staff parties, food on office, free gifts given away etc. The FTA is of the opinion that the VAT incurred on goods purchased and services incurred, to be used for giving such free services, should be blocked for recovery. Hence, VAT incurred on Entertainment services is a non-recoverable input tax.
The key points of the clarification issued by the FTA in July, 2018 vide circular No: VATP005 were:
- Entertainment provided to non-employees is not recoverable for general businesses.
- Entertainment provided to employees may be recoverable only where there is a legal or contractual obligation, or it is deemed supplies.
Entertainment service as per UAE VAT law
As per the Article (53) (2) (a) of Executive Regulation, entertainment service means hospitality of any kind which includes:
- Any entertainment trips.
- Accommodation facility
- Food and drinks other than given in the normal course.
- Entry to any shows or events.
Scenarios where Input Tax is not recoverable on Entertainment Service In the case of entertainment services, following are not recoverable:
- Customers/Potential Customers
- Owners
- Investors
- Shareholders
- Officials
Scenarios where Input Tax is recoverable on Entertainment service
- If there is a legal obligation as per the UAE law.
- If it is a contractual obligation.
- In order for employees to perform their role better and is in due course of normal business practice.