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Non Recoverable Input Tax – Entertainment Services provided to Non-Employees

Non Recoverable Input Tax – Entertainment Services provided to Non-Employees

Under Article (52) and (53)  of Cabinet Decision No. (52) of 2017 on the Executive Regulations of the Federal Decree-Law No (8) of 2017 on Value Added Tax there are certain expenses which are not eligible for Input tax recovery. Let us understand the nature of how non recoverable input tax on entertainment services provided to non-employees works:


Registered businesses cannot claim input tax recovery on entertainment services provided to non-employees. These non-employees can include customers, potential customers, officials, shareholders, other owners or investors.

However, the above provision is not applicable in the case of Government entities providing the entertainment services to the non-employees.

What are the services included as entertainment services?

The entertainment services include hospitality of any kind, including providing –

  1. accommodation

  2. food and drinks which are not provided in the normal course of a meeting and

  3. access to shows or events or trips provided for the purpose of pleasure or entertainment.

For example: RIL software company provides 3 days accommodation to its client during their visit to the business premises. The hotel tariff for 3 days accommodation was AED 1,000, on which VAT @ 5%, amounting to AED 50 was paid by company. RIL company is not eligible to recover input VAT recovery on this as the service amounts to entertainment services provided to non-employees.

Exceptions to the above:


The catering and accommodation services provided by a transport service operator to non-employees will not be treated as entertainment service, such as an airline providing accommodation to passengers whose flight has been delayed.

For Example: The flight from Dubai to India has been delayed due to unexpected circumstances. The airlines company has provided the food facility to the passengers waiting for the flight. VAT paid on the food purchased is AED 5,000. In this case, the airlines company can recover the VAT of AED 5,000 so paid on the food purchased as its input tax.

Recent Public clarification:

  1. The information on how to define whether costs are incidental to a business purpose, or considered to be an end in themselves, is clarified clearly.

  2. In this regard, FTA provides certain criteria indicating the simple hospitality provided during the business meeting and costs incurred for such meeting will be eligible for claiming the input tax recovery.

For example: A gala dinner event with a short introduction by a speaker would not be considered to be food and beverage in the normal course of a business meeting and the input tax incurred on costs would be blocked from recovery, where no charge is made for attendance.

  1. Conferences and Business events:

Recoverability of input tax in respect of costs incurred for catering services during conferences and business events would be dependent on whether any fee is charged from the attendees.


Note that where the business cannot establish or is uncertain whether or not hospitality is provided in the normal course of business meeting, then it should refrain from recovering input tax on the expenses.

  1. Sundry office expenses

The normal incidental office expenses for general use by both employees and visitors are the general sundry office expenses and the input tax can be recovered on those costs incurred.

  1. Employee Entertainment

  2. Where the events are held purely for the entertainment of the staff, the VAT incurred on those associated costs cannot be recovered unless a charge is made to the employees for attending the entertainment.

  3. Where the VAT paid on the purchase of goods and services for giveaway gifts to employees to reward them for their long time service cannot be recovered as input tax.

  4. Employee Expenses

Reimbursement of certain expenses to the employees incurred for the business purpose in the course of performing their role, VAT incurred on such costs can be recovered where the tax invoice has been provided and considered as for business purpose.

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Balaram Vuchidi

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