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08 August 2018

UAE clarifies rules for non-recoverable VAT on entertainment services

In July 2018, the United Arab Emirates (UAE) Federal Tax Authority (FTA) published a clarification on non-recoverable input tax on entertainment services. The clarification is important for understanding how the FTA will determine when entertainment services are provided.

Entertainment services

Under the UAE Value Added Tax (VAT) Regulations:

  • A non-Designated Government Entity may not recover input tax incurred in relation to the provision of entertainment services to anyone not employed by that person.
  • A Taxable Person (including a Designated Government Entity) may not recover input tax incurred in relation to the provision of entertainment services without charge to its employees.

The UAE VAT Regulations define entertainment services to be "hospitality of any kind, including the provision of accommodation, food and drinks that are not provided in a normal course of a meeting, access to shows or events, or trips provided for the purposes of pleasure or entertainment."

In broad terms, the FTA has clarified that:

  • Food and drinks that are incidental to the business purpose of a meeting (simple hospitality) are not entertainment services. For example, lunch served in the same venue as the meeting at a cost consistent with employee meal allowances is unlikely to represent entertainment services. However, hospitality that becomes an end in itself should be considered as entertainment services. For example, a gala dinner with a short introduction by a speaker is likely to represent entertainment services.
  • Food and beverages provided to conference attendees should be treated as entertainment services if there is no conference fee.
  • Tea and coffee, dates, chocolates and equivalent snacks that are provided in the office or during meetings without charge should not be treated as entertainment services.
  • Paying or reimbursing hotel accommodation for staff during a business trip is not entertainment services, so such activity should not result in unrecoverable input tax.

Implications for UAE businesses

Businesses need to review the clarification to ensure they are correctly determining when entertainment services are provided. Failing to do so may result in incorrect reporting of recoverable input tax.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Middle East, Dubai

  • David Stevens, EY VAT Implementation Leader
    david.stevens@ae.ey.com
  • Nicola Butt
    nicola.butt@ae.ey.com
  • Marc Collenette
    marc.collenette@ae.ey.com
  • Engela Wiid
    engela.wiid@ae.ey.com
  • Martin Lazaroff
    martin.lazaroff@ae.ey.com
  • Mark McKay
    mark.mcKay@ae.ey.com
  • David Betton
    david.betton@ae.ey.com
  • Anthony Brown
    anthony.brown@ae.ey.com
  • Javier Pardo
    javier.pardo@ae.ey.com
  • Athar Fahim
    athar.fahim@ae.ey.com

Ernst & Young Middle East, Abu Dhabi

  • James W Bryson
    james.bryson@ae.ey.com
  • Sana Azam
    sana.azam@ae.ey.com
  • Gordan Rotkvic
    gordan.rotkvic@ae.ey.com

Ernst & Young LLP, Middle East Tax Desk, Houston

  • Gareth Lewis
    gareth.lewis1@ey.com

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ATTACHMENT

PDF version of this Tax Alert

Document ID: 2018-5957

 
 

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