Treatment of input tax on entertainment services

Input tax incurred by an entity that is not a Government entity is not recoverable on entertainment services provided to anyone not employed by them. This would include entertainment services provided to potential customers, shareholders, or other owners/investors.

In the case of 'entertainment services' provided to employees, the input tax incurred will be non-recoverable unless a specific exception applies. This rule applies to designated government entities as well.

The only situations where input tax can be recovered on 'entertainment services' provided to employees are:

• If the labour law of the UAE, or Designated Zone where the entity is located, makes it a legal obligation to provide those goods or services to employees;
• If the employment contract or documented policy of the business states that those goods or services will be provided to employees in order to allow them to perform their work, and it can be a proven as a normal business practice;
• If the supply of the goods or services is a deemed supply under the Decree-Law.

The guide gives an example of a recoverable entertainment expense for an employee as being when a newly hired employee is temporarily provided with a hotel accommodation until they find permanent accommodation, as this is necessary for the employee to perform their role. A lunch or dinner for employees, on the other hand, would not be a recoverable expense.

Additionally, the document indicates that the FTA considers the input tax on 'simple hospitality' provided in the normal course of a meeting to be recoverable. Also, the input tax incurred on sundry office expenses, which are considered to include normal incidental office expenses for general use by both employees and non-employees, is recoverable.