Can I recover VAT on entertainment expenses?

Article 53 – Non-recoverable Input Tax 33 1. Input Tax shall be non-recoverable if it is incurred by a Person in the following cases: a. Where the Person is not a Government Entity as specified in a Cabinet Decision in accordance with Article 10 and 57 of the Decree-Law, and there is provision of entertainment services to anyone not employed by the Person, including customers, potential customers, officials, or shareholder or other owners or investors. b. Where motor vehicles were purchased, rented or leased for use in the Business and are available for personal use by any Person. c. Where Goods or Services were purchased to be used by employees for no charge to them and for their personal benefit including the provision of entertainment services, except in the following cases: 1) Where the provision of those Goods or Services to the employees is mandatory under the applicable labour legislation in the State or any free zone, including financial and non-financial free zones, provided that this does not include the accommodation provided by the employer to its employees, unless the provision of such accommodation is mandatory pursuant to the decisions or directives issued by the Ministry of Human Resources and Emiratisation.34 2) Where it is a contractual obligation or documented policy to provide those Goods or Services to the employees, in accordance with the cases and 33 Article amended as per Cabinet Decision No. 100 of 2024. 34 Sub-clause amended as per Cabinet Decision No. 149 of 2026. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 42 conditions specified by the Authority.35 3) Without prejudice to Clause 1 of this paragraph, where the Taxable Person provides health insurance, including enhanced health insurance, to its employees and their family members (as applicable) up to a husband or one wife, and three children younger than eighteen years. 4) Where the provision of goods or services is a deemed supply under the provisions of the Decree-Law. 2. For the purposes of this Article: a. The phrase “entertainment services” shall mean hospitality of any kind, including the provision of accommodation, food and drinks which 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. b. The phrase “motor vehicle” shall mean a road vehicle which is designed or adapted for the conveyance of no more than 10 (ten) people including the driver. A motor vehicle shall exclude a truck, forklift, hoist or other similar vehicle. 3. Provision of catering and accommodation services shall not be treated as entertainment services where it is provided by a transportation service operator, such as an airline, to passengers who have been delayed. 4. A motor vehicle shall not be treated as being available for private use if it is within any of the following categories: a. a taxi licensed by the competent authority within the State; b. a motor vehicle registered as, and used for purposes of an emergency vehicle, including by police, fire, ambulance, or similar emergency service; c. a vehicle which is used in a vehicle rental business where it is rented to a customer.

Article 54 - Recoverable Input Tax 1. The Input Tax that is recoverable by a Taxable Person for any Tax Period is the total of Input Tax paid for Goods and Services which are used or intended to be used for making any of the following: a. Taxable Supplies. b. Supplies that are made outside the State which would have been Taxable Supplies had they been made in the State. c. Supplies specified in the Executive Regulation of this Decree-Law that are made outside the State, which would have been treated as exempt had they been made inside the State. 2. Where Goods are imported by a Taxable Person through another Implementing State and the intended final destination of those Goods was the State at the time of Import, then the Taxable Person shall be entitled to treat the Tax paid in respect of Import of Goods into the Implementing State as Recoverable Tax subject to the conditions specified the Executive Regulation of this Decree-Law. 3. Where Goods were acquired by a Taxable Person in another Implementing State and then moved into the State, the Taxable Person shall be entitled to treat the Tax paid in respect of the Goods in the Implementing State as Recoverable Tax subject to the conditions specified in the Executive Regulation of this Decree-Law. 4. A Taxable Person shall not be entitled to recover any Input Tax in respect of Tax paid in accordance with Clause 2 of Article 48 of this Decree-Law. 5. The Executive Regulation of this Decree-Law shall specify the instances where Input Tax is excepted from being recovered. Article 54 (bis)22 1. The Authority shall reject the deduction of the Recoverable Input Tax if it is established to the Authority that the supply subject to the deduction was part of a supply or a chain of supplies related to Tax Evasion, and the Taxable Person was aware of this relation upon deducting the Recoverable Input Tax. 2. The Authority may reject the deduction of the Recoverable Input Tax if it is 22 Article added as per Federal Decree-Law No. 16 of 2025. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 26 established to the Authority that the supply subject to the deduction was part of a supply or a chain of supplies related to Tax Evasion, and the Taxable Person should, based on circumstances of the supply, have been aware of this relation. 3. For the purposes of applying the provisions of Clause 2 of this Article, the Taxable Person shall be considered to have been required to be aware that the supply was part of a supply or a chain of supplies related to Tax Evasion, if he did not verify the validity and integrity of the supplies he receives before deduction of Input Tax, in accordance with the measures, procedures and conditions determined by the Authority in this regard.

VAT incurred on such costs shall be blocked from فإنه يحظر عليه استرداد أي من ضريبة المدخالت المتكبدة .على تلك النفقات recovery in full. This rule shall apply even where the business makes ستُطبق هذة القاعدة حتى في حال قامت األعمال بتوريدات fully taxable supplies and would otherwise have the خاضعة للضريبة بالكامل وكان لها حق استرداد كامل ضريبة المدخالت المتكبدة من قبلها لوال تقديمها لتلك right to full input tax recovery. .الخدمات Entertainment services are defined under Article ) من الالئحة2()53( تمّ تعريف الخدمات الترفيهية بالمادة 53(2) of the Executive Regulations as “hospitality of التنفيذية على أنها "خدمات الضيافة بأنواعها" بما في ذلك any kind” including the provision of: :توفير  accommodation; اإلقامة   food and drinks which are not provided in a الطعام والشراب والتي ال تقدم في السياق المعتاد  ،إلجتماع normal course of a meeting; and  access to shows or events, or trips provided والدخول إلى فعاليات أو أحداث أو الرحالت for the purposes of pleasure or  .المقدمة بغرض الترفية واالستمتاع entertainment. Entertainment provided to employees الخدمات الترفيهية المقدمة إلى الموظفين Where goods or services are purchased by any إذا ت ّم شراء سلع أو خدمات من قبل أي شخص ليتم person to be used by employees for no charge to استخدامها من قبل موظفين بدون تحملهم ألية رسوم them and for their personal benefit, including the ،ولمنفعتهم الشخصية بما في ذلك تقديم الخدمات الترفيهية provision of entertainment services, then the VAT ،فإنه ال يجوز استرداد ضريبة القيمة المضافة المتكبدة عنها incurred on the cost is not recoverable unless an .ما لم يكن هناك استثناء يطبق exception applies. This means that any entity, including Designated ويعني ذلك أنه ال يجوز ألي كيان يقوم بتقديم خدمات Government Entities, which provide entertainment ترفيهية إلى موظفيه استرداد ضريبة القيمة المضافة المتكبدة services to employees are prevented from . بما في ذلك الجهات الحكومية المحددة،على تلك التكاليف recovering any VAT included on such costs. The only circumstances in which a taxable person is الحاالت االستثنائية التي يجوز فيها للخاضع للضريبة :استرداد الضريبة المتكبدة على تلك النفقات هي entitled to recover VAT on such costs are: 4

The type of entertainment expenses which are covered by the restriction include hospitality (e.g. accommodation, food and drinks) which are not provided in the normal course of a meeting, access to shows or events, or trips provided for the purposes of pleasure or entertainment. This means that where a business incurs any such expenses, the business will not be able to recover VAT incurred on the expenses. 10.6.2. Motor vehicles Typically, a taxable person is able to recover VAT incurred on the purchase, lease or rental of a motor vehicle which is used for their business activities and which give right to input tax recovery. However, where the motor vehicle is available for the personal use of any person, the taxable person will lose the right to recover the VAT incurred. For the purpose of this rule, the “motor vehicle” is any road vehicle which is designed or adapted for the conveyance of no more than 10 people, including the driver. “Motor vehicle” does not include a truck, forklift, hoist or other similar vehicles. This ensures that VAT on essentially commercial vehicles is not blocked due to incidental private use. A motor vehicle will not be treated as being available for private use if it is within any of the following categories:    a taxi licensed by a competent authority; a motor vehicle registered as, and used as an emergency vehicle, including by the police, fire brigade, paramedics, or similar emergency services; and a vehicle which is used in a vehicle rental business where it is rented to a customer. 10.6.3. Employee-related expenses The third category of expenses which do not give rise to VAT recovery are certain expenses incurred by a business for the purposes of their employees. VAT on employee-related expenses will not be recoverable by the business where goods or services are purchased to be used by employees for no charge to them and for their personal benefit. There are, however, certain exceptions from the above rule. Thus, the rule will not apply in the following situations: 1. Where the employer has a legal obligation to provide those goods or services to the employees under any applicable UAE labour law. 2. Where it is a contractual obligation or documented policy of the employer to provide those goods or services to employees to enable them to perform their role and where it can be proven to be normal business practice to do so in the course of employment. 40 VAT Guide | Taxable Person | VATG001