Is VAT charged on restaurant service charges and tips?

Answered by FinTaxIQ - TI from the Federal Tax Authority’s own law · 11 October 2026. Guidance, not tax advice: rely on the official text.

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Yes on the service charge - it's taxed the same as the meal, usually at 5%. No VAT on a tip, as long as it's genuinely optional and given freely by the customer.

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The detail

A service charge added by the restaurant is additional consideration for the restaurant supply and follows the same VAT treatment as that supply (standard-rated at 5% for most restaurant services). A voluntary tip given over and above the bill, with no obligation to pay it, is outside the scope of VAT and no VAT is due on it.1

What the law says

Restaurant and catering services are taxable supplies with the place of supply being where the services are performed.2
FTA guidance states a service charge is further consideration for the principal supply and follows its VAT liability, while a freely given tip is outside the scope of VAT.1 Based on FTA guidance

What it depends on

The charge must be compulsory or built into the bill to count as a service charge following the meal's VAT treatment.1 Based on FTA guidance
A tip is only VAT-free if it is given voluntarily by the customer over and above the total charge, not imposed by the restaurant.1 Based on FTA guidance

Check before you rely on it

Check whether the 'service charge' is mandatory on the bill or genuinely optional
Confirm how the charge is described in receipts/invoices to customers

Sources (2) — read the official text

1Taxable Person Guide - Value Added TaxFTA guidance

Read the article
Since the lounge access is incidental to the provision of the supply of the international flight, both components will be treated as a single composite supply subject to VAT at 0%. 5.5. Service charges and tips If a person charges a service charge to their customers, it is further consideration for the principal supply (e.g. catering services) and follows the same VAT liability as that supply. If the customer, however, freely gives a tip over and above the total charge, no VAT is due on the tip and it is outside the scope of VAT. 22 VAT Guide | Taxable Person | VATG001

Official PDF, p. 23Captured from the FTA website on 9 Sep 2026
2VAT LawArticle 30Law

Article 30 - Place of Supply in Special Cases15

Read the article
Article 30 - Place of Supply in Special Cases15 As an exception to what is stipulated in Article 29 of this Decree-Law, the place of supply in special cases shall be as follows: 1. Where the Recipient of Services has a Place of Residence in an Implementing State and is registered for Tax therein, the place of supply shall be the Place of Residence of the Recipient of Services. 2. Where the Recipient of Services is in Business and has a Place of Residence in the State, and the Supplier does not have a Place of Residence in the State, the place of supply shall be in the State. 3. For the supply of Services provided on Goods, such as installation of Goods supplied by others, the place shall be where said Services were performed. 4. For the supply of means of transport to a lessee who is not a Taxable Person in the State and does not have a TRN in an Implementing State, the place shall be where such means of transport were placed at the disposal of the lessee. 5. For the supply of restaurant, hotel, and food and drink catering Services, the place shall be where such Services are actually performed. 6. For the supply of any cultural, artistic, sporting, educational or any similar Services, the place shall be where such Services were performed. 7. For the supply of Services related to real estate as specified in the Executive Regulation of this Decree-Law, the place of supply shall be where the real estate is located. 8. For the supply of transportation Services or Transport-related Services, the place of supply shall be where the transportation starts. The Executive Regulation of this Decree-Law shall specify the place of supply for transportation Services and Transport-related Services if the trip includes more than one stop. 15 Article amended as per Federal Decree-Law No. 18 of 2022. Federal Decree-Law No. 8 of 2017 and its amendments – As published by the Ministry of Finance 17

Official PDF, p. 17Captured from the FTA website on 9 Sep 2026

Helpful?

Yes on the service charge - it's taxed the same as the meal, usually at 5%. No VAT on a tip, as long as it's genuinely optional and given freely by the customer.

What the law says:
- Restaurant and catering services are taxable supplies with the place of supply being where the services are performed. [2]
- FTA guidance states a service charge is further consideration for the principal supply and follows its VAT liability, while a freely given tip is outside the scope of VAT. [1]

What it depends on:
- The charge must be compulsory or built into the bill to count as a service charge following the meal's VAT treatment. [1]
- A tip is only VAT-free if it is given voluntarily by the customer over and above the total charge, not imposed by the restaurant. [1]

Check before you rely on it:
- Check whether the 'service charge' is mandatory on the bill or genuinely optional
- Confirm how the charge is described in receipts/invoices to customers

Sources:
1. Taxable Person Guide - Value Added Tax — p. 23
2. VAT Law — Article 30

Written by AI from the FTA sources above and checked before display. Not tax advice or official FTA information - confirm with a tax adviser before you act. Full disclaimer

Is VAT charged on restaurant service charges and tips?

The detail

What the law says

What it depends on

Check before you rely on it

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