As per UAE VAT law, there are expenses wherein tax may or may not be recovered. The UAE, Federal Tax Authority published a clarification for certain expenses incurred for employees, which are known as entertainment services, which include the following:
- Facility of accommodation.
- Entry to any shows or events.
- Any pleasure or entertainment trips.
- Food and drinks are not provided normally.
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VAT paid of aforementioned services may be recoverable or non-recoverable
|Recoverable VAT on Entertainment Services||Non-Recoverable VAT on Entertainment Services|
|Simple hospitality in the normal course of business||Employee lunches during Ramadan|
|Initial hotel accommodation for new employees||Gala dinners /conferences organized by the employer|
|Sundry office expenses, tea coffee, display snacks||Farewell party|
|Reimbursement of employees for costs incurred business trips|
Behalf of business- hotel stays
|Events organized by the office|
No VAT for gifts less than 500 AED
Any gift given by a business entity worth more than 500 AED, per employee for a period of 12 months will be deemed as supply and hence will be taxable. In case the value is less than 500 AED it will not be treated as supply. The gifts stated below can’t be recovered if they are less than 500 AED
- Eid gifts
- Gifts for occasion
- An employee-for-the-month incentive
- Wedding /birthday gifts
Also Read: Recovery Of Input VAT On The Expenses
VAT recovery for business trips of employees
An employer will provide a refund or reimburse an employee for certain costs that the employee incurs for business trips, in the course of performing his/her role. These include cases where
In case an employee is sent for a business trip by the company and requires overnight accommodation, the VAT incurred on hotel costs would be recoverable, as well as input tax incurred on sustenance costs (Food purchased by the employee for their own consumption during the business trip).
Note: If the employee incurs costs that are related to entertaining a current or potential customer/supplier, then any associated Input Tax incurred will be non-recoverable.
Circumstances in which a taxable person is entitled to recover VAT for ‘Entertainment Services’
The circumstances in which a taxable person is entitled to recover VAT on entertainment services:
- It is the legal obligation of the employer to provide those services or goods to those employees.
- It is a contractual obligation to provide those services or goods to those employees so that they may perform their role and it can be proven to be normal business practice
- Where the provision of goods or services is deemed a supply under UAE VAT law.
For example: In the employment contract of call center employees, it is promised that conveyance to and from the office will be given, for late night shifts. Here, as this is a contractual obligation to the employees, the organization can recover the VAT paid on the conveyance expenses.
VAT recovery services
VAT on entertainment services can be recovered depending on certain circumstances and the VAT law of the UAE. If you are finding it very difficult to keep track of all these rules, especially for companies, a possible solution is to turn to a VAT consultant in UAE who has a vast professional experience in taxation with various industries in the region.