The implementation of VAT charges has become a mandate for the GCC countries at a rate of 5%. The UAE, being one of them, has also implemented the same. As per the UAE VAT Law, most of the tax paid on businesses can be recovered, and is termed as a recoverable tax. On the flip side, Article 53(1) Executive Regulation of Federal Decree Law states that VAT paid on some services is non-recoverable tax. One such domain turns out to be entertainment services. This treatise will give you a clear idea regarding the implementation of non-recoverable tax while availing entertainment services.
What Is Entertainment Service as per the UAE VAT Law?
Business entities do provide entertainment services to their employees on specific occasions that boost the employees’ morale and builds ownership. As per the Article 53(2) (a) of Executive Regulation, entertainment service basket includes:
- Facility of accommodation
- Entry to shows and events
- Pleasure on entertainment trips
- Food and drinks which are not provided normally
According to the regulation, a non-government business entity is not entitled to recover the entertainment taxes paid. Let’s have a look at a few of them.
Entertainment services given to the following entities can’t be recovered
- Customers
- Potential Customers
- Owners
- Investors
- Shareholders
- Officials
Entertainment services given to the following events can’t be recovered
- Iftar party
- Staff birthday party
- Music event and food
- Gala Dinner
- Farewell party
Treatment of Input Credit on Gift Items
Any gift given by a business entity worth more than 500 AED, per employee, for a period of 12 months, will turn as a deemed supply and hence will be taxable. In case if the value is less than 500 AED, it will not be treated as deemed supply. The gifts stated below can’t be recovered:
- Eid Gifts
- Gifts for occasions
- Employee of the month
- Wedding/Birthday gifts
Instances Where VAT on Entertainment Services Gets Recovered
According to the stated document, the input tax on an expense can be recovered if:
- It can be shown that the expense was for a genuine business purpose or is inclined to business-related (hospitality provided during corporate meetings)
- If there exists a legal obligation to provide these services to the employees
- If the supply of goods or services is a deemed supply under the Decree-Law
- Flowers or any decorative items on special events
- Tea/coffee available in the office
Thus, we can see that strict laws have been enforced that need to be implemented by every business entity. This would have different impacts. Let’s have a glance at them…
Impact on Businesses in the UAE
The stated rule brings will bring a change in the UAE business entities. Businesses need to clarify that they state it clearly whenever entertainment services are provided. Failure to do so will end up in the incorrect reporting of recoverable tax. It becomes necessary to keep a count. Such calculations become be easier if handled by professional experts.
JAXA is here to help you. With a team of dedicated professionals, we stand as one of the best tax consultants in the UAE. We provide a wide range of services, including:
To know more, do contact us – we’d be happy to assist.
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