Non-Recoverable Input Tax (Entertainment Services)

There are a number of circumstances in which businesses have sought clarity over the definition of ‘entertainment’ for the purposes of the input tax restriction, and in particular what should constitute entertainment of staff or business contacts as opposed to incidental business-related expenses which would be recoverable under normal VAT rules.
VAT incurred on any costs which are used for a genuine business purpose, or which are incidental to a business purpose e.g. food and drink provided during a business meeting, shall be recoverable (subject to normal VAT recovery rules). However, where the hospitality provided becomes an end in itself and could be construed as the purpose of attending an event, such costs will be considered to be entertainment in nature and the VAT incurred shall not be recoverable.
Entertainment services are defined under Article 53(2) of the Executive Regulations as “hospitality of any kind” including the provision of:

  • Accommodation
  • food and drinks which are not provided in a normal course of a meeting; and
  • access to shows or events, or trips provided for the purposes of pleasure or entertainment.

Entertainment provided to non-employees.
In the case of Designated Government entities: They can provide entertainment services to anyone not employed by the entity and shall be able to recover the input tax incurred on those costs.
Registrants who are not Designated Government entities: Input Tax shall be non-recoverable if it is incurred by a person in respect of entertainment services provided to anyone not employed by the person.
Entertainment provided to employees.
Where the entertainment costs are incurred for employees for no charge and for their personal benefit then the VAT incurred on them is non-recoverable unless an exception applies. This applies to designated government entities as well. However, the exceptions are:

  • Where there is a legal obligation to provide those services
  • It is a contractual obligation or a legal policy
  • Where the provision of goods or services is a deemed supply under the provisions of the Decree-Law.


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