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May 15, 2026

This Public Clarification (VATP005) explains the application of Article 53 of the VAT Executive Regulations concerning non-recoverable input tax on entertainment services. It defines 'entertainment' and differentiates it from incidental business expenses for both employees and non-employees. The Federal Tax Authority (FTA) clarifies that VAT on costs for a genuine business purpose, such as refreshments during a meeting, is recoverable. However, if hospitality becomes an end in itself, like a gala dinner, the input tax is blocked. The clarification provides criteria for recoverability and addresses specific scenarios like staff parties and sundry office expenses.

VATP005

VAT Public Clarification

Non-recoverable input tax – entertainment services

Issue

Article 53 of Cabinet Decision No. 52 of 2017 on the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Executive Regulations”) stipulates input tax which is non- recoverable by businesses (which, in most cases, will mean Taxable Persons).

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.

Summary

This Public Clarification explains the application of Article 53 of the VAT Executive Regulations with regards to VAT which is non-recoverable in respect of entertainment or hospitality of any kind.

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 for attending an event, such costs will be considered to be entertainment in nature and the VAT incurred shall not be recoverable. More information on how to define whether costs are incidental to a business purpose, or considered to be an end in themselves, is provided below.

Detailed discussion

Entertainment provided to non-employees

Designated Government entities:

Article 53(1)(a) of the Executive Regulations specifies that a Designated Government Entity (which is specified in a Cabinet Decision) is able to provide entertainment services to anyone not employed by the entity and shall be able to recover the input tax incurred on those costs.

This exception for Designated Government Entities only applies to entertainment provided to non- employees. For example, the following forms of entertainment would be considered to be in the course of the activities of the Designated Government Entity and any VAT incurred should be recoverable:

meetings with delegations from other countries where lunch or dinner is provided;
meetings with representatives from other Government entities to discuss official business, where refreshments are provided;
ceremonies held to mark significant political events e.g. the signing of an international agreement, where entertainment is provided to the audience.

See below for further comments on entertainment services provided to employees.