UAE VAT Clarification: VATP005 – Entertainment Services
The laws and rules have to change according to the demand of the advancing period of time, and it’s the responsibility of the governing authority to provide clarification among the public regarding the system to make it error-free and up to date. Since the introduction of Value Added Tax in UAE in 2018, there were many public clarifications from VAT P001 onwards regarding the banking industry to the recent VATP029 concerned with the B2B supplies of Gold in June 2020. This clarification defines the guidelines business or people follow regarding the selling and purchasing of products and services in addition to common VAT rules.
As UAE is a tourist destination of the world that hosts many entertainment events regularly hence the industry of media is a strong revenue-making sector in UAE. The VAT P005 public clarification looks into the entertainment service of all business sectors where VAT is recoverable and where it is not recoverable.
Fifth clarification: Input VAT on Entertainment Services
According to cabinet decision no 52 of 2017, the Federal Tax Authority has issued a public clarification (VATP005) on the Non-Recoverability of VAT on the Entertainment industry under article 53. This is a vital clarification that mentions the clear-cut facts on the Recoverability of VAT on Entertainment Services with sample instances where the input VAT would be recoverable and where it is blocked.
Groups Defined by Federal Tax Authority
The two-category classification made by FTA in the entertainment services are the entertainment provided to non-employees and the employees.
Entertainment Services to Non-Employees
The approach of VAT to designated and non-designated government entities varies where the former is recoverable and the latter is non-recoverable.
Case of Designated Government Entities
The input tax on entertainment services to anyone not employed by the government entity shall be recoverable. The various instances where the VAT could be recovered from entertainment services are the following.
- Official meetings with the other government entities to discuss business, where food and refreshments are supplied.
- Lunch or dinner is provided while having a meeting with the delegations from foreign nations.
- Events or ceremonies are conducted for crucial political decisions like the signing of an international agreement in which some kind of entertainment is arranged for the invited audience.
Case of Non-Designated Government entities
Unlike the case of Designated Government entities, the input tax on entertainment services to anyone not employed by non-designated government entities is non-recoverable.
- For example, the entertainment service provided to shareholders, investors, officials, customers, potential customers, and other owners.
Entertainment Service To Employees
There are six broad categories that come under the entertainment service to employees; based on the six sub-categories, the recoverable and non-recoverable services vary.
1. General
In the general group, as mentioned above, most of the services are non-recoverable. They are recoverable in rare cases as follows.
- Deemed supply
- A legal obligation in a designated zone or If it’s come under any labour law of UAE.
- Contractual obligation
Recoverable
- Short stay hotel accommodation for a new employee.
Non-recoverable
- Lunch or Dinner for employees during Ramadan Iftar.
2. Simple Hospitality
In the normal course of a business meeting, simple Hospitality provided, including simple food and refreshments, shall be recoverable on certain criteria as follows
- Hospitality is provided at the same venue as the meeting.
- Meetings include only short breaks for lunch or dinner and resume soon after that short interruption.
- Any other forms of entertainment like music band or motivational speech is not accompanied by food and beverage.
- The cost per head of providing hospitality does not exceed any internal policy of business-like subsistence claims.
For Example, A gala dinner event doesn’t come under simple Hospitality.
3. Sundry Office Expense
The general expense of both employees and visitors are recoverable, which are normal incidental expenses like
- Flowers for display in reception, decorations on special events
- Tea, coffee
- Chocolates, Dates or other equivalent snacks to entertain guests or employees.
4. Business events and conference
If the fees are charged from the attendees, then the input tax is recoverable on catering service, whereas if the event is free, those input taxes would be blocked.
Case of Non-Designated Government entities
Unlike the case of Designated Government entities, the input tax on entertainment services to anyone not employed by non-designated government entities is non-recoverable.
- For example, the entertainment service provided to shareholders, investors, officials, customers, potential customers, and other owners.
Employee Expenses
Every business has to spend some money for the employee during their tenure in the firm; among those expenses, some are recoverable, and a few are non-recoverable.
Recoverable
- Food and drinks during business trips.
- Hotel accommodation for a domestic business trip with an overnight stay.
Non-recoverable
- The cost incurred by an employee to entertain a potential customer or supplier.
6. Entertainment for employee
Most of the employee entertainment services are blocked from input tax recovery, which includes the following.
- Gift for employee of the month
- Staff parties
- Presentation on special occasions like birthday or wedding
- Festival or celebration gifts
- Reward dinner service
- Long service reward
A surveillance of business activities
A close examination of the fifth public clarification of VAT vividly explains how the Federal Tax Authority is keenly surveilling business activities, including the entertainment service. Earlier, many firms used to demonstrate a lot of expense for the entertainment service, but through the public clarification, FTA instructs firms to limit those and categorize them as tax recoverable and non-recoverable. Apart from the entertainment industry, the fifth clarification deals with all entertainment and hospitality services of small as well as large business organizations.
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