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 not 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.
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.
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