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Tax flash: VAT clarification issued on eligible entertainment expenses

VAT clarification entertainment expenses

There have been differing views* on when certain business expenses, such as pantry items for use in the business by employees or during business meetings, are eligible for VAT recovery. This includes the administrative practice being applied by the FTA. In response to this the FTA has issued a VAT Public Clarification on Non-recoverable input tax – entertainment services (VATP005).


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Importantly, the VAT law applies differently to ‘designated government entities’ and businesses in general; the difference being that a designated government entity can recover entertainment costs for non-employees. It should be noted that the list of designated government entities has yet to be published.

The key points from this clarification are (with some exceptions):

  • Entertainment provided to non-employees is not recoverable for general businesses. 
  • Entertainment provided to employees may be recoverable only where there is a legal or contractual obligation, or it is deemed supplies.

The clarification provides several examples:


VAT recoverable VAT not recoverable

Simple hospitality in the normal
course of business
Employee lunches, includingRamadan Iftar
Initial hotel accommodation for new employees

Gala dinners/conferences with noattendance charge


Sundry office expenses – tea,coffee, office flower display, snacks Employee lunches, including Ramadan Iftar

Reimbursement of employees for costs incurred on

behalf of the business – hotel stays, substance costs**



While these expenses tend to be relatively minor for most businesses, our experience to date is that this remains an area of focus for the FTA. Thus it is important that care is taken when claiming recovery of VAT on such expenses, and that any approach adopted is clearly documented and supported.

If you have any doubts or concerns or need to consider making a voluntary disclosure for past claims which may not have been eligible please contact your local KPMG contact for assistance.

*This alert is not a legal advice or opinion by KPMG
**Subject to provision of a tax invoice. The FTA does not specify if the invoice needs to contain the businesses details.

© 2020 KPMG, KPMG LLP and KPMG Lower Gulf Limited, registered in the UAE and member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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