There has been a lot of confusion around the input tax regulation of entertainment-related services. Owing to this, the main strategy of most businesses has been to not claim recovery on input tax and just adopt measures that keep them safe from any risks.
The federal tax authority has finally given public clarification regarding the treatment of input tax in the area of entertainment services. After going through this clarification based brief guide, businesses can finally alter their line of action and consider claiming recovery of taxes where applicable.
This article aims to answer some important questions regarding the treatment of input tax on entertainment services provided by businesses.
Uncertainty is something that no businessman likes. In the UAE, most businesses that deal with the entertainment industry in one way or another have long been facing a confusing situation. But now the FTA has made some clarifications in its public announcement.
Following are some of the frequently asked questions regarding input tax recovery on entertainment services:
Many business entities provide entertainment service to its employees for boosting their morale and improve employee engagement. According to VAT laws of the United Arab Emirates, following of the can be counted as entertainment services:
While these terms are clear, it is important for our business to understand the regulations in its essence. For this purpose, do not forget to get in touch with one of the Best VAT consultancies in Dubai and then indulge in entertainment services on which you can claim returns. The regulations are defined under the Executive regulation of UAE laws.
Business entities are fearful of the risks of penalties when it comes to matters of input tax and relevant recovery. They try to play it safe and not get into much of entertainment services.
There is confusion about whether a certain entity can claim recovery or is a certain entertainment supply falling under VAT eligible supplies. This is the reason FTA has finally stepped forward to make a public clarification.
There are some entertainment services for which you cannot request the government for a return. These are the entertainment services that provide to entities like customers, overs, potential customers, shareholders, investors, and officials.
Besides, the entertainment services that you provide for a set of events also fall under the non-recoverable input tax category. These events include a staff birthday party, Iftar parties, gala dinners, farewell parties, and music and food events.
Business entities tend to give gifts to their employees as an incentive to improve their ownership of their workplace. But all gifts do not warrant an input tax return. If you, as a business entity, give an employee a gift worth more than 500 AED for a year, i.e., a period of 12 months, then the gift will be treated as a VAT supply. Hence the gift is taxable.
If the gift per employee is worth less than 500 AED, then the supply is not taxable. The following are the kind of gifts that are not taxable:
VAT recovery on entertainment services is a point of interest for most businesses. The reason is that for keeping employees happy and encouraged, incentives and entertainment services have stayed there in the routine.
The public announcement by FTA has defined the conditions in which input tax on entertainment services can be returned. To understand that accounting, bookkeeping, auditing, and tax professionals can help your business thrive better than before. These are as follows:
The FTA has now clarified all points of confusion for the business entities in the UAE. Thus you can benefit from this information instead of operating in fear. Worry not, all you have to do is get professional a VAT consultant’s help to stay safe from the risk of penalties. Do not compromise on the entertainment services that your employees love. Just adapt to the local regulations.
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