On this page
- What you need to know now
- Describe the expense before choosing a VAT code
- Distinguish ordinary meeting costs from hospitality
- Review employee expenses under the current rules
- Keep the invoice, purpose and approval connected
- A practical way forward
- Frequently asked questions
- Official sources & further reading
What you need to know now
Client entertainment is generally a blocked input-tax category. Employee expenses and genuine business meeting costs need a distinct, documented assessment.
- Describe the purpose and recipients of each expense.
- A business-development label does not establish recovery.
- Check current employee-expense decisions before claiming.
Describe the expense before choosing a VAT code
Entertainment is not determined solely by the ledger account or the salesperson’s reason for paying. Record what was provided, who received it and the setting. Client hospitality, an ordinary business meeting and an employee benefit can require different analysis even if all are paid by the same corporate card.
Create expense categories that reflect those distinctions. A single account called marketing or staff welfare hides information needed for a recovery decision. The expense claimant should provide enough detail at submission for finance to identify the purpose and recipients without reconstructing the event months after the return has been filed.
Distinguish ordinary meeting costs from hospitality
The FTA’s entertainment clarification discusses ordinary incidental office expenses and hospitality in a business meeting context. This does not mean every meal connected to a commercial discussion is recoverable. Assess the actual circumstances and retain supporting evidence rather than relying on a statement that the cost helped generate sales.
For example, refreshments available in the office and a customer leisure event are different fact patterns. Record the meeting agenda, attendees and invoice where relevant. If the business cannot establish the basis for recovery, the uncertainty should be reviewed before the VAT is included in a claim.
Review employee expenses under the current rules
Employee expenditure needs to be distinguished from client entertainment and checked against the present recovery conditions. The FTA published a specific employee-expense decision in 2026, and later guidance should be considered before reusing an old policy statement. A written company policy is evidence of an arrangement, not an automatic answer to every VAT question.
Maintain the employment or benefit documents relevant to the expense. Separate personal elements and identify which entity employs the recipient. When a benefit package changes, ask finance to review the VAT treatment before payroll and purchasing systems apply the old code to the new arrangement.
Keep the invoice, purpose and approval connected
An expense file should connect the supplier document to the explanation and reviewer’s decision. A receipt image without the business purpose may be insufficient for a reliable internal review. Equally, an approved expense claim does not establish that VAT was charged correctly or that every tax recovery condition is satisfied.
Use periodic sampling to check whether staff provide the required information and whether similar costs are treated consistently. Where a claim is corrected, retain the reason and affected period. This creates a practical audit trail and helps update staff training without making a blanket claim that all hospitality is either recoverable or blocked.
YOUR NEXT STEPS
A practical way forward
- 01
Step 1
Separate client hospitality from ordinary operating costs.
- 02
Step 2
Retain agenda, attendees and invoice evidence.
- 03
Step 3
Apply the relevant recovery restriction before posting VAT.
CLEAR ANSWERS
Frequently asked questions
Does a sales purpose guarantee recovery?
No. Entertainment restrictions can still apply.
Are all employee benefits automatically recoverable?
No. Check the current conditions.
Earlier article & background First published 6 August 2018 · retained for context
This earlier article is preserved for context. Its rates, deadlines, approvals and announcements may have been superseded. Use the current guidance and official references on this page for your next step.
VAT on Entertainment Expenses: Firms can’t recover VAT on entertaining non-employees
VAT on Entertainment Expenses: Companies in the UAE will not be able to recover value-added tax (VAT) paid on entertainment expenses for non-employees, according to a new clarification issued by the Federal Tax Authority (FTA).
VAT on entertainment expenses provided to non-employees, such as accommodation, food and drinks not provided during a meeting and access to show, or events, or trips provided for the purpose of pleasure or entertainment, is not recoverable.
The new clarification distinguishes entertainment expenses for employees and non-employees.
VAT on entertainment expenses
“This very strict and conservative position disallows pharmaceutical companies inviting their buyers to a conference in a hotel to deduct input VAT; a dealer holding a launch party for a new car model will also be prevented from recovering the input VAT on the food, drinks, band, etc., although it is clearly done with the objective of increasing sales. It is, however, allowed to provide potential customers with gifts – although these could constitute deemed supplies for which VAT is due”
The UAE and Saudi Arabia implemented 5 per cent VAT on a number of goods and services – including entertainment – from January 1, 2018.
However, VAT on employee expenses is recoverable if there is a legal, contractual obligation or documented policy, explains the FTA clarification.
The hotel stays paid to a new joiner before s/he finds his/her own home is a recoverable expense. However, the lunch or dinner for employees (e.g. If-tar) is not.
According to the FTA’s clarification, a gala dinner where food and refreshments are considered to be so substantial that they constitute an end in themselves will be considered as an entertainment expense.
For staff parties, no VAT is recoverable, neither for service awards, retirement gifts, Eid gifts, etc.
“Businesses will have to review their expense policies as a result of the publication of this clarification. Especially documenting certain employee expenses will allow them to still recover input VAT”
VERIFY THE DETAIL
Official sources & further reading
- FTA — Non-recoverable input tax: entertainment
- FTA — Current VAT legislation, September 2026
- FTA — Decision 17 of 2026: input tax recovery on employee expenses
Source checks support this general guide. Your treatment depends on the facts, tax period and applicable legislation.
