The FTA has released Public Clarification VATP005 on Non-Recoverability of VAT on Entertainment Services describing instances wherein input tax in relation to entertainment services is recoverable or blocked.
Public Clarification:The public clarification covers the following topics:
- Entertainment services provided to non-employees by Designated Government Entities
- Entertainment services provided to non-employees by VAT registrants who are not Designated Government Entities
- Entertainment services provided to employees by any company.which are further categorized into:
Further categorized into:
- Simple hospitality
- Conference and Business Events
- Sundry office expenses
- Employee entertainment
- Employee expenses
The Input Tax Apportionment Guide (VATGIT1)
The Input Tax Apportionment Guide confirms that a business may only recover input tax where this is permissible under the VAT Decree-Law.
On the Other hand, Under article 54(1) of the VAT Decree-Law, a business has an entitlement to recover input tax incurred on goods and services that are used, or are intended to be used, for making taxable supplies. Accordingly, where purchases are directly linked to exempt supplies or non-business activities, then the input tax is not recoverable.
Any input tax a business incurs which cannot be directly attributed to either category above, is categorized as “residual input tax”. The amount of VAT recoverable in the residual input tax pot is based on the following calculation. As per as
VAT Decree-Law (i.e. “Standard Method”):| X % = | (“Total amount of input tax” @”recoverable under art 54 of the Law”) / (“Total amount of input tax” @”recoverable and non-” @”recoverable under art 54 of the Law”) |
In addition to the above, the FTA is now also allowing businesses to apply for a special input tax apportionment method (“special method”). It should be noted that any applications approved by the FTA shall only be effective from 1 January 2019 onward and cannot be applied retrospectively.
So, A new specific FTA form need to be completed to agree a special method. As part of the application for permission, the business is required to identify which special method it is applying for and provide support for the contention that the special method will be more appropriate than the standard method.
Finally, FTA approval for the use of a special method will typically be given for 2 years for a sectoral method and 4 years for a non-sectoral method.
Note: Applicants cannot apply to change the approved special method for at least two years, unless specific criteria are met.