Not every VAT you are charged is recoverable. UAE VAT law blocks input tax on entertainment, on most motor vehicles available for private use, and on certain employee benefits. These are the recoveries the FTA looks for first in an audit, because almost every business gets at least some of them wrong.
Entertainment expenses
Input tax is not recoverable on entertainment provided to anyone who is not an employee — customers, suppliers, potential clients, shareholders, officials. That covers hospitality, meals, accommodation, event tickets and similar.
The line that causes argument is the business lunch. Taking a client to lunch is entertainment and the VAT is blocked. Buying lunch for your own team during a working meeting is treated differently and can be recoverable, provided it is genuinely incidental to a business meeting rather than a benefit.
The practical test we apply: who consumed it, and would they have received it if they were not doing business with you? If the answer points outward to a customer, assume the VAT is blocked and be pleased if it turns out otherwise.
Modest hospitality at your own premises
Tea, coffee and light refreshments made available in the ordinary course at your own premises are generally not treated as entertainment. A catered client dinner is. The boundary is one of the more frequently misapplied areas in UAE VAT, and it is worth setting a written policy rather than deciding invoice by invoice.
Motor vehicles available for private use
Input tax on a motor vehicle is blocked where the vehicle is available for private use, even if private use is incidental and the vehicle is mostly used for business. The test is availability, not actual usage.
Recovery is available where the vehicle is genuinely used exclusively for business, and in practice that means:
- Vehicles used in a business of transporting goods or passengers, such as taxis and delivery fleets
- Vehicles held as trading stock by a dealer
- Emergency and specialised vehicles
- Pool vehicles kept at business premises, not taken home, with usage logged
The blocking extends beyond the purchase to the running costs — fuel, servicing, insurance, parking. If a company car is available to a director at weekends, the VAT on the car and on everything you spend keeping it on the road is blocked. A vehicle log is the only practical way to defend a claim.
Employee-related supplies
Input tax on goods or services provided to employees for their personal benefit without charge is generally blocked. Typical examples: private health insurance beyond a legal requirement, gym memberships, staff parties, personal travel.
Recovery remains available where the supply is a legal obligation, is contractually required under the employment contract, or is necessary for the employee to perform their role. Health insurance mandated by emirate law, for instance, sits on the recoverable side.
This interacts with payroll. Where a benefit is provided free and the VAT is blocked, the cost is a gross cost to the business — something worth modelling in your payroll planning rather than discovering at audit.
Other recoveries that get denied
- Exempt supplies. Input tax attributable to exempt activity is not recoverable, and businesses making both taxable and exempt supplies must apportion.
- Non-business use. VAT on anything used privately or outside the business is not recoverable, or must be apportioned.
- Defective invoices. Not a blocking rule as such, but the practical effect is identical — no valid tax invoice, no recovery.
Why this is audit territory
Blocked input tax is attractive to the FTA because it is easy to test and almost always produces adjustments. An auditor pulls the general ledger, filters for entertainment, motor expenses and staff welfare, and asks what was recovered. It takes very little time and rarely comes back clean.
The defensible position is a written recovery policy applied consistently, with the blocked categories flagged in the chart of accounts so the VAT is never claimed in the first place. Retrospective correction is slower and, once a return is filed, may require a voluntary disclosure. Our guide to what triggers an FTA audit covers the wider picture.
Frequently asked questions
Can I recover VAT on client entertainment in the UAE?
No. Input tax on entertainment provided to non-employees — customers, suppliers, shareholders — is blocked, including meals, hospitality and event tickets.
Can I recover VAT on a company car?
Not where the vehicle is available for private use, even if it is mostly used for business. Recovery applies to vehicles used exclusively for business, such as delivery fleets, taxis and logged pool cars.
Does the block cover fuel and servicing too?
Yes. Where the vehicle itself is blocked, the running costs are blocked with it.
Can I recover VAT on staff meals?
Refreshments provided incidentally during a business meeting at your premises are generally recoverable. Meals provided as a personal benefit, and any hospitality extended to non-employees, are not.
Is VAT on employee health insurance recoverable?
Where the cover is a legal or contractual obligation, generally yes. Discretionary cover provided as a personal perk is treated as a blocked employee benefit.
What happens if I have been recovering blocked input tax?
The FTA can deny the recovery with penalties and interest. Correcting it proactively through voluntary disclosure normally costs less than being assessed.
How should we stop this happening?
Flag the blocked categories in the chart of accounts so the VAT is never claimed, and put the recovery policy in writing so it is applied the same way by everyone.