Blocked input tax: what it means in UAE tax.
The meaning of blocked input tax under UAE VAT law: how it works, a worked example in AED, common mistakes and the legal references.
Blocked input tax is UAE VAT a registered business cannot recover even on business costs, such as client entertainment and cars open to personal use.
What blocked input tax means
Also called: Non-recoverable input tax, Blocked VAT.
Blocked input tax is VAT that a registered business pays on its costs but is not allowed to recover, even though the cost relates to a taxable business. The VAT law lets the Executive Regulation list these cases, and Article 53 of the Regulation does so.
There are three main groups. First, entertainment provided to anyone who is not an employee, such as customers, prospective customers, officials or shareholders. Entertainment means hospitality of any kind, including accommodation, food and drinks not provided in the normal course of a meeting, access to shows or events, and trips for pleasure. Second, motor vehicles bought, rented or leased for the business that are available for personal use by anyone. Third, goods or services given free to employees for their personal benefit, unless an exception applies, such as employee health insurance or a benefit the law requires.
For SMEs this is one of the most common audit adjustments. Client dinners, staff parties and the managing partner's car are everyday costs, and claiming VAT on them in full is an easy error to repeat every quarter. Blocked input tax is different from VAT that is restricted because a business also makes exempt supplies, and from input tax the FTA can deny under the anti-evasion rules.
How it works
- A motor vehicle means a road vehicle designed or adapted to carry no more than 10 people including the driver. Trucks, forklifts and hoists are not motor vehicles for this rule.
- A vehicle is not treated as available for private use if it is a licensed taxi, a registered emergency vehicle, or a vehicle rented out by a vehicle rental business.
- VAT on health insurance for employees and their family members, limited to one spouse and three children under 18, remains recoverable.
- From 1 October 2026, Cabinet Decision No. 149 of 2026 narrows the employee exceptions: accommodation counts as a legal obligation only where Ministry of Human Resources and Emiratisation decisions or directives require it, and contractual or policy benefits qualify only in the cases and conditions set by the FTA.
- FTA Decision No. 17 of 2026, also effective 1 October 2026, sets those cases, including work transport, food in remote locations, work-required accommodation, up to 30 days of accommodation for new staff, and work phones and data, each with conditions.
Worked example
A Dubai consultancy reviews the VAT on its costs for one quarter. It hosted client dinners, leases a saloon car that its managing partner also uses at weekends, and paid VAT on rent and office costs.
| VAT on client dinners (blocked) | AED 500 |
| VAT on the car lease, available for personal use (blocked) | AED 300 |
| VAT on rent and office costs (recoverable) | AED 3,000 |
| Total VAT paid in the quarter | AED 3,800 |
| Input tax the consultancy can recover | AED 3,000 |
The AED 800 of blocked VAT becomes part of the cost of the dinners and the car.
Common mistakes
- Recovering VAT on company cars that staff can also use privately, including leased cars kept at home.
- Treating staff parties, gifts or free meals as ordinary business costs when they are for the employees' personal benefit.
- Relying on an internal benefits policy after 1 October 2026 without checking that the benefit meets the FTA's published cases and conditions.
The law
- Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 54 Clause 5
- Cabinet Decision No. 52 of 2017 (VAT Executive Regulation), Article 53 (Non-recoverable Input Tax)
- Cabinet Decision No. 149 of 2026, Article 1 (new sub-clauses 1 and 2 of paragraph (c) of Clause 1 of Article 53, effective 1 October 2026)
- FTA Decision No. 17 of 2026 on the Cases and Conditions for the Recovery of Input Tax Incurred on Employee Expenses, Articles 1 and 2
Frequently asked questions
Is VAT on a delivery van blocked?
Only if the van is available for personal use. The rule covers road vehicles for ten people or fewer, including the driver, so a van can be caught, but VAT on a van used only for business deliveries is not blocked.
Is coffee and lunch at a client meeting entertainment?
Food and drinks provided in the normal course of a meeting fall outside the definition of entertainment. A dinner or event for clients outside a meeting is entertainment and its VAT is blocked.
Related terms
Input tax · Exempt supply · Deemed supply · Tax invoice. See every term in the UAE tax glossary.
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