Entertainment Expenses in GCC Taxation : Guidelines for Compliance and Deductibility from a Corporate Tax perspective

This article defines common types of entertainment expenses are such as client meals, hospitality, and events from a GCC taxability context and highlights why clear documentation of the business purpose is critical for these expenses to qualify for a deduction.

Country-Specific Regulations in the GCC:

• United Arab Emirates (UAE) : Under the UAE’s Corporate Tax framework, there is a 50% cap on the deductibility of entertainment expenses. This means that only half of the qualifying entertainment expenses directly related to business operations (e.g., client meetings, events with a clear business purpose) can be deducted. Expenses classified as personal or excessive in nature, such as lavish entertainment, are non-deductible. However, staff welfare expenses can be fully deducted. Businesses should maintain thorough documentation that clearly justifies the business necessity for each expense to comply with FTA guidelines as well as appropriate tracking of such expenses in their books.

• Saudi Arabia (KSA) : The Saudi Zakat, Tax, and Customs Authority (“ZATCA”) allows deductions for entertainment expenses if they have a direct business purpose. Although there is no specific percentage cap (such as the UAE’s 50% limit), expenses must be reasonable and justifiable as necessary for conducting business. Excessive or non-essential entertainment expenses, particularly those without a clear business purpose, are generally non-deductible. Businesses are advised to reasonably spend on entertainment and to document each expense’s relevance to business activities to ensure compliance.

• Oman : In Oman, corporate tax regulations generally limit the deductibility of entertainment expenses to those that are essential for business operations. While there is no fixed cap, the expenses must be reasonable and directly support business activities. Personal or extravagant entertainment costs are typically non-deductible. For compliance, companies should provide clear documentation that ties each entertainment expense to a legitimate business purpose, and ensure spending which aligns with the tax authority’s emphasis on business relevance.

• Qatar : Qatar’s corporate tax framework allows deductions for entertainment expenses if they can be shown to be necessary for business purposes. There is no explicit percentage cap, but any expenses that lack a clear, demonstrable connection to business operations are generally non-deductible. For instance, hospitality provided as a personal gesture or for purposes outside of direct business engagement would not qualify for deductibility. Companies should keep detailed records to justify the business nature of these expenses.

• Bahrain : As of recent, Bahrain’s tax system generally did not apply corporate income tax to businesses outside of certain sectors, such as oil and gas. In cases where corporate tax does apply, deductions for entertainment expenses are typically limited to those directly related to business operations. Like other GCC countries, Bahrain emphasizes that expenses should be reasonable and clearly tied to business objectives. With corporate tax legislation largely absent in most sectors, businesses in Bahrain face fewer restrictions on entertainment expenses . As a recent update, The Kingdom of Bahrain announced the introduction of a Domestic Minimum Top-up Tax for Multinational Enterprises as outlined in Decree Law (11) of 2024. The necessary Executive Regulations to implement the provisions of the Law would be issued to provide detailed guidance on various aspects. However, on a plain reading of this Decree Law, Taxable Income would be the Financial Accounting Income or Loss, it would be relevant to examine the Executive Regulations which would be issued in due course for further guidance. 

Common Deductibility Challenges Across the GCC

• Documenting the Business Purpose : Across the GCC,  tax authorities require businesses to clearly document the business relevance of entertainment expenses to qualify for deductions. This includes, but is not limited to retaining receipts, explaining the business purpose (e.g., a client meeting), and noting participants.

• Avoiding Personal or Extravagant Claims : Tax authorities in GCC countries generally disallow personal or overly lavish expenses, emphasizing that only reasonable costs with a direct link to business activities are deductible. Companies should establish internal policies to avoid claiming expenses that do not comply with these standards.

• Navigating Undefined Limits : In countries with no predefined cap (e.g., KSA, Oman, Qatar), businesses must exercise discretion by limiting entertainment expenses to necessary, moderate levels that align with operational needs.

Best Practices for Compliance in the GCC

• Maintain Clear and Detailed Documentation : Retain thorough documentation for each entertainment expense, including receipts, the business purpose, and the individuals involved. This helps substantiate claims in the event of an audit.
   
• Set Internal Guidelines : Implement internal policies that outline acceptable entertainment expenses and provide employees with guidance to ensure compliance with country-specific regulations.
  
  
• Regular Reviews and Audit Preparation : Conduct periodic reviews of entertainment expenses to ensure compliance with GCC regulations and to prepare for potential audits. Adjust expense claims as needed to align with evolving tax guidelines.

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice