VAT on Restaurants in UAE

The UAE food service market was valued at about USD 16.58 billion in 2024 and is projected to cross USD 50 billion by 2033. This stat reflects strong long-term demand for eating out and delivery.   

At the same time, a 5 percent standard VAT rate continues to apply on most goods and services, including food and beverages.

For restaurant chains, independent cafes and cloud kitchens, understanding how VAT in Dubai and the wider UAE system interacts with menus, service charges and delivery platforms is now essential. It has become a normal part of price design and cash flow planning.

Core VAT Rules for Restaurants and Cafes

For most hospitality operators, supplies of food and drink are standard-rated at 5 percent, including dine-in, takeaway and delivery. This is the base position behind VAT on restaurants in UAE.

VAT treatment then follows a few key ideas:

• Customer payment for meals, snacks and non-alcoholic drinks normally attracts 5 percent VAT at the point of sale. 
• Mandatory service charges and cover charges are usually taxable in the same way as the main bill. 
• Tips that are passed through in full at staff discretion may fall outside VAT, depending on how bills and payroll are structured. 
• Input VAT on routine business costs stays recoverable where activity is fully taxable, but blocked on many entertainment-style expenses for customers.

Public guides and clarifications issued by the Federal Tax Authority give the detailed background for these hospitality rules and are updated after law changes.

How VAT Applies to Different Restaurant Models

The label “restaurant” hides many formats, so restaurant VAT rules UAE look slightly different across the sector.

Dine-in and casual dining outlets usually treat food, soft drinks and standard service charges as fully taxable. Hotel restaurants follow similar rules, though packages that mix room, meals and entertainment need allocation between VAT categories. 

Cloud kitchens with only delivery or pick-up still charge VAT on menu prices and may need separate accounting for orders taken through multiple aggregators. Franchise systems often add further layers, as royalties and management fees between related entities are standard-rated services. 

For VAT on catering services UAE, off site catering of meals for events is usually treated as a taxable service. This applies to food delivered to offices, venues or homes, subject to normal registration thresholds and invoicing rules.

VAT on Food Delivery, Aggregators and Promotions

Online ordering and delivery remain central to growth, with food e-commerce sales in the UAE reaching about USD 1.07 billion in 2023. That trend shapes how VAT on food delivery UAE works in practice.

Where a restaurant contracts directly with the end customer, VAT applies to the full charged amount for food, drink and in-house delivery fees. 

If a platform acts as principal, the platform may handle VAT on the customer side while the restaurant treats its share as a taxable supply to the platform. Contract wording and settlement reports decide the exact pattern.

Promotional mechanics add another layer:

• Percentage discounts funded by the restaurant usually reduce the taxable amount.
• Vouchers paid for in advance often count as consideration; treatment depends on single-purpose or multi-purpose status.
• “Free” items in meal deals can fall under deemed-supply rules if not part of normal promotional pricing. 

Careful mapping of these flows helps finance teams avoid understated output tax or unsupported input-tax claims.

Input VAT Recovery, Staff Meals and Entertainment

In principle, restaurants with only taxable sales can recover VAT on ingredients, rent, utilities and most operating costs. Problems arise once expenses look like entertainment or staff perks.

FTA clarification on entertainment blocks input VAT on food and drink provided free to customers, potential customers or owners, unless a charge is made. 

Staff meals can sit in a grey area: VAT may be recoverable where meals are part of employment contracts or required for operational reasons, but blocked where treated as discretionary hospitality.

Free meals for influencers, media or marketing events also need review, as these often fall under non-recoverable categories. Documentation should explain the business purpose and any contributions recovered.

This is one area where Arnifi often assists hospitality groups. The team compares internal policies with public clarifications and aligns charts of accounts codes with recoverability decisions so entertainment blocks stay consistent, not case by case.

Control Points, Records and Free Zone Questions

Well-run restaurants treat VAT as part of daily control, not a year-end clean-up. A short set of checks keeps VAT on restaurants in UAE aligned with law changes:

• Ensure point-of-sale systems apply 5 percent VAT correctly on all standard-rated items and reflect current prices. 
• Reconcile aggregator reports to sales ledgers each period, checking that VAT on delivery and platform commissions is treated as intended. 
• Tag customer entertainment, staff perks and marketing tastings to separate cost centres so blocked input VAT stays visible. 
• Review any free-zone structures; for restaurants in non-designated zones, ordinary VAT rules still apply to services despite customs benefits on goods

Regular internal reviews against the latest FTA guides and Cabinet Decisions help restaurants spot issues early, especially as Executive Regulations continue to evolve.

How Arnifi Supports Restaurant VAT Planning

Restaurant groups now juggle VAT, corporate tax and evolving transfer-pricing expectations. Arnifi works with owners, franchise networks and cloud-kitchen operators that want simple, repeatable VAT rules instead of one-off fixes.

Typical assignments include mapping each revenue stream and discount type to the correct VAT treatment. They also involve designing point of sale tax codes that match that map and testing input tax recovery on rent, fit outs and refurbishments.

Arnifi also helps with reverse-charge entries on imported management services, as international brands often charge head-office fees into UAE structures.

With that groundwork in place, VAT on menus, delivery charges and promotions becomes part of ordinary monthly closing. External audits then turn into confirmation exercises instead of crisis projects.

Conclusion

VAT on restaurants in the UAE rests on a 5 percent standard rate, but real complexity lies in formats, promotions and entertainment. Growing food-service volumes mean even small percentage errors now compound quickly across busy outlets. 

FTA clarifications on hospitality, vouchers and entertainment continue to refine the rules, so well-organised documentation matters as much as tax logic. 

Arnifi helps restaurant and café owners convert those moving rules into stable processes, linking contracts, menus and accounting entries so VAT risk stays low to none while the sector keeps growing. 

FAQs

1. What VAT rate applies to most restaurant bills in the UAE?

Most restaurant, café and catering sales attract 5 percent VAT under the standard rate. Bills usually show the tax separately so customers and finance teams can track amounts. 

2. Are mandatory service charges and cover charges subject to VAT?

Mandatory service or cover charges linked to restaurant bills are normally taxable at 5 percent. Voluntary tips passed directly to staff may fall outside VAT if systems support that split. 

3. Can restaurants recover VAT on customer entertainment?

Input VAT on free entertainment for customers, prospects or owners is generally blocked. Recovery may be possible only where a genuine charge is made and documented correctly. 

4. How does VAT work on online food delivery orders?

VAT applies to the taxable value of food, drinks and in-house delivery fees. Where aggregators act as principals, contracts decide which party accounts for VAT on each leg.

5. Do free-zone restaurant licences change VAT treatment on meals?Most free zones treat restaurant services like mainland activity, with 5 percent VAT on standard supplies. Designated-zone rules mainly affect goods customs treatment rather than everyday meals.