Input VAT incurred in relation to a business meal may be recovered by a taxable person. True or False?

The Facts: In accordance with Article 168 of the VAT Directive, a taxable person is entitled to deduct input VAT to the extent that goods and services are used for taxable transactions. However, this right is subject to national limitations and exclusions provided under domestic VAT legislation.

The Malta VAT Act imposes restrictions on input VAT recovery, particularly on expenses categorised as entertainment, receptions, or hospitality. As specified in the Tenth Schedule of the Malta VAT Act, input VAT incurred on such expenses is classified as a blocked item, meaning it is not deductible, except where the said provision is made for consideration in the normal course of that person’s economic activity.

A business meal falls within the scope of entertainment expenses, which are explicitly disallowed for VAT recovery purposes under Maltese VAT law. Therefore, where a business treats its clients to a meal, the input VAT incurred on such expenses cannot be reclaimed.

Conclusion: Input VAT incurred in the furtherance of a business meal may not be claimed as this constitutes a blocked item.

Verdict: False

Authors: Brandon Gatt, Partner, Zampa Partners & Valentina Bruno, VAT Associate, Zampa Partners