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VAT Public Clarifications on Disbursements & Reimbursements

August 05, 2019

Generally, there was a lot of confusion for applicability of VAT on disbursements and reimbursement as these terms were not defined under UAE VAT Decree-Law & Executive Regulations. To be clearer and remove ambiguity between both the terms the ‘Federal Tax Authority’ (FTA) has recently out with a clarification on principles for bifurcating disbursement and reimbursement along with the VAT treatment on both of them.

To determine that a recovery is disbursement or reimbursement, establish whether you acted as principle or an agent in purchasing goods and services. If you have acted as an agent the recovery will be a disbursement and it does not constitute as supply, so it is out of scope and if you acted as principal, the recovery would amount to reimbursement and it is considered as a part of consideration for the supply and the same is within the scope of VAT.

Principles for Disbursement:
  • Recipient of Goods or services should be other party;
  • Responsibility of payment shall be of other party;
  • Tax invoice or Invoice should be in the name of other party;
  • Other party should authorize to make payment;
  • Goods or services paid for should be additional to supplies;
  • Payment should be shown separately in invoice and should receive the exact amount.
Principles for Reimbursement:
  • Contract of supply of goods or services should be in your own name;
  • Receive goods or services from a supplier by you;
  • Should receive goods in your name and you have a legal obligation to make payment;
  • In case of goods, you should own the goods prior to making outward supply;

The above principles stated should be used as indicators to determine that recovery of expense is disbursement or reimbursement. The taxpayer should consider all the facts of the transaction to arrive at the conclusion.

Last Updated: 5th August 2019This article is contributed by: CA Ajay Maru Tax Consultant

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