The Federal Tax Authority published a VAT Public Clarification for the treatment of Disbursements and Reimbursements.
Expenses incurred in commercial transactions, where the person incurring them acts an agent of a third party and has a demand to receive the money paid.
The main principles to classify an expense as disbursement are:
- The other party should be the recipient of the goods or services;
- The other party should be responsible for making the payment to the supplier;
- The other party should have received an invoice or tax invoice, as the case may be, in its own name from the supplier;
- The other party should have authorized you to make the payment on his behalf;
- The goods or services paid for should clearly be additional to the supplies you make to the other party;
- The payment should separately be shown on the invoice and you should recover the exact amount paid from the supplier, without a mark–up.
Disbursements are out-of-scope for VAT treament.
Unlike disbursements, transactions where the person making the expense acts as a principal are characterised as reimbursements.
The main principles to classify an expense as reimbursement are:
- You should have contracted for the supply of goods or services in your own name and capacity;
- You should have received the goods or services from the supplier;
- The supplier should have issued the invoice in your name and you are under the legal obligation to make payment for it;
- In case of goods, you should own the goods prior to making the onward supply to the other party.
Reimbursements are subject to standard rate VAT.
Date Published: July 2019
Status: In force