UAE VATP013 – Disbursements & Reimbursements

General

The Federal Tax Authority published a VAT Public Clarification for the treatment of Disbursements and Reimbursements.

Disbursements

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.

Reimbursements

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.