Public declaration on Disbursement & Reimbursement

Federal Tax Authority (FTA) has issued a public clarification on the VAT implications for cases wherein a registrant incurs an expense which is subsequently recovered from another party. This clarification discusses the VAT principles for differentiating between a disbursement and a reimbursement and states the VAT treatment for the same.
The fundamental basis to determine whether a recovery is a disbursement or reimbursement is to establish whether the supplier has acted as a principal or as an agent in purchasing the goods or services. Where supplier has acted as an agent, the recovery would generally amount to a disbursement. On the other hand, where he has acted as a principal, the recovery would generally amount to a reimbursement.

Principles to determine whether recovery of an expense is Reimbursement or Disbursement:


  • Refers to recovery of expenses that is incurred by the supplier as a principal
  • Supplier (principal) has contracted for the supply of goods/services in its own name and capacity
  • Supplier (principal) should have received the such goods/services form the 3rdparty vendor
  • The invoice for such goods/services should have been issued by the 3rdparty vendor in the name of the supplier (principal).
  • The supplier (principal) is under legal obligation to make the payment for the supply to the 3rdparty vendor
  • The supplier (principal) has the right to alter or add on the value of the supply.

  • Refers to recovery of payments made on behalf of other party (client).
  • Supplier incurs expenses as an agent acting on behalf of the client.
  • The client is the recipient of the supply (invoice is in the client’s name)
  • The client is the person responsible to pay for the supply.
  • The payment is authorized by the client.
  • The payment is clearly in addition to the supply made to the client.
  • Exact amount is claimed from the client and the supplier (agent) has no right to alter or add on the value of the supply.


Based on above characteristics it has been clarified that, disbursement does not constitute a supply and is therefore, out of scope of VAT whereas reimbursement is considered to be part of consideration and thus, falls within scope of VAT.

Nature of Expense Input VAT Claim  Output Tax Applicability
Reimbursement Yes, Input VAT may be claimed by the supplier (subject to other Input VAT recovery conditions)   Yes, same VAT treatment as  the main supply
Disbursement No, Input VAT cannot be claimed by  the  supplier           No, this is out of scope of  VAT

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