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:
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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