A disbursement is a cost you pay as an agent in the name of and on behalf of your customer, and it is generally outside the scope of your own VAT. A reimbursement is a cost you incur as a principal, in your own name, and recover from the customer. That recovery forms part of the price of your supply and is normally subject to VAT.
The test
VAT law treats a cost you pass on according to the role you played when you bought it. Commentary by advisory firms describes two cases. A disbursement arises when you buy goods or services not in your own name but in the name and for the account of your customer; you merely pay on their behalf and recover the same amount. A reimbursement arises when you contract for the goods or services in your own name, receive them, and then recover the cost from your customer as part of what you supply to them. The UAE VAT law does not set out a standalone rule on disbursements in plain terms, so the analysis depends on the general rules on agents and principals and on FTA guidance. Check the FTA's published clarifications.
Side by side
| Feature | Disbursement (agent) | Reimbursement (principal) |
|---|---|---|
| Who is named on the supplier's invoice | The customer | Your business |
| Who is legally liable to pay the supplier | The customer | Your business |
| Do you receive and use the service | No, it goes to the customer | Yes, you receive it and pass it on |
| VAT on your recovery | Generally none, outside scope | Part of your supply, usually VAT applies |
| Can you claim input VAT on the cost | No, it is not your cost | Yes, if the usual conditions are met |
Examples
A law firm pays a court filing fee in the client's name, with the receipt issued to the client, and bills the same amount: that looks like a disbursement. The same firm books and pays for a hotel for a client's visit in the firm's name and recharges the cost: that looks like a reimbursement and part of a supply of services, and VAT follows the nature of the supply. A freight agent pays customs duty on behalf of an importer, using the importer's code: that looks like a disbursement. A consultant pays for travel in his own name and recharges it to a client: a reimbursement.
Evidence to keep
- The contract or engagement letter showing the agent role.
- The supplier's invoice, showing to whom it was addressed.
- Proof of payment and a matching invoice to the customer without a mark-up.
- A separate ledger or code for disbursements.
Common mistakes
- Treating all recharges as disbursements to avoid VAT.
- Adding a margin to a disbursement. A margin turns it into a supply of your own.
- Claiming input VAT on a cost that is really the customer's.
- Showing a recharge on an invoice without VAT when your own supply is taxable.
How to show it on the invoice
Show disbursements as a separate line below the taxable fees, with the supplier's name and the original amount. Show reimbursements as part of the taxable value, with VAT. Where a recharge relates to a zero-rated or exempt main supply, check the treatment of the whole. See tax invoice requirements.
Process for finance teams
Create separate general ledger accounts or tax codes for disbursements and recharges. Agree in the engagement letter which costs are paid as agent. Check each large item before the return; see VAT accounting entries and FTA private clarifications for how to seek certainty in an unusual case.
More examples
A logistics business pays port charges for an importer using the importer's account at the port and with receipts in the importer's name, then bills the same amounts to the importer. That is a disbursement. Another logistics business pays storage in its own name and charges the importer storage plus a handling fee; storage is part of its taxable supply. A property manager pays utility bills that are in the owner's name and recovers them from the owner; this is a disbursement. If the bills are in the manager's name and passed on, this is a reimbursement.
Writing the contract right
State in the engagement letter which costs the business pays as agent, in the client's name, and which are included in fees. Say whether the business will add a margin. A clear contract does not decide the VAT treatment by itself, but it supports the facts. Make sure the supplier invoices match the contract.
What an FTA review checks
- Whether supplier invoices are in your name or the client's.
- Whether recharges include a mark-up.
- Whether VAT has been charged consistently on similar recharges.
- Whether input VAT has been claimed on costs that belong to clients.
Frequently asked questions
A cost you pay as an agent in the name of your customer and recover at cost. It is generally outside the scope of your VAT.
A cost you incur in your own name as principal and recover from your customer. It is usually part of your taxable supply.
Usually yes, because the recharge forms part of the consideration for your supply. Check the facts of each case.
No. The cost belongs to your customer, not your business.
Yes. A margin shows you are supplying the service yourself, not acting only as an agent.
The UAE VAT law does not give a standalone rule. Commentary relies on agent and principal rules and FTA guidance.