The Federal Tax Authority (FTA) released a public clarification, VATP013, that sets certain principles to analyze certain expenses which amount to Reimbursement or Disbursement. The said public clarification discusses the applicability of VAT on reimbursement and disbursement of expenses charged by a taxable person on another person.

Reimbursement and disbursement: It is important to understand these terms before understanding their VAT implications.                                                                                                                                         

The term “Reimbursement” refers to the recovery of expenses that is incurred as a principal, whereas the term “Disbursement” refers to recovery of payments made on behalf of another.

Disbursement:-  The public clarification makes it clear that, in the context of the UAE VAT law, where a taxable person acts in the capacity of an agent, the recovery would generally amount to a disbursement, and does not constitute a supply and is therefore not subject to VAT. 

The term Payment can be treated as a disbursement if;

  • The other person is the recipient of goods or services.
  • The responsibility to pay for the goods or services shall be of other party;
  • Invoice or tax invoice should be in the name of the other party;
  • The other party should authorize you to pay on his behalf.
  • The goods or services paid for should clearly be added to the supplies the taxable person makes to him.
  • The payment should separately be shown on the invoice and the taxable person should recover the exact amount paid to the supplier, without a mark-up.


Company ‘XYZ’, a resident in the UAE, has approached a real estate broker for purchase of property in UAE.  In the course of providing the service, the real estate broker paid charges namely; registration fees, property tax, and other charges related to property on behalf of the company ‘XYZ’. Invoices for the said charges were received in the name of company ‘XYZ’ itself. The real estate broker issued a single invoice to company ‘XYZ’ for each charge paid by him on behalf of company. In addition to that, the service charges for the services provided by broker is also collected in the same invoice.

Here the expense recovered by the real estate broker from company ‘XYZ’ except its service charges is considered as disbursement because he has not made any supply attributable to that amount. The real estate broker has made the payment for the expenses as an agent to company ‘XYZ’.  The transaction took place between the company ‘XYZ’ and the provider for the said service and not between the company ‘XYZ’ and the real estate broker. Since the amount recovered by the real estate broker is only a disbursement and not a consideration for any supply, it will not be taxable. However, the amount received by the real estate broker for his service charges from company ‘XYZ’ is chargeable to VAT.

It is to be noted that in this case company ‘XYZ’ can claim the input VAT for all the payment made to the real estate broker provided the conditions for recovering the Input VAT has been fulfilled. 

Reimbursement: –  The public clarification issued by the FTA makes it clear that, in the context of UAE VAT law, where a taxable person acts in the capacity of principal, the recovery would generally amount to a reimbursement.

A reimbursement is part of consideration for the supply and follows the same VAT treatment as the main supply.  

The Payment can be treated as reimbursement;

  • The taxable person should have received the goods or services from the supplier.
  • The supplier should have issued the invoice in the name of the taxable person and he/it is under the legal obligation to make payment for it.
  • In the case of goods, the taxable person should own the goods prior to making the onward supply to another person.

The above principles should be used as indicators to determine the recovery of expenses that amounts to Reimbursement or Disbursement.


Company M enters into a contract with Company N to provide Company N with marketing services. Company M incurs costs in its own name while providing these services and then recovers these amounts from Company N as per the existing terms of their contract. The expenses that Company M recovers from Company N will follow the VAT treatment of the main supply.


If the expenses of Airlines Ticket incurred are first paid by Principal and then recharged to client, it will be a Reimbursement and subject to VAT when billed to client. Principal can claim the input VAT in his VAT return on these expenses

A Reimbursement of expense is a part of consideration for the supply and is, therefore, subject to VAT while Disbursement of expense does not constitute a supply and is, therefore, not subject to VAT.

Generally, certain costs that a business incurs to supply goods or services are part of the overall costs. If the business recovers such costs from customers in whatever nomenclature, the nature of such costs does not change and hence the recovery of such costs will amount to Reimbursement and hence is subject to VAT. On the other hand, where a firm pays certain expenses on behalf of its customers and acts as an agent of its customer, the recovery of such expenses shall be treated as Disbursement and hence is not subject to VAT.

Businesses should review their recharges of costs to understand whether they have been treated correctly as disbursements or reimbursements in accordance with the above principles.                                       

To the extent there is any under or over-declared VAT, corrections should be made.