Disbursements and Reimbursements – VAT Implications

Every business transaction is involved in recovering the expenses it has incurred. The VAT treatment of such recovery is subject to whether it is a disbursement or a reimbursement. Both the terms ‘disbursements’ and ‘reimbursements’ are related to the concept of ‘consideration’ in a business transaction. Consideration means all that is received or expected to be received, for the supply of goods or services, in cash or kind.
The difference between disbursement and reimbursement is that, in the case of the former, the term means the recovery of payments made on behalf of a third party while in case of reimbursement, it means the recovery of expenses that you incurred as a principle. Disbursement of expenses is out of the scope of VAT as it is not considered as supply but reimbursement falls within the scope of VAT.
Determining whether a recovery is a reimbursement or disbursement is done by first establishing whether you are a principal or agent in purchasing the goods or services.
Let us brief on few principles issued by the FTA to establish whether recovery of expense is a disbursement or a reimbursement:

  • The other party should be the recipient of goods
  • The other party should be responsible to make payment to the supplier
  • The other party should receive an invoice in its name by the actual supplier
  • The other party should authorize you to make the payment on its behalf


  • You should have contracted for the supply of goods/services in your own name
  • You should have received the goods/services from your supplier
  • The invoice was issued in your name and you have the legal obligation to make the payment
  • In the case of goods, transfer of ownership has to occur in your name before it can sell to the other party.

The principle stated above should be used as a guideline to analyze the nature of recovery.  A taxable person should however consider all the facts of the transactions to arrive at the decision as to how it needs to be treated in VAT filing.

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