What is VAT Disbursement?
The other party should be the recipient of the goods or services.
The other party should be responsible for making the payment to the supplier.
The other party should have received an invoice or tax invoice in its own name from the supplier.
The other party should have authorized the payment to be made on its behalf.
The goods or services paid for should clearly be additional to the supplies made to the other party.
The payment should separately be shown on the invoice and recovery should be of the exact amount paid, without a mark-up.
What is VAT Reimbursement?
The first party should have contracted for the supply of goods or services in its own name and capacity.
The first party should have received the goods or services from the supplier.
The supplier should have issued the invoice in the first party's name, with the first party legally obliged to make payment for it.
In case of goods, the first party should own the goods prior to making the onward supply to the other party.
Example 1: VAT Reimbursement
Question 1:
Company X entered into a contract with Company Z to provide marketing services. The contract stipulated that Company X would be eligible to reimburse the expenses from Company Z. Company X incurred the expenses in its own name and subsequently recovered the amounts from Company Z as per the terms of the contract.
Answer: The recovery of expenses from Company Z will be a reimbursement and will follow the same VAT treatment as that of the main supply.
Example 2: VAT Disbursement
Question 2:
Company X procured group medical insurance from a local insurance company and received an invoice directly from the insurance company. Company X requested Company Z to make the payment on its behalf.
A&A Associate provides the right guidance on VAT reimbursement, disbursement, and compliance in the UAE. To learn more, reach out to our expert VAT consultants in the UAE. Contact us today .
