VAT

Disbursements vs Reimbursements in UAE VAT

2025-11-24 · 5 min read · By Aureus Worldwide

Recharging costs to clients is everyday business for consultants, lawyers, agencies and service firms, but the VAT treatment depends on a distinction many get wrong. Is the recharge a disbursement (outside the scope of your VAT) or a reimbursement (part of your taxable supply, so 5% applies)? Treating a reimbursement as a disbursement under-charges VAT and exposes you to assessment. This guide explains the difference and how to invoice correctly.

Why the distinction matters

When you pass a cost on to a client, the VAT question is whether that recharge is part of your taxable supply. If it is, you must add 5% VAT to it. If it is a true disbursement, a payment you made as the client's agent, it is generally outside the scope of your VAT, and you should not add VAT to it. Getting this wrong means either over-charging clients or, more seriously, under-charging VAT and facing an FTA assessment plus penalties. The general rules on services that this sits within are in our VAT on services guide.

Disbursement vs reimbursement at a glance

What makes a recharge a disbursement

A recharge is generally a disbursement, outside the scope of your VAT, only where strict conditions are met, broadly:

• You act as agent for your client in incurring the cost
• The supply is to the client, not to you, the client is the recipient
• The client is responsible for the cost and authorised you to pay it
• You pass on the exact amount with no mark-up
• The cost is separately itemised and the client knows it was incurred on their behalf

If any of these fail, for example, the supply was really to you, or you add a margin, the recharge is generally a reimbursement and VAT applies.

What makes a recharge a reimbursement

A reimbursement arises where you incur a cost as principal to deliver your own service, then recharge it. Classic examples include travel, accommodation, materials, courier costs and subcontractor charges that you arrange in your own name to fulfil your engagement. Because these costs are part of your supply to the client, the recharge generally forms part of the taxable value of that supply, and 5% VAT applies to it, even if you pass it on at cost. The fact that you are only recovering what you spent does not make it a disbursement.

The acid test is simple: who received the underlying supply? If it was supplied to you so you could serve the client, it is a reimbursement and VAT applies. If it was genuinely supplied to the client and you merely paid as their agent, it can be a disbursement.

Worked examples

• A consultant pays a government registration fee on the client's behalf, in the client's name, and passes on the exact amount. This can be a disbursement, outside the scope of the consultant's VAT, if the conditions are met.
• The same consultant books flights and a hotel in the consultant's own name to attend the client's site, then recharges them. These are reimbursements, part of the consultant's taxable supply, so 5% VAT applies to the recharge.
• An agency buys stock photography licensed to the agency to use in a client's campaign, then recharges it. Generally a reimbursement, because the supply was to the agency.

How to invoice each correctly

Getting the invoicing right is half the battle:

1. For a reimbursement, include the recharged cost in the taxable value and apply 5% VAT to it, on a compliant tax invoice
2. For a disbursement, show it separately on the invoice, without VAT, clearly identified as a disbursement made on the client's behalf
3. Keep the underlying supplier documents, for disbursements, ideally addressed to the client
4. Never mark up a disbursement, or it loses its disbursement character
5. Be consistent, apply the same analysis to similar recharges every time

Our tax invoice requirements guide sets out what a compliant invoice must contain.

Common mistakes

• Treating travel and materials bought in your own name as disbursements, they are usually reimbursements
• Marking up a cost and still calling it a disbursement
• Failing to itemise disbursements separately on the invoice
• Not keeping the supplier documentation to support disbursement treatment
• Applying the analysis inconsistently across similar recharges

Record-keeping

For each recharge, keep the underlying invoice, evidence of who the supply was to, the agency arrangement (for disbursements), and your invoice showing the correct VAT treatment. Clear records let you defend a disbursement as outside scope and demonstrate that reimbursements carried the right VAT. Integrating this with ongoing accounting keeps the evidence consistent and ready for review.

A note on changeable detail

The conditions distinguishing disbursements from reimbursements are set by the rules and FTA guidance and can be applied strictly. Treat this guide as the framework and confirm the treatment of specific recharges with the FTA or a qualified adviser, particularly where significant sums or recurring recharges are involved.

How Aureus Worldwide helps

Aureus Worldwide helps UAE service businesses classify recharged costs correctly, apply VAT to reimbursements, keep true disbursements outside scope, and invoice each in a compliant way. Our VAT and accounting teams build a consistent recharge policy and the supporting records, and we direct you to confirm changeable specifics with the FTA. To get your recharges right, contact us.

Talk to our chartered accountants →