On 30 July 2019, the Federal Tax Authority (FTA) published clarification VATP013 on disbursements and reimbursements of expenses (the clarification).
The clarification provides that where the taxpayer acts as an agent, the recovery of expenses is considered a "disbursement", which does not fall within the scope of VAT. However, where the taxpayer acts as a principal, the recovery of expenses is considered a "reimbursement", with the VAT treatment being the same as that regarding the main supply.
The clarification also provides a number of principles determining whether a recovery of expenses can be considered a disbursement or a reimbursement. The principles are set out in the table below.
| Reimbursements | Disbursements |
|---|---|
| the taxable person must have contracted for the supply of goods or services in his own name and capacity | the other party on whose behalf the taxable person acts must be the recipient of the goods or services |
| the taxable person must have received the goods or services from the supplier | the other party on whose behalf the taxable person acts must be responsible for making the payment to the supplier |
| the supplier must have issued the invoice in the taxable person's name, with the latter being under the legal obligation to make payment for it | the other party on whose behalf the taxable person acts must have received an invoice or tax invoice, as the case may be, in its own name from the supplier |
| in the case of goods, the taxable person must own the goods prior to making the forward supply to the other party | the other party on whose behalf the taxable person acts must have authorized the taxable person to make the payment on its behalf |
| the goods or services paid for must clearly be additional to the supplies the taxable person makes to the person on whose behalf he acts; | |
| the payment must be shown separately in the invoice and the taxable person who acts as an agent must recover the exact amount, without a mark-up, paid to the supplier. |