Article 1 of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (“VAT Law”) defines consideration as “all that is received or expected to be received for the supply of goods or services, whether in money or other acceptable forms of payment”.
In commercial transactions, a person may incur expenses and subsequently recover such expenses from another party. The VAT treatment of the subsequent recovery of expenses depends on whether the recovery is tantamount to a “disbursement” or “reimbursement”.
This Public Clarification discusses the VAT principles for differentiating between disbursement and reimbursement, and the VAT treatment that should be applied to disbursement and reimbursement of expenses.
The term “reimbursement” refers to the recovery of expenses that you incur as a principal. The term disbursement, on the other hand, refers to the recovery of payments made on behalf of another person.
While a disbursement of expenses is out of the scope of VAT, reimbursement of expenses falls within the scope of VAT.
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