Disbursement GST treatment

I am quite confuse with billing of disbursement and look forward for a clearer explanation with sample.

For example:
The transporter (which help to send stock) issue a tax invoice to Company A (RM100 + RM6 SR_S), but Company B help Company A to pay first, then Company B only bill back Company A for this expenses.

1. The billing action of company B is consider disbursement rather than reimbursement?

2. In Company B account, it shall record the RM6 as block input tax, or directly recognize whole RM106 with tax code OP?

3. Since disbursement shouldn’t charge with GST, when company B bill back company A for this expenses, it shall issue tax invoice RM106 with tax code OS? Or RM100 with tax code OS?

4. If in (Q3), company B bill company A with RM106 (tax code OS), it means company A is unable to claim the input tax from custom? Or company A may still record RM100 + RM6 TX_S with a photocopy attachment of the transporter’s tax invoice and claim the input tax from custom?

Thousand thanks in advance for your reply!

Asked on April 27, 2016 2016-04-27 04:12:26 Business (商家)
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7 Answer(s)

Disbursement and reimbursement are the method of recovery of expenses.

It happens when you help somebody pay his expenses and bill him afterwards to recover the expenses.

Definition of Reimbursement

“Reimbursement” refers to the recovery of an expense that you incur as a principal from your client (another party). A reimbursement is a supply and subject to GST .

Definition of Disbursement

“Disbursement” refers to the recovery of a payment made on behalf of another party by you as an agent. A disbursement does not constitute a supply and hence, is not subject to GST.

Definition of Principal

Generally, you are acting as a principal in procuring the goods or services if you contract with the supplier in your own name or capacity. The expenses are incurred by you, invoice is in your name.

Definition of Agent 

You are acting as an agent if the expenses are incurred by client (another party), invoice is in client’s name. You will make the payment on his behalf.

GST treatment on disbursement and reimbursement are as follows –

Disbursement Reimbursement
Not a supply Is a supply
Not entitled for input tax claim Entitled for input tax claim

In general, the criteria for disbursement and reimbursement for GST purposes are as follows –

Disbursement Reimbursement
Incur expenses as an agent acting on behalf of the client. Incur expenses as a principal.
The client is the recipient of the supply (invoice is in the client’s name) The client is not the recipient of the supply (invoice is in the principal’s name).
The client is the person responsible to pay for the supply The        principal       is        the        personresponsible to pay for the supply.
The payment is authorised by the client. The payment is not authorised by the client.
The client knew that the supply is made by a third party. The client has no knowledge that the supply is made by a third party.
The exact amount is claimed from the client and the agent has no right to alter or add on the value of the supply The principal has the right to alter or add on the value of the supply.
The payment is clearly an additional to the supply made to the client. The payment is for the supply made to the client.

Tax code for Reimbursement

Input tax: TX

Output tax: SR

Tax code for Disbursement

Input tax: OP

Output tax: OS

Invoicing for Reimbursement

Issue tax invoice compliance with GST.

Invoicing for Disbursement

Issue normal invoice*.

 

*See also: Do I need to issue tax invoice for EVERY transaction?


Source: Item 6:Disbursement and reimbursement

Answered on April 27, 2016. 2016-04-27 05:58:41
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Dear NES,

The above answer is correct and you should be able to understand it .

I will try to answer to your question directly.

1. Yes , it will be a disbursement ( Co. B will issue an invoice to Co. A, not a tax invoice)
2. Co B will record RM106 as tax code OP.
3. Please see no. 1 with tax code OS. (as you can see it will zerorise)
4. Co. A can claim input tax and will record it as TX with tax base of RM100 and gst RM6  (attached tax invoice from supplier and invoice from Co. B)

I hope it helps.

Answered on April 28, 2016. 2016-04-28 02:13:15
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1. Referring the situation above, may I know is it Company B must issue an invoice to Company A in order to collect money from Company A?

2. Company A’s creditor entry should be the transporter’s company name or Company B’s name?

Thank you.

Answered on May 7, 2016. 2016-05-07 01:25:31
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1.  Yes.  Company B must issued Tax Invoice to Company B in order to collect back the money.
2.  Creditor’s name.

Answered on May 7, 2016. 2016-05-07 03:03:03
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Ok. So in disbursement case (payment on behalf), Company B just need to issue an invoice to A instead of tax invoice?

Thank you.

Answered on May 7, 2016. 2016-05-07 06:24:58
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Hi, thanks for the question and answers above as I am confused about this issue too. However, the company Im working with is using a system where all invoices are tax invoice. (no normal invoice). So, is it against the law if tax invoice is issued?

Answered on April 12, 2017. 2017-04-12 01:44:01
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For normal invoice you can print it out onto your company letterhead.  It is not an offence if you use Tax Invoice but be sure how to account for GST.

Answered on April 12, 2017. 2017-04-12 06:15:14
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