What is Disbursement and Reimbursement?

What is the GST treatment for disbursement and reimbursement

Asked on October 10, 2015 2015-10-10 02:31:22 Business (商家)
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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        person

responsible 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 October 10, 2015. 2015-10-10 02:34:54
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Hi, I would like to extend this question.

What if the disbursement expenses is incur GST, tax invoice is in Client’s name.   & We only have 1 set of invoice (Tax invoice), can we issue tax invoice in Disbursement method?  Can still the client claim the input tax?

Please advise.

Answered on March 24, 2016. 2016-03-24 01:40:01

if tax invoices is your client name, so the input tax only can claim by your client, and the expense is taken up in your client account.

if you paid on behalf by your client, so, this is disbursement case, your only issue Debit advice to your client for mentioned that the payment is made by you.

Disbursement mean the expenses is not related to your company, so just issue Debit Advice upon payment on your behalf of account.

if the expenses is related to both company (the expense much be stated clearly is related to your co. in invoices and supporting document.), but tax invoices is under client name , so this case is call reimbursement , the tax invoices expenses & input tax is taken up by your client.
After payment made(by you or client own paid), your client will issue the tax invoices for Re-charged the expenses to your company, this is reimbursement

on September 28, 2017. 2017-09-28 00:15:52
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