what is the tax code for management fee charge by holding company to subsidiary less than 50%
First you must clarify this transaction is disbursement or reimbursement.
Please go through the GST Guide on Disbursement and Reimbursement below :
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 –
|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 –
|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*.