VAT on reimbursement of expenses from clients

Any payments made as out-of-pocket expenses on the clients’ assignment can be classified into following two categories.

  1. Disbursement (services enjoyed by the customer and paid by us on their behalf – Not Vatable)
  2. Recharge (services enjoyed by us while performing customer’s assignment and later recharged to the client – Subject to VAT)


A payment made to suppliers on behalf of your customers is called a ‘disbursement’ if you pass the cost on to your customers when you invoice them. When you make payments on behalf of your customers, for goods or services received and used by them, you might be able to treat these payments as ‘disbursements’ for VAT purposes. This means that you:

  1. don’t charge VAT on them when you invoice your customer; and
  2. can’t claim back any VAT on them

In such cases you might be able to leave out these payments from your VAT calculations because it’s the customer, not you, who buys and receives the goods or services; you’re just acting as their agent and paying on their behalf.
An example would be if you have installed an HR software at a client’s premises and paid to the software supplier on behalf of the client (acting as their agent). In such case, the client receives the goods and also the goods are used by them. You have only routed the payment on behalf of the client. In this case, this would be a disbursement and you will leave it out from VAT calculations in your invoice to your client.

Also when filing the VAT return, we exclude the disbursements and do not show them as Taxable Supplies in VAT return. Please refer page 12 of the guide on UAE VAT return filing as a reference.


“Please exclude the following:



There are many incidental costs your business might incur that must be included in VAT calculations when you invoice customers. These include items like traveling expenses and your own postage and delivery costs.
Costs that your business incurs itself when supplying goods or services to customers are not disbursements for VAT. It’s you who buys the goods or services for use in your own business.

It’s up to you whether or not you itemize costs like these on your invoices. If you do show them separately when you invoice your customers they’re known as ‘recharges’, and not disbursements. You’ll have to charge VAT on them whether you paid any VAT or not.
Some examples of costs that could be recharged but are not disbursements include:

  1. an airline ticket that you buy to visit a client or to travel to a job, if you recharge the cost to your client you must charge VAT because the flight was for you, not for the client
  2. postage costs you incur when you send letters to your customers, these are normal business costs and you must add VAT if you recharge them
  3. a bank transfer fee paid when transferring money from your business account to a client’s account – even though the bank’s fee is exempt from the VAT, if you recharge the fee you must charge VAT, because it was for a service provided to your business and not to your customer

Based on the above comparison, if the expenses incurred are first enjoyed by Korn Ferry and then recharged to the client, it will not be a disbursement and hence subject to VAT when billed to the client. According you can claim the input VAT in your VAT return on these expenses (subject to the general rule of recoverable input).

Note: The above conclusion is based on the general global practice of VAT regarding rechargeable costs to the clients. There is no specific provision in VAT law referring to “recharges and disbursements”.