IRAS - How to Handle GST on Disbursement vs Reimbursement
Correctly identifying disbursements vs reimbursements is essential for GST compliance. These two terms sound similar but carry very different GST treatments. Misclassification may result in errors in GST returns and IRAS audit queries. Below is a quick guide.
Reimbursement – GST May Apply
A reimbursement occurs when your business incurs an expense for your own benefit or as part of providing a service, and the customer pays you back.
When is it a reimbursement?
- Expense relates to services you provide.
- You are the actual user of the goods/services.
- Invoice is addressed to your company.
GST Treatment:
- GST is chargeable to the customer (if underlying supply is taxable).
- Input tax may be claimable (subject to normal rules).
Examples:
- Courier fees arranged by you.
- Hotel/travel costs for servicing the client.
- Professional fees billed to you and recovered from the client.
Disbursement – GST Not Applicable
A disbursement occurs when you pay a third party on behalf of your customer, and the cost does not relate to your own business.
When is it a disbursement?
- You are not the recipient of the supply.
- You only pass the cost to your customer.
- Invoice is addressed directly to your customer.
- Amount is not part of your income.
GST Treatment:
- Not subject to GST.
- No input tax claim allowed.
- Pass through at exact amount.
Examples:
- Government fees (e.g., permits, stamp duty).
- Certifications billed directly to the client.
- Visa/statutory fees paid on behalf of client.
Significance of Distinguishing the Two
Correct classification impacts:
- GST to customers
- Input tax eligibility
- Accuracy of GST reporting
- IRAS audit compliance
IRAS reviews this closely during GST audits, so proper documentation especially invoices remains critical.
