Recharge or disbursement? How to tell and how to invoice each

In short

When you pass a cost on to a customer, it is either a disbursement or a recharge. A disbursement is outside the scope of VAT and goes on an out-of-scope invoice. A recharge is part of your own supply and goes on a tax invoice with VAT. Your finance team decides which one each cost is, and the eInvoice must show that choice line by line.

Why eInvoicing needs it

Every line of an eInvoice carries a VAT category. The Ministry of Finance (MoF) guidelines list six categories, including "standard rate" and "outside the scope of VAT", and every supply must use one of them. A wrong category is no longer just a printing error. It goes straight to the Federal Tax Authority (FTA) in the data your eInvoicing service provider reports.

The FTA explains the difference in its public clarification on disbursements and reimbursements (VATP013). The question is simple: who received the goods or services?

• Disbursement. You act as your customer's agent. The customer received the supply, is responsible for paying for it, and the supplier's invoice or receipt is in the customer's name. The customer authorised you to pay on its behalf. This cost is outside the scope of VAT.
• Recharge (the FTA calls it a reimbursement). You contracted for the supply in your own name, you received it, and the supplier billed you. When you pass the cost on, it is part of your own supply to the customer and takes the same VAT treatment as that supply. Usually that is 5%, or 0% if your main supply is zero rated. A mark-up does not change this.

A common mistake is to call a recharge an "out-of-scope disbursement" because it is billed at cost. Billing at cost does not make it a disbursement. The name on the contract or receipt does.

What good looks like

Use this test on each cost you pass on.

Question	Disbursement	Recharge
Whose name is on the supplier's invoice or receipt?	Your customer's	Yours
Who received the goods or services?	Your customer	You
Who is legally responsible to pay the supplier?	Your customer	You
Did the customer authorise you to pay for it?	Yes	Not needed
Amount you bill	The exact amount paid	Cost, with or without a mark-up
VAT	Outside the scope of VAT	Same as your main supply, usually 5%
eInvoice	Commercial invoice outside the scope of VAT, category "outside the scope"	Tax invoice, category "standard rate" (or "zero rated")

Examples on an invented company, Al Noor Business Services LLC:

Cost passed on	Treatment
Visa and immigration fees paid to the authority in the client's name, recovered at exact cost	Disbursement. Out-of-scope invoice. Reason: "Disbursement: authority fees paid on the client's behalf".
Electricity and water for an office it sublets, on its own utility account	Recharge. Tax invoice at 5%, even at cost.
Head office staff costs re-billed to a related company in the UAE	Recharge. Tax invoice at 5%, unless both companies are in the same VAT group.
Courier charges on its own account to deliver the client's documents	Recharge. Tax invoice at 5%.

The same type of fee can fall either way. A municipality fee levied in your customer's name is a disbursement. The same fee levied in your name, for a permit you need to do the job, is a recharge.

How to fix it in Tally

1. Go to Gateway of Tally, press Alt+G (Go To), and choose Alter Ledger. Check the income ledgers you use to re-bill costs.
2. Keep two separate ledgers: one for recharges and one for disbursements. Do not mix them in one "Reimbursements" ledger.
3. Set the VAT details on the recharge ledger so it charges 5% (or follows your main supply).
4. Keep the disbursement ledger outside the VAT calculation, and raise disbursements on their own voucher type, so they reach your eInvoicing upload as out-of-scope invoices. If your Tally setup cannot do this, ask your Tally partner to set it up.
5. Stop using debit notes to recover costs. Issue each recharge as a tax invoice and each disbursement as an out-of-scope invoice.

How to fix it in Excel or another system

Add a column "Cost type" with two values: Recharge or Disbursement. Then map each value to its document:

• Recharge: tax invoice, VAT category standard rate, rate 5%.
• Disbursement: commercial invoice outside the scope of VAT, category outside the scope, with a reason such as Disbursement: authority fees paid on the client's behalf.

If you use an ERP, ask your ERP partner to add a field on each cost or service item that sets the document type and VAT category from the cost type.

Calculus applies these defaults: a cost in your customer's name, paid on its behalf at exact cost, is a disbursement; everything else is a recharge at 5%. The answer turns on facts only your business holds, so confirm with your tax advisor if your facts differ.

Checklist

• Each cost we pass on is marked as a recharge or a disbursement.
• Utility, staff and support recharges charge VAT, even at cost.
• Disbursements go on their own out-of-scope invoice, at the exact amount paid.
• We keep the receipt in the customer's name and the customer's authority to pay.
• Our tax advisor has confirmed the treatment of any cost we are unsure about.

The law

• FTA Public Clarification VATP013, Disbursements and Reimbursements (30 July 2019): the conditions for a disbursement (agent) and a reimbursement (principal).
• Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended, Article 9 (supply through an agent acting in the name of and on behalf of a principal): https://mof.gov.ae/wp-content/uploads/2025/07/Federal-Decree-Law-No.-8-of-2017-and-amendments.pdf
• MoF UAE Electronic Invoicing Guidelines V1.1, Section 10.5 (tax categories, including outside the scope of VAT): https://mof.gov.ae/wp-content/uploads/2026/06/UAE-Electronic-Invoicing-Guidelines_V-1.1-01June2026.pdf
• Peppol PINT AE, rule ibr-134-ae (invoice type 480, out of scope of VAT, and credit note type 81): https://docs.peppol.eu/poac/ae/pint-ae/trn-invoice/rule/ibr-134-ae/