—
type: Case Studies
focuskw: VAT on disbursements UAE
desc: A UAE client was charging 5% VAT on government fees paid on behalf of customers. Here’s how we corrected the invoicing per FTA VATP013 and stopped it.
status: publish
—
# The Challenge
"We were charging 5% VAT on every government and registration fee we recharged to customers, just to be safe. It never occurred to us that being cautious could mean collecting tax that wasn't actually due."
Our client regularly paid government and registration fees on behalf of their customers and then recharged the exact amount back to them. To stay on the safe side, they added 5% VAT to every one of these recharges, treating them the same as any other taxable supply.
While reviewing the client’s invoices, we spotted the issue: these payments were genuine disbursements, not taxable supplies at all.
# Our Approach
– Applied FTA Public Clarification VATP013 — checked the recharges against the FTA’s specific test for agent disbursements.
– Confirmed the disbursement conditions were met — the client paid the fees purely as the customer’s agent, the bills were issued in the customer’s name, and the exact amount was recovered with no markup.
– Rebuilt the invoicing to separate the two — agent disbursements now pass through with no VAT, while costs the client incurs as principal still carry the standard 5%.
Getting this distinction right matters because disbursements sit outside the scope of VAT altogether, and treating them as taxable supplies means charging tax that was never due in the first place.
# The Result
We corrected the client’s invoicing so government and registration fees paid on the customer’s behalf are now recharged VAT-free, while VAT continues to apply only where the client is acting as principal. We also flagged the VAT that had been over-charged on past recharges so it could be corrected with the affected customers, saving the client from collecting and paying tax that was never due.
# The Takeaway
"Not every invoice amount is a taxable supply. If you're paying a cost purely as your customer's agent, in their name, at no markup, it's a disbursement, and VAT shouldn't touch it."
