Reimbursement and Disbursement: 'Same Same But Different'

wupeicong11
Jun 4
3 min read

The terms ‘reimbursement’ and ‘disbursement’ are often seen in invoices from service companies and billings from related companies (i.e. companies within the same group). Although commonly used/ seen by accounting professionals, they are often misunderstood or confused with each other. While both relate to the recovery of expenses, they represent 2 different types of transactions. Understanding the distinction between reimbursement and disbursement would pave the way for accurate invoicing and correct reporting for GST purposes.

Reimbursement

If your company incurred the expense as a principal (i.e. contracting party), the recovery of expense is a reimbursement.

Disbursement

If your company paid the expense as an agent (i.e. not contracting party), the recovery of expense is a disbursement.

Purchases of goods and services: What makes one a principal?

As a principal, your company can alter the nature and value of the purchase order or contract and decide on the amount of expense to recover from a customer or a related company. Your company would also be obliged to pay for the goods and services delivered by the vendor, as the goods and services are procured and/ or owned by your company.

Billing for recovery of expenses

Reimbursement case

Company S provides administrative services to Company P and in an occasion, engaged an IT vendor to repair a laptop belonging to Company S (used for the provision of the administrative services). The IT vendor issued an invoice to Company S for an amount of $2,180 (inclusive of $180 GST). Company S made payment for the invoice and intends to issue an invoice to Company P to recover $2,180. How should Company S (principal) invoice Company P?

Company S’s invoice to Company P	S$
Repair of Company P’s laptop	2,000
GST @ 9%	180
Total amount payable	2,180

Other examples of reimbursements include:

Recovery of taxi fares by auditors (principal) from client; and
Recovery of property maintenance fee by landlord (principal) from tenant (according to tenancy agreement)

Disbursement case

An IT vendor provides IT support services to Company P and issued invoice and addressed it to Company P for an amount of $2,180 (inclusive of $180 GST). Company P’s consultancy firm, Company S, made payment for the invoice and intends to issue an invoice to Company P to recover $2,180. How should Company S (agent) invoice Company P?

Company S’s invoice to Company P	S$
Recovery of payment made (Refer to attached invoice from IT vendor)	2,180
Total amount payable	2,180

Company S need not show the breakdown of $2,180 since this is a disbursement. Company S need to attach the IT vendor’s invoice so that Company P can claim the input tax (i.e. GST) incurred.

Other examples of disbursements include:

Recovery of filing fee paid to ACRA by corporate services provider (agent) on behalf of client;
Recovery of import GST paid by freight forwarding company (agent) on behalf of importer; and
Recovery of cost of balloon decoration (ordered by customer) paid by event organizer (agent).

In summary, while reimbursement and disbursement may seem similar at first glance, they serve distinct purposes within accounting practices. Understanding the difference is essential for accurate recordkeeping and unnecessary invoicing errors.

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Reference:

IRAS e-Tax Guide – GST: Guide on Reimbursement and Disbursement of Expenses (Sixth Edition)