When a GST-registered business passes a cost on to a client, the GST treatment depends on one question: did you pay that cost as the client’s agent, or as part of the service you are supplying? The answer decides whether you charge GST on the recharge. This article on GST on disbursements vs reimbursements, with practical examples, sets out how IRAS draws the line and how to apply it to your invoices.
Getting this wrong is common. Some businesses add GST to government fees paid on a client’s behalf, while others leave GST off travel costs that should have been taxed. Both lead to incorrect GST returns.
Who this applies to
The distinction matters to any GST-registered business in Singapore that recovers costs from customers. It comes up most often in professional services, where recharging costs is routine:
- Corporate secretarial and company incorporation Singapore providers paying ACRA fees for clients
- Accounting, tax and payroll firms
- Law firms paying court fees, stamp duty or search fees
- Consultants who travel for client work
- Employment agencies paying MOM fees for Employment Pass, S Pass or Work Permit applications
If your company is not GST-registered, you do not charge GST on anything, so the question does not arise. Remember, though, that you must register once your taxable turnover exceeds SGD 1 million over the past 12 months or is expected to over the next 12 months. How you classify recharges can affect whether you cross that threshold, because reimbursements count towards your taxable turnover while genuine disbursements do not.
Key rules and requirements in Singapore
What is a disbursement?
A disbursement is a payment you make to a third party as the agent of your customer. The goods or services are supplied by the third party to your customer, not to you. You are simply settling the bill for convenience. Because the supply is not yours, you do not charge GST when you recover the exact amount.
IRAS generally expects all of the following conditions to be met before a recharge can be treated as a disbursement:
- You acted as the customer’s agent when paying the third party
- The customer is responsible for paying the third party, and authorised you to make the payment
- The customer knows the goods or services are provided by the third party
- The payment is shown separately on your invoice
- You recover only the exact amount you paid, with no mark-up
- The goods or services paid for are in addition to the supplies you make to the customer
What is a reimbursement?
A reimbursement is the recovery of a cost you incurred in the course of making your own supply. You bought the goods or services for yourself, in your own name, to deliver your service. When you recharge that cost, it forms part of the value of your supply and takes the same GST treatment as your main service. For most local services, that means GST at the standard rate of 9%.
If your main supply is zero-rated, such as certain international services, the reimbursement generally follows that zero-rated treatment too.
Input tax
For a reimbursement, you can usually claim the input tax on the underlying cost, provided the tax invoice is in your company’s name and the normal input tax conditions are met. For a disbursement, you cannot claim input tax, because the supply was made to your customer. If the third party charged GST, it is your customer who may claim it, using an invoice addressed to them.
Step-by-step process
A consistent routine for every recharge keeps your GST returns clean:
- Identify who received the supply. Ask whether the third party was really supplying your customer, or supplying you so that you could do your job.
- Check the engagement letter. It should authorise you to pay specified costs on the client’s behalf.
- Check whose name is on the third-party invoice. An invoice in the customer’s name supports disbursement treatment. An invoice in your name usually points to a reimbursement.
- Test the six disbursement conditions. If any one fails, treat the recharge as a reimbursement.
- Invoice correctly. Show disbursements as a separate line at cost, outside the GST calculation. Include reimbursements in your taxable supply and charge GST on them.
- Record it properly. Book disbursements to a client disbursement account, not to revenue and expenses.
- Keep the evidence. Retain third-party invoices, receipts and client authorisations for at least five years, in line with IRAS record-keeping requirements.
Common mistakes to avoid
- Adding GST to government fees paid as disbursements. ACRA filing fees, MOM application fees and stamp duty are not subject to GST. When paid on a client’s behalf and recovered at cost, they should pass through without GST.
- Labelling everything a disbursement. Calling a cost a “disbursement” on an invoice does not make it one. Travel, accommodation, printing and courier costs incurred to perform your own work are normally reimbursements, whatever the invoice says.
- Adding a mark-up and still treating it as a disbursement. Once you charge more than the exact cost, the recharge no longer qualifies.
- Claiming input tax on disbursements. If the invoice is addressed to your client, the input tax is not yours to claim.
- Leaving GST off non-GST costs in a reimbursement. Even if the underlying cost carried no GST, GST is due on the full reimbursement because it is part of the value of your service.
Practical examples
Example 1: ACRA fees paid by a corporate secretary
A corporate secretarial firm files a change of registered address for a client and pays the ACRA fee through the ACRA BizFile+ portal. The filing is made for the client company, which is liable for the fee, and the engagement letter authorises the firm to pay such fees. The firm shows the ACRA fee as a separate line at exact cost. This is a disbursement, and no GST is added to the fee. The firm charges GST at 9% only on its own professional fee.
Example 2: Travel costs of a consultant
A Singapore consultancy sends a staff member to a client’s site in Tuas for three days. It recharges SGD 280 of taxi and meal costs at cost. These were incurred to perform its own service, so this is a reimbursement and the consultancy charges GST at 9% on the SGD 280, and claims input tax on any GST it paid, provided it holds valid tax invoices.
Example 3: Courier charges on an accounting engagement
An accounting firm couriers signed financial statements to a client’s directors overseas. The courier company bills the accounting firm in its own name, and the firm adds a 10% handling charge when recharging. The mark-up and the fact that the firm was the courier’s customer both point to a reimbursement. GST applies to the full recharge in the same way as the firm’s main service.
How a corporate secretary can help
A good corporate secretary and accountant will set up your engagement terms, invoice templates and chart of accounts so that recharges are treated correctly from the start.
Raffles Corporate Services supports Singapore companies with corporate secretarial services, accounting, GST registration and quarterly GST filing through the IRAS myTax Portal, as well as payroll and CPF contributions. We can review how your business recharges costs and flag where your invoicing or bookkeeping may be out of line with IRAS guidance.
Requirements may change, so always check the latest guidance from ACRA, IRAS or MOM, or consult a professional adviser.
Frequently Asked Questions
Do I charge GST on ACRA fees I pay for my clients?
Generally no. ACRA fees are not subject to GST. If you pay them as the client’s agent and recover the exact amount as a separate line, they are disbursements and pass through without GST.
What happens if I have treated reimbursements as disbursements in past GST returns?
You may have under-declared output tax. Errors can be corrected through the IRAS error-correction process, and voluntary disclosure made promptly usually attracts more lenient treatment. It is sensible to take professional advice before filing a correction.
Do reimbursements count towards the SGD 1 million GST registration threshold?
Yes. Reimbursements form part of your taxable supplies, so they count towards your taxable turnover. Genuine disbursements do not.
Key takeaways
- A disbursement is a payment made as your customer’s agent for a supply made to the customer, and is recovered without GST.
- A reimbursement is a cost you incurred to make your own supply, and takes the GST treatment of your main service, usually 9%.
- All of the IRAS disbursement conditions must be met, including separate itemisation and recovery at exact cost.
- Government fees such as ACRA fees, MOM fees and stamp duty paid on a client’s behalf are typical disbursements.
- Input tax can be claimed on reimbursements with a valid tax invoice in your name, but not on disbursements.
If you would like to find out more about how Raffles Corporate Services can assist with your company’s compliance and corporate secretarial requirements, please get in touch with the team at [email protected].
Yours sincerely,
The editorial team at Raffles Corporate Services
Disclaimer: This does not constitute legal advice. If you require legal advice, please contact a lawyer.