The reimbursement and disbursement in the perspective of Income Tax and Goods and Services Tax

Introduction

The reimbursement and disbursement may have various tax treatment for the same transaction, let us discuss further.

Definition

Reimbursement : refer to the payee incurred the out-of-pocket money such as : airline ticket, telephone and printing and stationery cost，in the course of rendering of services by the payee to the payer.

Disbursement : refer to the payer incurred out-of-pocket expenses and paid to a third party on behalf of the payee in the course of rendering of services by the the payee.

A) Income tax treatment – Reimbursement

Pursuant to Sec 109B of income tax act (ITA) 1967, reimbursement are considered part of contract value for any service rendered by the foreign payee, therefore reimbursement will be subject withholding tax of 10% under section 4A of ITA 1967, however excluded hotel accommodation from effect of 1.1.2009.

Example :

A company engaged a B company in Singapore for technical fee. B company incurred expenses and reimburse to company A.

RM RM

Technical fee 10,000

Add : Air ticket 1,000

Meal allowance 1,000

Reimbursement 2,000

12,000

Less : 10% withholding tax (1,200)

Amount payable to B com 10,800

The Company A will deducted withholding tax of RM1,200.00 remit to the DGIR within one month from the date of crediting the net technical fee.

B) Income tax treatment – Disbursement

Pursuant to Sec 109B of (ITA) 1967, reimbursement are considered part of contract value for any service rendered by the foreign payee, therefore reimbursement will be subject withholding tax of 10% under section 4A of ITA 1967, however excluded hotel accommodation from effect of 1.1.2009.

Example :

A company engaged a B company in Singapore for technical fee. A company incurred an expenses on behalf of B company.

RM RM

Technical fee 10,000

Add : Air ticket 1,000

Meal allowance 1,000

Disbursement 2,000

12,000

Less : 10% withholding tax (1,200)

Amount payable to B com 10,800

The company A will deduct the withholding tax of RM1,200.00 remit to the DGIR within one month from the date of crediting the net technical fee.

C) Goods and services tax treatment – Reimbursement

Reimbursement the payee incurred the expenses and the tax invoice is A company name, therefore it is a supply within the scope of Goods And Services Tax Act (GSTA) 2014. The company A, a GST registrant is entitled to claim for an input tax.

Example :

A company engaged a B company for a technical fee. A, is a registrant company incurred expenses.

RM RM

Technical fee 10,000

Add : Air ticket 1,000

Meal allowance 1,000

Reimbursement 2,000

12,000

Add : 6% GST 720

Amount payable to B com 12,720

Since the tax invoice was company A name when the company B recovered from company A. Therefore, company A entitled to an input tax of RM 720.00.

D) GST treatment – Disbursement

Disbursement not considered as a supply within the scope of Goods And Services Tax Act 2014. Therefore, the registrant are not entitled to claim for input tax.

Example :

A company engaged a B company for technical fee. A is a registrant company incurred expenses on behalf of B company to a third party.

RM RM

Technical fee 10,000

Add : Air ticket 1,000

Meal allowance 1,000

Disbursement 2,000

12,000

Add : GST 6% 720

Amount payable to B com 12,720

Since the tax invoice is B company (not a company A name), therefore the company A not entitle to claim an input tax of RM720.00.

Conclusion :

The income tax refer to whether withholding tax is taxable, meanwhile, the GST determined whether the input tax is claimable.