How To Navigate GST on Reimbursement of Expenses | Summit

Navigating the complexities of GST on reimbursement of expenses is crucial for finance teams in Singapore. Whether it’s employee travel claims or costs incurred on behalf of clients, understanding how GST applies can make the difference between seamless compliance and costly errors. Failing to interpret the Inland Revenue Authority of Singapore (IRAS) guidelines correctly may result in non-compliance, exposing businesses to hefty penalties and unnecessary tax liabilities. With this step-by-step resource, you’ll be equipped to manage GST on reimbursed expenses confidently and accurately.

What are reimbursed expenses?

Reimbursed expenses refer to costs initially incurred by an individual or entity on behalf of another party, which are later repaid to the original payer. These are common in business settings—such as when employees claim travel, meal, or lodging expenses incurred during work trips, or when a company recoups costs from clients for purchases made on their behalf.

For example:

• Employee travel claims: An employee travels for work, paying for airfare and accommodation, and submits these receipts for reimbursement.
• Client billbacks: A company purchases materials or services specifically for a client project and later invoices the client to recover the expense.

It’s important to understand the GST implications for these transactions, as they determine whether GST needs to be applied during reimbursement. The correct classification ensures compliance with IRAS guidelines on GST on reimbursement of expenses.

Reimbursed expenses vs disbursements

While reimbursed expenses involve a repayment for costs incurred, disbursements are costs paid by one party as an agent on behalf of another. Under IRAS guidelines, disbursements are not subject to GST since the payer is merely acting as an intermediary.

For example:

• Reimbursement: A company pays for an event venue on behalf of a client, then invoices the client, including GST where applicable.
• Disbursement: A company pays government filing fees on a client’s behalf and passes on the exact amount without adding GST.

GST on reimbursement for expenses: Key guidelines from IRAS

The Inland Revenue Authority of Singapore (IRAS) provides clear guidelines on how GST on reimbursement of expenses should be treated. According to IRAS, GST on reimbursement of expenses is applicable when a company incurs expenses in its own name and later seeks repayment. In these cases, the reimbursement is treated as a taxable supply, and GST must be charged accordingly. However, if the expense qualifies as a disbursement, GST may not apply.

Key considerations include:

• Nature of the expense: Expenses incurred as part of the company’s own activities are subject to GST when reimbursed.
• Invoice details: If the invoice is issued to the company, it indicates the expense was incurred on behalf of the company, making GST applicable upon reimbursement.

The “Agency Relationship” Concept

A critical factor in determining GST treatment is the presence of an agency relationship. IRAS specifies that GST does not apply to disbursements when the company acts as a pure agent, paying expenses on behalf of another party without taking ownership of the cost.

For an agency relationship to exist:

1. The company must explicitly act on behalf of the client or another party.
2. The invoice must be issued in the name of the client or party on whose behalf the payment is made.
3. The company passes on the exact cost without marking it up.

If these conditions are met, the expense is treated as a disbursement and is excluded from GST. However, if the company pays the expense in its own name or includes a markup, GST is applicable when the cost is reimbursed.

Common errors and pitfalls

When managing GST on reimbursement of expenses, businesses often encounter common errors that can lead to compliance issues. A frequent mistake is the misclassification of expenses, such as treating a reimbursement as a disbursement or vice versa, which affects whether GST should be applied. Errors in calculating GST, including double-taxation or failing to charge GST where required, can result in overpayments or underreporting. Additionally, failing to maintain proper documentation—such as tax invoices, receipts, and contracts outlining the nature of the expenses—can make it challenging to substantiate GST claims or defend against audits. Avoiding these pitfalls requires thorough record-keeping, accurate classifications, and adherence to IRAS guidelines.

Take control of your GST compliance

Understanding and correctly applying GST on reimbursement of expenses is essential for maintaining compliance and avoiding costly mistakes. Ready to simplify your GST processes and stay compliant? Talk to Summit today or book a demo to discover how our spend management solutions can help your business manage GST efficiently and effectively.