Saudi VAT Disbursements and Agent Cost Recharges

Recovering an expense at cost does not automatically place it outside Saudi VAT. The central question is whether the third party supplied the principal directly, with the agent merely paying on its behalf, or supplied the agent, which then recovers its own cost through another supply.

ZATCA’s Guideline for Agents under VAT Provisions, second version May 2026, section 8, distinguishes those cases. Its term compensation for an agent’s own-cost recovery should not be confused with every damages or compensation payment discussed in a different commercial context. Analyse what the actual payment is for.

Establish who receives the third-party supply

Under section 8.1, a supply agreed in the principal’s name is made directly from the third-party supplier to that principal. The agent may pay first and recover the amount, but that reimbursement is not consideration for a supply made by the agent on the stated disbursement facts.

Section 8.2 addresses a different case: the agent incurs an expense in its own name and subsequently charges it to the principal. That recovery can be consideration for an onward supply of the same item or additional consideration for the agent’s main service.

Dariba recommendation: identify the contractual customer, person liable to pay, actual recipient, authority to incur the cost and supporting invoice or other document. The bank account used to pay the supplier does not answer all those questions. Nor does writing reimbursement in the ledger establish a disbursement.

Apply all of the guideline’s disbursement criteria

Section 8.1 accepts the disbursement treatment where the following criteria are met:

• The principal actually receives the goods or services, directly or through the agent.
• The principal is responsible for payment.
• The principal knows of the third-party supply and authorises the agent, generally or specifically, to pay on its behalf.
• The agent recovers the specified amount without adding a profit margin to it.
• The commercial documents clearly separate that cost from the agent’s own supplies.

The absence of a mark-up is only one condition. An agent’s own expenditure does not become a disbursement merely because the agent agrees to recover exactly the amount paid. Equally, a separately charged agency fee does not automatically change a genuine, separately documented principal-account payment into the agent’s own expense.

Dariba analysis: the contract, authorisation, third-party documents and settlement must tell the same story. A separate line on the final invoice helps explain the position but cannot repair an underlying contract under which the agent itself received the supply.

Read the municipal-permit example with its contractual contrast

Official municipal-permit example, section 8.1: a design company completes an office design for a bank. The bank authorises it to pay SAR 15,000 to the municipality for the construction certificate, which is issued in the bank’s name. The guide accepts separate recovery of that SAR 15,000 as a disbursement on those facts.

The same discussion contrasts an inclusive design price that includes obtaining the certificate. That is a single service supply fully subject to VAT on the stated facts. The underlying recipient and actual pricing arrangement matter; the example does not exempt every municipal charge appearing on a contractor’s invoice.

Dariba original comparison: assume a standard-rated design fee of SAR 10,000 and a separately qualifying SAR 15,000 disbursement. VAT on the design fee is SAR 1,500, giving SAR 26,500 total cash due. If a different actual contract instead supplies a single standard-rated design service for SAR 25,000 excluding VAT, tax is SAR 3,750 and the total is SAR 28,750. Those are different assumed supply arrangements, not a permission to select a lower result by changing invoice formatting.

Recognise output VAT even where the original supplier charged none

Official Example 13, section 8.2: Golden Motors buys a used replacement part in its own name from an unregistered dealer for SAR 800 and recovers that cost from United Foods. Although no VAT was charged on the original purchase, the guide requires Golden Motors to apply 15% VAT to its taxable onward supply.

Dariba calculation from the official facts: on the SAR 800 amount before VAT, output tax at 15% is SAR 120. The absence of original input VAT does not eliminate that output liability, and it does not allow the agent to invent a SAR 120 purchase credit.

The principal’s recovery of VAT actually charged by the agent remains subject to the principal’s own eligibility and documentation. A full input-tax claim is not guaranteed merely because the charge appears on a VAT invoice.

Test whether the cost forms part of a larger service

Section 8.2 states that a recovered cost forming part of a larger main supply increases that supply’s consideration and takes its relevant VAT treatment.

Official Example 14: a Saudi consultancy incurs travel costs to bring overseas experts to a ministry project. The guide treats recovery of those costs as part of the consultancy service. The original international tickets’ zero rate does not carry through to the project recharge, which is standard-rated at 15% on those facts.

Dariba analysis: a cost’s original rate and the rate on the agent’s actual supply are different questions. Establish whether the agent is making a separate transport supply, paying a true principal-account disbursement or recovering an input cost of its own consultancy. One label cannot decide all three cases.

Where a genuinely separate supply exists, assess its own nature, parties and place of supply. Do not assume either that every recharge keeps the original rate or that all recharges are invariably taxed at 15%.

Keep the underlying input-tax entitlement with the right person

Guideline section 10.1.1 explains that an agent acting in the principal’s name cannot deduct input tax on supplies received in that principal’s name. An own-name agent can have input-tax entitlement for supplies it receives, subject to the other requirements.

Regulations Article 49 governs taxable use and evidence, with Article 50’s restrictions and Article 51’s apportionment rules where relevant. A principal-account disbursement should not generate duplicate claims by the principal and agent. The underlying supply and properly supported tax charge determine the claimant; repayment alone does not create a second tax charge.

Dariba recommendation: retain the third-party supplier document, authorisation, proof of payment and exact recovery, together with the reconciliation identifying who has claimed any underlying VAT. Where an alternative evidence route is needed, apply the actual Article 49 conditions rather than treating an internally prepared expense sheet as automatic approval.

Import VAT raises the additional requirement to establish the actual importer and taxable use. A customs broker that merely pays on another person’s behalf is not automatically entitled to deduct the import tax. See the imported-goods guide for the relevant distinction.

Document the separate recovery without mislabelling the supply

Section 8.1 explains that a genuine disbursement is not a taxable supply by the agent, so that recovery alone does not trigger the tax-invoice requirement for an agent supply. The guideline nevertheless recommends clear supporting documentation identifying the disbursement separately; inadequate evidence can suggest that the agent made the supply itself.

Dariba recommendation: show the agent’s service, its applicable VAT and any genuine disbursement distinctly in the commercial reconciliation. Link the latter to the underlying principal-account documents. Describing the amount as exempt or zero-rated would answer a different question from establishing that it is not consideration for the agent’s supply.

The agency guide explains who supplies in disclosed and own-name arrangements, while the value-of-supply guide addresses other consideration. A defensible cost-recovery conclusion should connect the legal recipient, actual supply, rate, input entitlement and evidence, rather than rely solely on the absence of a mark-up.