Understanding Disbursement and Reimbursement under IRBM’s e-invoicing Guidelines

To simplify e-invoicing in Malaysia, IRBM has analyzed all possible transactions/cases and provided detailed explanations of the e-invoice workflow. Disbursement and reimbursement among trading parties are such transactions detailed by IRBM. Let us understand the meaning of such transactions and how e-invoices are issued in such cases.

Disbursement

The out-of-box expense incurred by the payer (buyer) but paid by the payee (seller) to the third party on behalf of the payer for the sale of goods or services rendered by the payee to the payer.

Reimbursement

The out-of-box expense incurred by the payee (seller) during the sale of goods or rendering of services on behalf of the payer (buyer), which will later be reimbursed from the payer.

Detailed understanding of different Scenarios

To help you understand the scenarios more accurately, the following terms represent the buyer, seller, and third party.

• The first supplier (seller) represents Supplier-1
• The third party represents Supplier-2

Scenario-1: Supplier -1 (Seller) issuing e-invoice to buyer

It is the case where Supplier-2 has paid supplier-1 on behalf of the buyer for the sale of goods or the rendering of services to the buyer based on the contract between the buyer and supplier-2.

The steps to issue an e-invoice in this scenario are as follows:

1. Buyer and supplier-2 have entered into an agreement to sell goods or render services.
2. As part of this agreement, supplier-2 pays supplier-1 on behalf of the buyer for an additional supply of goods or services to the buyer.
3. However, supplier-1 will issue an e-invoice directly to the buyer.
4. Supplier-2 will make payment to supplier-1 and claim payment proof from supplier-1
5. Supplier-2 will issue an e-invoice to the buyer for the sale of goods or services rendered by supplier-2. It will not include the amount paid by supplier-2 to supplier-1, and supplier-2 cannot even issue an additional e-invoice.
6. Supplier-2 shall provide the buyer with proof of payment so that the buyer can be reimbursed for the money paid to supplier-1.

Let’s understand this with a simple example:

• ABC agrees with XYZ to render event planning services for RM 50000.
• ABC approaches a decoration company to supply decorative items for RM 10000.
• The decoration company will issue an e-invoice in the name of XYZ, for which ABC will make the payment and provide payment proof of RM 10000.
• Now, ABC will issue an e-invoice to XYZ for its event planning service of RM 50000, which shall not include the amount paid to the decoration company nor issue another invoice. 
• ABC shall provide the payment proof of RM 10000 issued by ABC to XYZ to get reimbursement.

Scenario-2: Supplier-1 issued e-invoice to supplier-2

Supplier-1 issues an e-invoice in the name of supplier-2 for the sale of goods or services intended for use by the buyer, and supplier-2 makes the payment according to the agreement between the buyer and supplier-2, which will eventually be recovered from the buyer.

The steps to issue an e-invoice in this scenario are as follows:

1. Supplier-2 and buyer enter into a contract for the sale of goods or services rendered. During this contract, supplier-2 shall pay any expense incurred on behalf of the buyer.
2. Supplier-1 will issue an e-invoice to supplier-2, and supplier-2 will pay supplier-1 for the invoice for any additional expenses incurred.
3. Supplier-1 will issue proof of payment to supplier-2 for the invoice.
4. Supplier-2 will issue an e-invoice to the buyer for the sale of goods or services rendered by him and for the sale of goods or services incurred on behalf of the buyer. Both the suppliers shall be mentioned as separate line items in the invoice.

Let’s continue the example to understand this transaction

1. Suppose ABC approaches a catering company to provide catering services for RM 30000 for the event.
2. The catering service issues an invoice of RM 30000 to ABC, and ABC pays it and receives proof of payment of RM 30000.
3. ABC will now issue an invoice for RM 50000 for their event planning service and catering services of RM 30000. Total invoice of RM 80000. However, the invoice shall show both services as separate line items.

IRBM has provided specific guidelines for more such transactions. Stay connected to gain a detailed understanding of them.

Kadam Chokhawala

Senior Functional Analyst

Kadam Chokhawala, a Chartered Accountant, having over a decade of experience has expertise in the field of tax technology and Process Outsourcing domain. With a proven track record in optimizing tax processes through innovative technology solutions, Kadam has played a pivotal role in transforming financial operations for multinational corporations across multiple regions including Europe, GCC, and India. He has a rich background in tax consulting and outsourcing domain as well. He navigates complexities with finesse, optimizing processes and enhancing efficiency.