Disbursement in Malaysia: Key Differences, Tax Rules & HR Best Practices

In day-to-day business, it’s common for employers to make payments on behalf of others, be it employees, clients, or government bodies. These payments are known as disbursements, or in Malay, pembayaran bagi pihak ketiga or simply pembayaran disbursement.

But what exactly counts as a disbursement? Is it the same as a reimbursement? And how should it be recorded for tax and invoicing purposes?

Definition and Meaning

A disbursement is a payment made by a company on behalf of another party. These payments do not belong to the company making them; they are just passing through the books. Later, the company gets the same amount back, without adding any profit or markup.

This is very different from your company’s operating costs. A disbursement is not about your internal spending. It’s about covering third-party costs to make a process smoother or faster.

To help you understand, let’s say an HR team pays the government’s visa fee on behalf of a new foreign employee, the company can later collect the exact amount from the client (if the cost is meant to be borne by the client). That transaction is a disbursement, not a business expense.

Key Features of Disbursement

For a payment to be considered a true disbursement under Malaysia’s SST and e-invoicing guidelines, it must meet these conditions:

The payment is made to a third-party service or authority, such as a government agency, vendor, or courier company.
The employer pays on behalf of someone else, usually a client or employee, and passes the cost back at the exact value.
There must be no markup, no extra charge, and clear documentation.
The original invoice must show that the cost is for the third party, not the employer.

Some common examples include:

Visa, levy, or licensing fees paid to government bodies
Medical check-up charges for foreign workers
Courier or logistics charges paid during employee onboarding
Stamp duty or filing fees during legal employment processes

If any profit is added or if the company alters the nature of the cost, the payment may be reclassified as a reimbursement, which comes with different tax rules.

Common Use Cases for Employers

Disbursement is part of many employer workflows, especially when managing large-scale hiring, employee relocation, or contract staff.

A recruitment agency pays for a foreign worker’s visa upfront, then bills the employer client the exact same amount.
During onboarding, HR pays for medical screening for new employees and later claims it from the hiring department.
A company handles lodging or transport fees for an employee’s relocation and passes the invoice directly to the client, with receipts attached.

How It Differs from Reimbursement

Though they may sound similar, disbursement and reimbursement are not the same. Here’s a clear breakdown:

Aspect	Disbursement	Reimbursement
Who pays first	The company pays a third party	The employee pays first, then claims it back
Who the cost is for	Another party (e.g. client or employee)	The company itself
Profit allowed	No markup allowed	Markup may apply (if it's part of service delivery)
Tax treatment (SST)	Not subject to SST (if properly documented)	May be subject to SST if part of a primary service
Documentation required	Third-party invoice in beneficiary’s name	Receipts submitted by employee or claimant

If you handle payroll or vendor invoicing, getting this distinction right can save your team from costly tax mistakes.

Tax and Compliance Notes (SST and e-Invoicing)

Under the Royal Malaysian Customs Department (RMCD) guidelines, disbursements are not subject to SST, but only if strict conditions are met:

The amount is passed through exactly as it was paid, no additional fee.
The invoice must clearly separate disbursement items from other charges.
Supporting documents, such as the third-party invoice or receipt, must be included and show the original beneficiary’s name.
The company must act as an agent, not as the party that benefits from the transaction.

If these conditions are not met, the cost may be seen as part of the company’s own taxable service, and SST would apply. Worse, incorrect classification in e-invoicing can trigger compliance issues with LHDN or RMCD.

Best Practices for Employers

Below are some best practices for you to manage disbursement properly in your company:

Always keep original invoices or receipts showing the third party as the service recipient, not your company.
Avoid mixing disbursement items with your business expenses in reports.
Use invoice templates that clearly list disbursement as separate line items, and not as part of bundled service fees.
Make sure your finance and HR teams are familiar with RMCD's guide on service tax and understand the difference between acting as a principal vs agent.
Do not apply any markup or admin fee to disbursement items, unless you are prepared to reclassify them as reimbursement and apply SST where required.

FAQs

Is disbursement subject to SST in Malaysia?

No, disbursement is not subject to SST as long as it meets all RMCD conditions: no markup, proper documentation, and clearly identified third-party beneficiary.

What’s the difference between disbursement and reimbursement in HR or finance?

Disbursement happens when the company pays a third party on someone else’s behalf. Reimbursement is when someone (like an employee) pays first and claims it back from the company.

How should disbursement be recorded in company accounts?

It should be listed as a pass-through item, not part of business income or expenses. Include all relevant documents and clearly label the transaction as a disbursement.

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