What Is a Cost Re-Invoicing (Recharge) Invoice in Commercial Transactions? How Is It Issued?

 

One of the concepts frequently encountered in commercial life, especially in the purchase of goods and services, is the cost re-invoicing (recharge) invoice. In this article, we examine the concept of a recharge invoice in detail and explain how it is issued, how the related accounting records should be kept, and in which cases it is required, supported by practical examples.

Let us begin with a fundamental question: What does a recharge invoice mean?

When an expense that actually belongs to another individual or entity is paid by one party, that amount must be invoiced to the party who is the true bearer of the cost. The document issued for this purpose is called a recharge invoice.

In business practice, certain expenses may be paid not by the party directly related to the transaction, but by another party within a commercial relationship. Situations such as the allocation of shared expenses, the transfer of official fees, or the recharging of insurance premiums are typical cases where recharge invoices are used. This type of invoice plays a crucial role in ensuring both accurate accounting records and compliance with tax legislation.

Within this scope, this article provides practical explanations to the following questions:

• What is a recharge invoice?
• In which situations is it issued?
• How are accounting entries recorded?
• How do VAT and withholding tax applications work?

 

Definition and Purpose of a Recharge Invoice

 

A recharge invoice is an official invoice used to transfer expenses incurred on behalf of another person or entity to the actual responsible party, with proper documentation. In simple terms, it can be defined as an invoice issued to recover an expense paid for someone else.

For example, if a company pays rent, insurance premiums, or stamp tax that actually belongs to another company, these expenses are transferred to the relevant company through a recharge invoice. This ensures that the expense is recorded in the accounting books of the true responsible party and that tax obligations are attributed correctly.

The key point to consider here is in whose name the original invoice was issued. If the beneficiary of the goods or services is different and the expense was invoiced to the wrong party, issuing a recharge invoice becomes necessary.

 

 

Points to Consider When Issuing a Recharge Invoice

 

 

To issue a recharge invoice, the relevant expense must genuinely belong to another individual or entity. When preparing the invoice:

• The recharged expense item must be clearly stated,
• Reference should be made to the underlying document supporting the expense,
• Amounts must be shown clearly and transparently.

Recharge invoices are generally issued with VAT; however, whether VAT applies depends on whether the original expense document included VAT. Special attention must be paid to correct tax treatment, particularly for official payments such as insurance premiums or stamp tax.

 

Risks Arising from Not Issuing a Recharge Invoice

 

If a recharge invoice is not issued, the party that should actually bear the expense cannot record it in its accounting books. This may lead to incorrect expense recognition and inaccurate tax declarations.

Furthermore, since financial responsibilities between the parties are not clearly documented, evidentiary issues may arise in potential legal disputes. Especially in cases where personnel costs such as severance pay must be shared, failure to issue a recharge invoice can create significant accounting and tax risks.

Under the framework of the Tax Procedure Law (VUK) and the Turkish Commercial Code (TTK), expenses incurred on behalf of others—although not classified as a sale of goods or provision of services—must be documented. Pursuant to Article 227 of the Tax Procedure Law, invoices are considered the primary documentation tool for such transactions. Rulings issued by the Ministry of Treasury and Finance also clearly support this practice.

On the other hand, if an expense that should be recharged is issued as a regular invoice, VAT may be calculated a second time. However, the purpose of a recharge invoice is to transfer the expense at the same amount; therefore, no additional VAT should be imposed beyond what is required by the nature of the expense.

 

 

Process of Issuing a Recharge Invoice

From a technical perspective, issuing a recharge invoice is similar to issuing a standard service invoice. However, the description section must be much more detailed.

The issuing party should clearly state:

• Which expense is being recharged,
• Which transaction or document the expense is based on,
• Who the actual responsible party is.

Since these invoices do not represent income, they are not recorded as revenue or expense for the issuing party; they merely serve as a transfer of costs. Commonly used expressions in the invoice description include:

• “Recharged expense: Insurance premium”
• “Recharged amount: Stamp tax”

 

In Which Cases Is a Recharge Invoice Used?

 

The main situations requiring the issuance of a recharge invoice in commercial relationships include:

• Allocation of shared expenses among parties,
• Transfer of expenses in accordance with contractual arrangements,
• Correction of invoices issued in the name of the wrong party.

The most common practical examples include:

• Insurance premium recharge invoice: Transfer of insurance costs paid for a jointly used asset to its actual owner,
• Stamp tax recharge invoice: Allocation of stamp tax arising from joint contracts among the parties,
• Severance pay recharge invoice: In projects involving temporary or seconded personnel, invoicing severance pay paid to employees to the relevant company.

Since the recharging of severance pay arises from a service relationship, it is subject to VAT.

A recharge invoice may be issued for the full amount of an expense or only for a portion of it. However, one important point must be emphasized: an expense that must be included in the cost of goods sold or services provided cannot be transferred to the counterparty through a recharge invoice.