The Value-Added Tax (VAT) Act provides specific guidelines on how agents acting on behalf of principals should handle VAT transactions. This summary will break down these guidelines, focusing on the roles and responsibilities of agents and principals, as well as the requirements for proper documentation and VAT claims.

Agent’s Role and Tax Invoice Issuance

According to the VAT Act, an agent acting on behalf of a principal can obtain a tax invoice in their own name and VAT number if the agent is registered for VAT. This means that while the supply is technically made to the principal, the agent can request and receive a tax invoice as if the supply were made to them. This provision is detailed in Section 54(2) of the Act, which clarifies that the taxable supply is considered to be made to the principal, but the agent can still be issued a tax invoice.

Documentation and Disclosure

The South African Revenue Service (SARS) has specific requirements when the principal is not disclosed to the supplier for commercial reasons. In such cases, the agent’s VAT number must be on the tax invoice. If the agent is not a VAT-registered vendor, the invoice must clearly state “agent.” Agents must provide the principal with a monthly statement of all supplies received on their behalf. This statement, issued within 21 days after the end of the month, must include:

• A full description of the supplies
• The quantity or volume of goods/services
• The consideration and VAT rate charged, or the VAT amount included if not specified separately

This statement serves as a tax invoice, allowing the principal to claim input tax on the supplies acquired through the agent.

Defining an Agent

The VAT Act does not explicitly define an “agent,” so general law principles apply. An agent is someone who represents another person (the principal) in transactions. This relationship must be consensual, meaning both parties agree (verbally, in writing, or through circumstances) that one will act on behalf of the other. The agent may or may not disclose the principal’s identity, but this does not affect the principal-agent relationship.

The principal-agent relationship can be explicitly stated in a written agreement. If no written agreement exists, the burden of proof lies with the person claiming the principal-agent relationship to demonstrate its existence. Agents must keep detailed records for at least five years, including the name, address, and VAT registration number of the principal.

Distinguishing Between Agent and Principal

Key differences between agents and principals are outlined in the SARS VAT409 guide:

• Ownership: The agent does not own goods or services acquired on behalf of the principal, who retains ownership.
• Value Alteration: Agents do not alter the nature or value of supplies between the principal and third parties, whereas principals can.
• Turnover Impact: Agent transactions do not affect their turnover except for commissions earned. Principals’ total sales are their turnover.
• Tax Declarations: Agents declare commissions for tax purposes, while principals declare gross sales as income.

Handling VAT in Transactions

Sections 54(1), (2), and (2A) of the Act states that supplies or imports made by an agent on behalf of a principal are deemed to be made by or to the principal. Agents do not account for output or input tax on these transactions, except in limited circumstances. Expenses incurred by agents on behalf of principals are treated as disbursements, and no VAT should be levied when these amounts are reimbursed.

Employee Reimbursements

An agency relationship for VAT purposes does not automatically exist between an employer and employee. To claim an input tax deduction for expenses incurred by an employee, the employer must have proper supporting documentation and demonstrate that the employee acted as an agent. Not all employee reimbursements qualify for input tax deductions. For example, cell phone expenses often do not qualify since the service is provided to the employee, not the employer.

Understanding the VAT regulations regarding agency relationships is crucial for compliance. Proper documentation and clear definitions of roles help ensure that VAT is correctly handled, allowing principals to claim input tax while maintaining accurate records.

If you need help understanding these regulations or any other SARS compliance matters, consider reaching out to waufm and waucomply. Contact Dale Petersen on 021 819 7802 or at dpetersen@wauko.com to connect with us.