Home Articles VIEWPOINT: VAT–AGENCY Relationship


In terms of the VAT Act, when an agent makes a supply of goods or services for and on behalf of its principal with a third party, the supply is deemed to be made by the principal and not by the agent.

The following example in SARS VAT 409 – Guide explains the VAT mechanics of an agency relationship.

ATZ Real Estate Agents (ATZ) (a vendor) acted on behalf of ABC Properties (ABC) (a vendor) to sell its commercial property.

The property was sold to XYZ Retailers for
R1 140 000 (including VAT). XYZ Retailers will operate its retail clothing enterprise from the property.

ATZ issued a tax invoice to XYZ Retailers reflecting its details and not those of the principal ABC. ATZ also issued a tax invoice for the commission of R114 000 (including VAT) to ABC.

ATZ acted as the legal agent of ABC (principal) for the sale of ABC’s property.

Section 54 allows ATZ to issue a tax invoice to the purchaser on behalf of ABC for the taxable supply of ABC’s property, as if it was a supply made by ATZ. However, ATZ is not liable to account for output tax on the sale, as ATZ is not the principal in respect of the supply.

ATZ must maintain sufficient records and submit the required statement in writing to ABC within 21 days of the calendar month in which the supply took place, so that ABC can correctly account for VAT.

Furthermore, ATZ is required to issue a tax invoice to ABC in relation to agency services supplied to ABC. ATZ’s output tax liability is R14 000 (R114 000 x 14/114).

ABC must not issue a tax invoice to the purchaser in relation to the supply of the property as ATZ has already issued the tax invoice on ABC’s behalf. ABC’s output tax liability is R140 000 (R1 140 000 x 14/114) on the sale of the property.

ABC is entitled to an input tax deduction of R14 000 (R114 000 x 14/114) on the commission charged by ATZ.

XYZ is entitled to an input tax deduction of R140 000 (R1 140 000 x 14/114) in respect of the VAT incurred on the acquisition of the property.

Author: Muneer Hassan CA(SA) of Muneer Hassan Tax Consulting is a Senior Lecturer in Taxation at UJ