South Africa: Agent-principal relationships and VAT
Sale or acquisition of goods or services or the importation of goods by a person acting as an agent on behalf of another person
Sale or acquisition of goods or services
South Africa’s value added tax (VAT) law has very specific provisions that deal with the sale or acquisition of goods or services or the importation of goods by a person acting as an agent on behalf of another person (the principal).
In general, the VAT rules provide that:
- Any supply made by an agent on behalf of a principal is deemed to be made by the principal, even when the tax invoice for the supply is issued in the name of the agent.
- Any supply made to an agent on behalf of a principal is deemed to be made to the principal, even when the tax invoice is issued by the supplier in the name of the agent.
- Any importation of goods by an agent is deemed to be made by the principal.
Thus, the principal is liable to account for VAT on supplies made and only the principal is entitled to claim input tax on any acquisitions of goods or service or imports even when agents are involved.
When a tax invoice is issued by or to the agent, the VAT rules require the agent to issue a statement within 21 days of the date of the supply or acquisition, providing certain prescribed information.
Common errors or pitfalls from agent-principal relationship
There are certain common errors or pitfalls resulting from agent-principal relationships that may create a risk or an exposure for VAT purposes:
- Agent claims input tax on the goods or services acquired on behalf of a principal: The agent will be exposed to VAT, penalties, and interest on input tax claimed when it was not entitled to such input tax. This exposure will remain even when the agent also incorrectly accounts for output tax on the recovery of costs.
- No statement or a non-compliant statement is issued by the agent to the principal when goods or services are acquired, or goods are imported on behalf of the principal: The principal is not entitled to claim input tax on the acquisition or importation of goods until such time it is in possession of the prescribed documentation.
- No statement is issued by the agent to the principal when goods were supplied on behalf of the principal: Output tax is not accounted for, or is accounted for in a later tax period, leaving the principal exposed to VAT, penalties and interest.
- No statement is issued to inform a principal of a discount granted: When a discount is granted by a supplier and input tax was previously claimed on the full consideration, the principal is liable to account for VAT on the discount. When the agent does not timely provide the principal with the information as required in the VAT law, the principal will be exposed to VAT, penalties, and interest.
For the agent’s perspective, it commits an offense when it willfully does not provide the statement or does not provide it within the prescribed time period to the principal.
Read a May 2021 report [PDF 223 KB] prepared by the KPMG member firm in South Africa
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