Many taxpayers still have trouble figuring out if they need a disclosed agent or an undisclosed agent. This is an important question because it affects where the goods or services are considered to have been delivered for VAT purposes. Full disclosure? Don’t let semantics complicate your tax preparation. Here is the pertinent information.
In an era where businesses increasingly use third-party providers to transact with suppliers and/or buyers, businesses must closely monitor whether they are using disclosed or undisclosed agents. Why? It may have an effect on your overall VAT treatment.
To run a business well and meet all of our VAT obligations, we need to know how the two types of agents are different and how each type affects the VAT process.
Comparing Disclosed Versus Undisclosed Agents
A legal agent is a person who has been given permission to act on behalf of another organization. The agreement between a principal and an agent may either be revealed to a third party or kept confidential. The primary difference between the two manifests itself in their respective VAT treatment. However, before we go in, let’s determine their primary goals.
A disclosed agent is an agent who operates on the principal’s behalf. Nonetheless, the final consumer or third party is aware that they are doing business with an agent of the principal.
The person who hired the agent can get back the VAT on the purchases that agent made on their behalf.
Undisclosed agents “act” as the primary. In general, the provider of the products and services has no contact with the principle. Even if the agent represents the principal, the principal is not identified. The provider will only interact with the unnamed agent.
The undisclosed agent can get back the VAT on their purchases, which makes the principal’s job easier in terms of paperwork.
VAT Treatment When Agents Are Disclosed
When utilizing a declared agent, the entity that gets the goods and services from the provider remains the primary. The revealed agent only serves as an intermediary between the two parties. Despite the fact that the declared agent communicates with the principal’s supplier, the principal remains responsible for the VAT on the supply.
So, the principal will be able to get back the VAT that was paid on the supplier’s bill when they file their VAT return.
The declared agent may only charge value-added tax for services rendered to the principal. The revealed agent must provide the principal with a VAT invoice. The essence? The principal is responsible for the VAT (charged by the supplier) on the delivery of goods and services, as well as the VAT levied by the agent on their fee.
VAT Treatment When Agents are Undisclosed
Using undisclosed agents might complicate the VAT treatment procedure. In the long run, however, it saves everyone involved time and eliminates the need for frequent back-and-forth via a middleman.
All VAT proceedings will be handled by an undisclosed agent on their own behalf, rather than on behalf of the principal. Don’t forget that this only simplifies things for the principal; it doesn’t take them out of the equation entirely.
This indicates that we are using a simultaneous procedure.
- The undisclosed agent is regarded as the buyer (from the supplier).
- The undisclosed agency is also considered the seller (to the principal).
So, the agent will have to pay the VAT on the sale between the supplier and them. In contrast to disclosed agents, the commission of an undisclosed agent is included in the price of the products or services charged to the principal. The VAT rate for this commission is the same as the VAT rate for the goods or services that were delivered.
The purpose of this rule is to make sure that the final buyer gets an invoice that he can use to get a tax credit for his purchases.
Regardless of whether you use a disclosed or undisclosed agent, VAT is still required and payable. However, the disparate VAT handling of the two kinds of agents may easily lead to misunderstanding.
Regulations governing the location of supply are ultimately complicated and difficult to comprehend. Do not make the procedure more difficult by misinterpreting the compliance requirements of the principal and agent. Contact an expert in this industry to confirm that the agent you are utilizing is appropriate for your company.