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Section 54 of The VAT Act South Africa has been included in order to govern the practical problems faced when goods or services are supplied to and from VAT vendors via agents.

In this case, the term “agent” is used to refer to a relationship that exists between a principal (VAT registered clients) and an agent (person or company who acts on behalf of the client).

VAT Agent Principal Relationship

In situations where an agent acts on behalf of their client, the services rendered or goods purchased are not intended for the agent’s personal benefit or gain.

As per the contract, the services rendered and goods purchased are done directly by the agent’s client, through the channels created by the agent.

In other words, the agent merely facilitates transactions and is not legally a party to the transaction.

Principal vs Agent Tax According to Section 54 of The VAT Act South Africa

This could cause problems from a VAT perspective because the agent will typically be required to issue or be issued with a VAT invoice which is in fact intended for the client it’s acting on behalf of.

Therefore, the question is whether the agent can become a link in the VAT chain? In other words, can the agent claim input tax on the invoices received from the supplier of services or goods?

Additionally, can the agent raise its own invoice to its client in order to charge output tax?

Section 54 of The VAT Act South Africa

Section 2 of 54 indicates that any VAT supply made by a VAT vendor through an agent is deemed to have been made directly to the principal.

The same applies when an agent make a supply on behalf of its principal who is a registered VAT vendor; the supply for VAT purposes is deemed to be made directly by the principal.

Therefore, when taking these stipulations into consideration, the agent will never join the VAT chain of transactions.

According to section 54 and as far as invoices are concerned, when an invoice is issued to the agent by the supplier, and not directly to the principal, the principal may still use the invoice to claim input tax deduction.

In the same way, when an agent makes supplies on behalf of the principal, the agent may issue the principal with a tax invoice as if it had made the supply and levied output tax.

However, there are practicalities to keep in mind in such cases; when a third-party deals with an agent, the third party is often unaware of the principal on whose behalf the agent is acting.

In these cases, documents are generally issued directly to the agent and the principal will expect to receive these documents from the agent and not the third party.

Van Deventer & Van Deventer Incorporated – Attorneys in Cape Town and Johannesburg

Our attorneys in Johannesburg and Cape Town are available to answer any further questions related to section 54 of The VAT Act South Africa.

For legal assistance with matters related to the relationship between an agent and a principal with regards to VAT, please contact us.