HOW
ARE AGENTS AFFECTED BY VAT?
The VAT Statute prescribes that - 'A supply of goods or services
made by a person as agent for another person being the principal
is a supply by the principal'. This means that where an agency agreement
exists between an agent and his principal the agent should act on
behalf of his principal and issue and receive tax documents on his
behalf if the principal is registered for VAT. It should be understood
that in acting as an agent the monies handled by the agent for the
principal are disbursements, that is monies passed to the principal.
The only VAT supplies by the agent are the supplies made to the
principal which will be paid in the form of a commission, discount,
or direct payment from the principal, if the agent is registered
for VAT.
WHO
MUST REGISTER FOR VAT IN AN AGENCY SITUATION?
Any principal who is engaged in business activities and whose taxable
turnover, that is gross income exceeds Shs. 12.5 million or is likely
to exceed that level for three consecutive calendar months must
register for VAT with Uganda Revenue Authority. A principal engaged
in business activities whose taxable turnover does not exceed Shs.
12.5 million in a three month period may seek voluntary registration.
The
same rules apply to an agent, but in considering the Shs. 50 million
taxable turnover level, he has only to consider his gross income
to the agency business, not the income collected as a disbursement
on behalf of his principals ( SEE LEAFLET No. 3).
HOW
DOES A PRINCIPAL ISSUE INVOICES IN A VAT SYSTEM?
Only a VAT registered principal can issue tax invoices, and tax
invoices can only be issued to a VAT registered customer. If the
principal is VAT registered he must charge VAT on all his taxable
supplies.
Tax
invoices and commercial invoices issued by principals can be prepared
by the principal and passed to the agent for issue. Alternatively
the principal can authorize the agent to issue tax invoices and
invoices on his behalf. This authorization must be in writing and
must be held by the agent as authority for issuing the invoices
on behalf of the principal. In these circumstances the authorization
commits the principal to meet the VAT obligations resulting from
the agent's actions.
HOW
DOES AN AGENT ISSUE INVOICES IN A VAT SYSTEM?
Again only a VAT registered agent can issue tax invoices, and tax
invoices can only be issued to a VAT registered customer.
If
the agent receives payment by discounting the sums he collected
on behalf of a principal, he must issue the principal with a VAT
invoice and charge VAT if both are registered. If the agent is registered
and the principal is not he must issue a commercial invoice and
charge VAT.
HOW
DOES THE PRINCIPAL CALCULATE THE VALUE FOR TAX?
Where the principal is registered for VAT and the supply is liable
to VAT, the value for tax is the gross amount charged to the customer
excluding VAT. Deductions cannot be made to the value for agents
charges, commissions or discounts or for any other expenses in connection
with the supply for example charges for electricity, property maintenance,
water, ground rent, etc regardless of whether those charges are
liable to VAT. These charges are expenses to the business of the
principal.
HOW
DOES THE AGENT CALCULATE THE VALUE FOR TAX?
Where the agent is registered for VAT and the supply of services
(or goods) made by the agent is liable to VAT the base for tax is
the gross charge made
by the agent for the supply of his own services (or goods). The
receipt of the
agent can be in the form of a commission, discount on monies collected
for the principal, or any other form of payment from the principal.
The agent if registered should issue a tax invoice to the VAT registered
principal and commercial invoices to a non-registered principal.
In each case VAT has to be charged on the gross value base of the
monies received by the agent for his services.
CAN
A PRINCIPAL CLAIM FOR CREDIT OF INPUT TAX?
If the principal is registered then any VAT charges he pays for
his business activities can be claimed as a credit on the VAT return
provided he holds a VAT invoice or a certified Customs Bill of Entry
document. The principal can claim this credit even if the payment
is made by the agent from receipts collected, provided the tax invoice
is prepared for the principal, or the principal is shown as the
importer on the customs entry. If the agent acting for the principal
is VAT registered, the VAT charged by the agent can be claimed as
a credit as well.
WHAT
CREDIT FOR INPUT TAX CAN AN AGENT CLAIM?
If the agent is registered for VAT, then any VAT charges he pays
directly for his agency business activities on which VAT is charged
can be claimed as a credit on the VAT return provided he holds a
VAT invoice or a certified customs Bill of Entry. Charges paid on
behalf of the principal where the tax invoice is prepared for the
principal or the principal is shown as the importer on the customs
entry CANNOT be claimed as a credit by the agent. If the agent ,as
part of the agency agreement, is charged for goods or services resulting
from the agreement he can claim a VAT credit if the VAT invoice
shows him as the purchaser. The agent should then charge the principal
for these supplies and add VAT to the charge in the normal way.
WHAT
HAPPENS WHEN A TENANT DOES NOT PAY THE RENT DUE?
If the supply is liable to VAT, then VAT is due on the dates the
rent is due in the tenancy agreement regardless of whether the tenant
makes a payment, provided the principal is registered for VAT.
The only exception is where the taxable turnover of the VAT registered
principal does not exceed Shs. 200 million. The principal can then
apply to the Commissioner-General to account for VAT on a cash received
basis.
N.B
Although the agent is responsible for remitting taxes on behalf
of the principle, the later shall remain accountable for any taxes
remitted by the former.
DEMONSTRATION
HOW VAT WORKS IN ANY AGENCY SITUATION
PRINCIPAL AND AGENT SITUATION
QUEEN
ELIZABETH LODGE (Regd VAT) - SUPPLIES SAFARI
DELMIRA
(Regd VAT) - ACTS AS TRAVEL AGENT
JOHN
MUKASA (Not Regd VAT) - BUYS SAFARI
CHARGE
FOR SAFARI 10,000=
+ vat 18% 1,800=
11,800=
JOHN
MUKASA PAYS 11,800= SHS TO DELMIRA (WHICH DELMIRA COLLECTS FOR QUEEN
ELIZABETH LODGE)
QUEEN
ELIZABETH LODGE PAY DELMIRA 10% COMMISSION FOR THE AGENCY SERVICE
VAT SITUATION
JOHN
MUKASA PAYS 1,800 SHS VAT
DELMIRA COLLECTS ON BEHALF OF QUEEN ELIZABETH
OUTPUT TAX TO QUEEN ELIZABETH LODGE
DELMIRA
DEDUCT 10% FROM VAT EXCLUSIVE PRICE = SHS 1000.
ISSUE
QUEEN ELIZABETH LODGE WITH TAX INVOICE OF
1000 SHS + 180 SHS VAT
180 SHS VAT OUTPUT TAX TO DELMIRA
INPUT TAX TO QUEEN ELIZABETH LODGE
CASH
FLOWS
JOHN
MUKASA(CONSUMER) PAYS 11,800 SHS INC 1,800 VAT
DELMIRA
COLLECTS 11,800 SHS
PASSES TO QUEEN ELIZABETH 10,530 SHS + TAX INVOICE
1,000 SHS + 180 SHS VAT
DELMIRA
ACCOUNTS OUTPUT TAX TO URA 180 SHS
QUEEN
ELIZABETH LODGE ACCOUNTS FOR OUTPUT TAX 1,800 SHS
Collected by DELMIRA AS AGENT FOR QUEEN ELIZABETH
DEDUCT AS INPUT TAX VAT CHARGED BY DELMIRA 180 SHS
TO
URA 1,620 SHS
OUTPUT
TAX 1,800 SHS PAID BY JOHN MUKASA
180 SHS TO URA BY DELMIRA
1,620
SHS TO URA BY QUEEN ELIZABETH LODGE
1,800 SHS
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