Term
Commission agreement
A contract in which the commission agent sells or buys in its own name on the principal’s account for a fee. For VAT it counts as two supplies, which changes invoicing and the tax point.
Updated
What it means
A commission agreement is governed by the Commercial Code. The commission agent undertakes to carry out a business transaction in its own name on the principal’s account, most often selling or buying goods, and the principal pays it a commission.
The difference from a commercial agency contract lies in whose name the agent acts. A commercial agent only brokers deals and the principal concludes the contract itself, whereas a commission agent appears outwardly as seller or buyer and the customer often does not even know whose goods they are buying.
The principal remains the owner of the goods until they are sold. The commission agent merely holds them, and a sale gives rise to two transactions: between principal and agent, and between agent and customer.
How it works in practice
For VAT, a commission sale of goods is treated as two supplies of goods: the principal supplies the agent and the agent supplies the customer. The tax point is generally the same for both, with the principal invoicing the agent the price less commission and the agent invoicing the customer the full price.
The commission agent does not report the goods it holds as its own inventory but records them off balance sheet. At the stocktake the principal’s goods are counted separately and the balance agreed with the principal.
For cross-border deliveries, for example when a foreign manufacturer places goods with a Slovak seller, a commission sale must be distinguished from a call-off stock arrangement, which has its own VAT and record-keeping rules.
What to watch out for
A common mistake is booking only the commission on a commission sale, as if it were a service. That is wrong for both VAT and revenue, and at an audit a gap appears between the reported and the actual sale of goods.
The agreement must state clearly who bears the risk of loss, when the agent hands the money to the principal and how unsold goods are returned. Otherwise, if the agent becomes insolvent, the principal may get neither its goods nor its money.
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