Questions & Answers
VAT and its application for a broker selling third-party goods in the UAE
Hi,
We are a third party portal acting as a broker. We are selling products in the UAE on behalf of retailers. However, we invoice end users including the VAT.
Our model is based on commission which means that X% amount of net amount will be retained and the remaining will be transferred to retailers. How to handle this legally between us and the retailers:
1. Do we apply VAT? How do we transfer to retailers as we cannot invoice them?
2. Can we claim back the VAT as the initial retailers have paid VAT on products already?
Thank you
As per our understanding, Broker has an agreement with a supplier to sell goods and raise an invoice to end customers. Customers pay directly to the bank account of Broker and then Broker deducts its commission part and transfers the remaining amount to the supplier.
In this case, it has been considered that Company sales only commission part. In other words, only the commission is recorded as sales.
When Broker raise sales invoice to the customer, it includes the cost of goods and commission. Therefore, because of the current mechanism of invoicing, Broker has to charge Value Added Tax (VAT) for the total amount (value of goods + commission).
However, Broker has to record VAT Payable in books only on the commission part. The remaining balance which would be the value of goods and VAT liability should be considered and recorded as Payable to the supplier.
When the amount is transferred to Retailer, Broker doesn't have to raise an invoice, since it is an amount collected on behalf of the supplier. Therefore, Broker has to reduce liability which would be payable to supplier and credit bank. However, Broker has to raise a commission invoice to the supplier.
As far as the claim is concerned, Broker can claim VAT input on direct cost and indirect expenses (e.g. office rentals, software expenses etc.).
