VAT on Agency Transactions in Cyprus

The agent versus principal distinction in VAT

Whether a business acts as an agent or a principal in a transaction has a significant impact on its VAT obligations. A principal buys and sells in its own name and own right — it accounts for VAT on the full value of both its purchases and its sales. An agent acts on behalf of a principal and accounts for VAT only on its commission or fee — not on the underlying supply it facilitates. Getting this distinction wrong can result in either under or over-declaration of VAT.

Disclosed agents — VAT on commission only

A disclosed agent is one who makes clear to the customer that they are acting on behalf of a named principal. In a disclosed agency arrangement the agent accounts for VAT only on their commission or fee. The underlying supply — the goods or services being facilitated — is treated as made directly between the principal and the customer. The principal accounts for VAT on the full supply value. The agent issues a VAT invoice for their commission at 19%.

Undisclosed agents — VAT on the full supply

An undisclosed agent is one who does not reveal to the customer that they are acting for a principal — the customer believes they are dealing with the agent as if it were the principal. In an undisclosed agency arrangement the VAT rules treat the agent as if it made the supply itself — both buying from the principal and selling to the customer. The agent must account for VAT on the full value of the supply. The principal also accounts for VAT on the supply to the agent.

Common agency arrangements in Cyprus

Insurance brokers are disclosed agents — they arrange insurance on behalf of named insurers and their commission is the taxable supply. The insurance itself is between the insurer and the insured. Real estate agents are disclosed agents — they facilitate property transactions on behalf of sellers and their commission is taxable. Travel agents may be either disclosed agents or principals depending on whether they reveal the underlying supplier. Online marketplaces operating under facilitator rules may be treated as undisclosed principals even when facilitating third-party sales.

Disbursements vs expenses

A related concept to agency is the treatment of disbursements. If an agent incurs costs on behalf of a principal and passes them through at cost — solicitor's fees, court fees, registration fees — these are disbursements and may be outside scope for VAT rather than a supply by the agent. To qualify as a disbursement the agent must have acted as agent in incurring the cost — the cost was legally the principal's cost, not the agent's. If the agent incurred the cost in their own right and recharges it to the client it is a supply and VAT applies.