What is the tax rate for commissions
Sales tax: is the agency commission tax-free?
Numerous companies rely on sales representatives to sell their products. Because often your own sales measures are not enough to adequately exploit the customer potential. But the representative not only expands the customer base and maintains customer contact. Intermediaries also provide valuable services in many other areas. The representative receives a commission for arranging orders or business deals. Here we explain to you whether the agency commission is tax-free or whether you have to pay sales tax to a representative.
- What exactly is a placement service?
- What is the brokerage service in tax law?
- Is the agency commission tax-free?
- When is the agency commission tax-free?
What exactly is a placement service?
The brokerage service is one of the services in which a commercial agent provides new business partners or business deals for a client. According to the sales tax application decree section 3.7 paragraph 1 UStAE, brokerage services are available if the representative
- in someone else's name
- for someone else's account
acts and thereby mediates business.
For the agency service, the representative receives the so-called agency commission. To the classic placement sectors and services include for example:
- Travel agencies
- Mediation of sales
- Private employment agency
- commercial agent
- Car dealer
If an agent carries out his brokerage activity on behalf of another company and is self-employed, then he is a commercial agent. Commercial agents must comply with the requirements of the Commercial Code.
What is the brokerage service in tax law?
According to § 1 UStG (sales tax law) deliveries and other services are subject to sales tax. The sales tax law defines the terms "deliveries" and "other services" within the meaning of tax law in § 3 UStG. Both terms encompass the general business activities of entrepreneurs and traders. In Section 3 (9) of the UStG, the legal text refers to the concept of other services closer. Accordingly, services that are not deliveries of goods fall under the concept of other services. In terms of their tax treatment, these are equated with the delivery of goods. The other services include, in addition to many others, the Brokerage services.
Is the agency commission tax-free?
As a so-called other service, services and thus also the brokerage service are subject to VAT. The agency commission as remuneration for the agency service is therefore taxable at the regular tax rate. For this purpose, it is necessary to check where the performance is located. Because only a brokerage service that was carried out in Germany is also taxable here. The place where the service is provided depends on two criteria:
- Brokerage on a private basis
- Brokerage on behalf of a company
In private order
If an intermediary works for a private person, then applies as Place of performance, where sales are made. If, for example, a real estate agent brokers a property, then the service is taxable at the location of the property in question.
On behalf of a company
The place of brokerage on behalf of a company or a self-employed person with a sales tax identification number is deemed to be Location of the establishment or the permanent establishmentwho receives the performance.
If a commercial agent in Germany works for a client from abroad, for example, then his performance is not taxable in Germany. If the foreign entrepreneur is based in the EU, the so-called reverse charge procedure applies.
When is the agency commission tax-free?
The sales tax law lists criteria in § 4 No. 5 UStG in which the agency commission is tax-free. This includes the placement of:
- Export deliveries
- intra-community deliveries
- Sales for shipping and aviation
- Transportation of objects
- other services relating to imported items
In addition, some agency commissions are also tax-free in money and capital transactions. Sales from insurance agents, building society representatives and insurance brokers are also exempt from sales tax.
If, in addition to the mere brokerage activity, other services such as consulting services or evaluation work arise in these cases, then these in turn must be settled with sales tax. It is therefore very important that the To examine tax exemption in individual cases and to clearly differentiate the brokerage activity from other activities.
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