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Business of the estate agent
VAT and the Estate
The main business of an estate agent is to facilitate the sale of fixed property as well as to administer properties on behalf of the owner. Both activities constitute a service and the remuneration received for these services by the estate agent is generally known as a commissions. The business of the estate agent thus falls within the sphere of the VAT Act and the estate agent obliged to register for VAT if his/her taxable activity exceeds N$200 000 per annum.
The estate agent will have to pay VAT on all his/her purchases like stationery, telephone and motor vehicle costs. The VAT paid on inputs is known as the input tax.
As a general rule, all input taxes may be set off against the output taxes at the end of each tax period. There are, however, certain inputs where the VAT paid thereon may not be claimed back. The main categories of expenditure generally incurred by estate agents where no claim for input tax is possible are where the estate agent buys a passenger vehicle and where entertainment costs are incurred. A passenger vehicle is a motor vehicle which is principally designed to transport nine or less persons and specifically includes a double cabin vehicle.
The commission charged by the estate agent constitutes consideration for a service rendered (the output of the business) and output tax calculated at 15% must be charged on this amount.
Certain recipients of these services, like landlord, etc. may claim the VAT, charged by the agent, back as an input tax on his VAT return. The landlord must be in possession of a tax invoice from the estate agent in order to be allowed to claim this amount. Schedule VI of the Act sets out the detail which must be stated on this document.
Position of trust between principal and agent
Just as a fiduciary relationship exists between an attorney and his client, or a guardian and his ward, so such a relationship exists between an estate agent and his principal. Consequently, the agent is obliged to show the utmost good faith towards his principal in all circumstances. This obligation places at least a threefold responsibility on the estate agent:
- He may not make any secret profits from the performance of his mandate.
- He may not act in such a way that his interests and the performance of his mandate result in a clash of interests with those of his principal.
- He may not in the course of his agency or thereafter disclose to a third party or use for his own purpose any secret information about his principal which he obtained from him during the execution of his mandate or in any other way.
Conflict of interests
The estate agent must at all times act in the exclusive interests of his principal. No agent may therefore act in such a way that his interests and the performance of his mandate culminate in a conflict of interests.
As far as a conflict of interests is concerned, your attention is drawn to the following:
- Because the agent is in a position of trust of his principal and because the parties' interests may clash directly, the former may not buy the property which his principal has instructed him to sell except with the special permission of the principal - even where a reserve price has been fixed below which the principal will not sell.
- The agent who is instructed to buy may not sell his own property to his principal, without disclosing this fact to the latter.
- The agent who decides to buy the property of his principal for his own use becomes a principal in his own right and can therefore not claim agent's commission from the seller, that is, he cannot buy himself and still earn a commission over and above, except where the facts of the case have been disclosed to the principal.
- Where the interests of an agent are in conflict with those of his principal, it is the agent's duty to inform his principal fully.
- Where the interests of an agent are in conflict with those of his principal, it is the agent's duty to inform his principal fully about this state of affairs and seek his permission to continue with the transaction.
- If the principal expressly authorizes the agent to buy the property himself, the transaction is binding on the former.
- If the principal is fully aware of the personal interests of the agent in a sale and nevertheless accepts the sale, the transaction becomes binding on the principal.
- Should the principal not be informed of the agent's conflict of interests and later discovers the true state of affairs, he is entitled (but not obliged) to set aside the contract of purchase and sale or take such other legal steps against the agent as are open to him.
For his services an agent is normally entitled to be remunerated only as agreed upon between the parties. He cannot retain any benefit or additional profit which accrues to him from a transaction concluded within the scope of his agency, unless of course his principal agrees to his retaining it or the principal renounces his right to it in some or other way.
When the principal gives such permission he must be fully informed about all the relevant facts. In addition, there must be no indication that the agent was unduly influenced. What this implies is that an estate agent can make no secret profit out of the property belonging to his principal and in connection with which he is acting as an agent. Should secret profits originate, they must be paid over to the principal.