Quick Answer
Procurement agency means a company engages another party to purchase goods from suppliers on its behalf. Two models are common: (1) purchasing in the client’s name (close to agency under Taiwan’s Civil Code, with the deal taking effect directly on the client); and (2) purchasing in the agent’s own name for the client’s account (close to commission agency, where the purchasing party bears obligations to the supplier itself). Risk, payment flows and revenue recognition differ between the two, so a procurement agreement must spell out scope, prices and fees, payment, quality responsibility, transfer of title and risk, and confidentiality and non-circumvention.
Two Procurement Agency Models
| Comparison | In the client’s name (agency) | In the agent’s own name (commission agency) |
|---|---|---|
| Legal basis (Taiwan Civil Code) | Art. 103: a declaration made by an agent in the principal’s name within its authority takes effect directly on the principal | Art. 576: buying or selling movables or other commercial transactions in one’s own name for another’s account, for remuneration |
| Party to the supplier contract | The client | The purchasing party |
| If the supplier fails to perform | The client claims directly against the supplier | Under Art. 579, the commission agent is in principle directly liable to the client (unless the contract or custom provides otherwise) |
| Typical fee | Service fee or commission | Service fee or margin |
If a party only introduces opportunities or mediates, it is brokerage under Article 565. For the different legal roles, see What Is a Trade Agent in Taiwan?
10 Essential Clauses in a Procurement Agency Agreement
- Scope: products, specifications, quantities, target price range and lead times.
- Purchasing model: in whose name purchases are made and who is the party to the supplier contract.
- Fees: service fee, commission or percentage; whether travel, inspection and sample shipping are extra.
- Payment flow: who pays the supplier and when, and whether prepayment is needed.
- Quality standards and inspection: specification sheet, inspection method and AQL levels.
- Transfer of title and risk: when and where goods transfer, aligned with Incoterms.
- Defects and claims: notice periods, handling and liability for quality problems.
- Confidentiality and non-circumvention: limits on using supplier and transaction information.
- Documents and reporting: quotes, inspection reports, shipping documents and financial records to be provided.
- Term, termination and disputes: governing law and jurisdiction.
Revenue Recognition: Gross or Net?
Whether a purchasing party books revenue gross or net (as commission) depends, under IFRS 15, on whether it is a principal or an agent. Put simply, if the entity controls the goods before they transfer to the customer, it is usually a principal and recognizes revenue gross; if it only arranges for another party to provide the goods, it is usually an agent and recognizes commission or net revenue. The judgment depends on the contract terms and who bears inventory, pricing and performance risk, so confirm with your accountant.
For Taiwan business tax, the difference between booking triangular trade as brokerage or as a sale is explained in Triangular Trade and Taiwan Business Tax.
Tang Sugar’s International Sourcing Agent Service
Tang Sugar’s international sourcing agent service comes with a full international service contract that sets out responsibilities and processes. Fees are an initial assessment fee plus a sourcing execution fee, with the execution fee set as a percentage of purchase value or a project fee depending on the case, and the structure explained clearly before we begin. Contact us to discuss your sourcing needs.
FAQ
What is procurement agency?
A company engages another party to purchase goods from suppliers on its behalf, either in the client’s name (agency) or in the purchasing party’s own name (commission agency).
How is purchasing in the client’s name different from purchasing in your own name?
Purchasing in the client’s name is agency, with the deal taking effect directly on the client; purchasing in your own name for the client’s account is commission agency, where you bear obligations to the supplier yourself.
What should a procurement agency agreement include?
At least scope, purchasing model, fees, payment flow, quality standards and inspection, transfer of title and risk, defects and claims, confidentiality and non-circumvention, documents and reporting, and term and dispute resolution.
Should a purchasing agent recognize revenue gross or net?
Under IFRS 15 it depends on whether it is a principal or an agent: an entity that controls the goods before transfer is usually a principal and books gross; one that only arranges supply is usually an agent and books net. Confirm with your accountant.
Further Reading
- What Is a Trade Agent in Taiwan? Agency, Broker and Commission Agent
- What Is a Sourcing Agent?
- The Overseas Procurement Process: 9 Steps
Sources
- Laws & Regulations Database of Taiwan: Civil Code (Arts. 103, 565, 576, 579)
- IFRS Foundation: IFRS 15 Revenue from Contracts with Customers
- Tang Sugar: International Sourcing Agent
