Commercial agency
In one sentenceA contract under which a local trader distributes the products of a producer or manufacturer, or provides its services, in the Kingdom, registered with the Ministry of Commerce.
Simply put
The agency holder may act as an agent who contracts on the principal's behalf for a commission, or as a distributor who buys the goods and sells them on its own account at a profit. Registering the contract is a condition for practicing the agency, and the details are in the Commercial Agencies Law.
For accounting the difference matters under IFRS 15: if you are a principal who controls the goods before selling them, you record the full sales and their cost; if you are an agent in the accounting sense, you record only your commission as revenue.
Worked example
An equipment agent sold equipment to customers for 1,000,000 SAR on behalf of the manufacturer, without owning it, for a commission of 8% (a hypothetical rate for illustration).
Value of sales to customers1,000,000 SAR
Commission: 1,000,000 × 8%80,000 SAR
Revenue in the agent's books (commission, not sales)80,000 SAR
Don't confuse it with
Revenue recognitionRevenue recognition rules are what determine whether you record the full sales or only the commission, depending on your control of the goods.