Agency Agreement

An agency agreement is a powerful tool to grow your business, enter new markets, and participate in tenders. However, if not properly drafted, it may lead to serious risks such as rejected bank payments, tax penalties, and legal disputes.

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✅ What Is an Agency Agreement?

An agency agreement is a legal contract in which one party (the principal) authorizes another party (the agent) to perform specific tasks in exchange for compensation.

The agent may:

• Find clients

• Sign contracts

• Oversee trading processes

• Handle documentation

• Organize logistics

The agent may act either on behalf of the principal or in their own name but at the principal’s expense.

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???? When Do You Need One?

• When entering a new market

• When local representation is required for tender participation

• For cross-border transactions (especially within CIS countries)

• When operating without full in-house teams

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⚠️ Key Risks: What Can Go Wrong?

1. Banking Risks

• If the contract lacks specific details, the bank may block the payment or request additional documentation

• For foreign payments, the agreement may not be considered a “sufficient basis”

2. Tax Risks

• Tax authorities may treat the contract as invalid or artificial, applying penalties

• Unreported agent transactions may be disallowed as expenses

• Cooperation with foreign agents can trigger permanent establishment risk

3. Accounting Challenges

• Improperly recorded transactions can distort financial reporting

• If the agent acts in their own name, documentation must be precise and traceable

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???? Real-Life Example: Regional Agent for a Tender

A company in the engineering equipment sector hired a local agent for a regional tender using a generic template agreement without legal or financial consultation.

As a result:

• The bank halted the transaction

• The tax authority deemed the contract invalid

• Expenses were disqualified due to lack of proper evidence

After contacting Ideovate Consulting:

• The agreement was professionally redrafted

• Accounting and tax processes were corrected

• Risks were minimized

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???? How Can Ideovate Consulting Help?

We offer end-to-end support in:

• Legally and financially sound contract drafting

• Ensuring compliance with bank and tax regulations

• Structuring agreements with foreign parties

• Organizing accounting and expense documentation

• Guiding currency transactions with banks

• Explaining the purpose and benefits of the agreement through documentation

A properly drafted agency agreement is not just a document — it’s your business safety net in domestic and international operations.