Sales commissions in SaaS

Sales commissions are one of the largest costs of a growing SaaS business, and they are paid when a deal is signed, while the revenue arrives over years. IFRS 15 requires them to be matched with that revenue. The judgements are which costs qualify, over what period to amortise them, and when the asset is impaired. This guide works through a new deal with three possible amortisation periods and covers managers' commissions, payroll taxes, renewals, clawbacks and presentation.

By Mirza Fahad Baig, Chartered Accountant. Reviewed by Hamza Fida, Chartered Accountant. 3 minute read.

Short answer

SaaS sales commissions paid only because a customer contract is signed are incremental costs of obtaining a contract under IFRS 15. They are capitalised if the company expects to recover them, and amortised on a systematic basis consistent with the transfer of the services they relate to, which for a subscription is usually straight-line. The amortisation period includes expected renewals when the initial commission is not matched by a similar commission on renewal. If the amortisation period would be a year or less, the commission can be expensed. Costs that would be paid anyway, such as salaries or bonuses based on overall performance, are expensed. In this guide's example, a US$ 12 thousand commission on a new 3-year deal is amortised at 2.4 thousand a year over a 5-year expected customer life, because renewals earn only a 2% commission.

At a glance

Capitalise
Incremental costs of obtaining a contract
Not incremental
Salaries, general bonuses
Amortise
Straight-line over service period
Period
Includes renewals if commission not commensurate
Practical expedient
Expense if period is a year or less
Impairment
If not recoverable from remaining consideration
Sales commissions in SaaSCapitalise: Incremental costs of obtaining a contract; Not incremental: Salaries, general bonuses; Amortise: Straight-line over service period; Period: Includes renewals if commission not commensurate; Practical expedient: Expense if period is a year or less; Impairment: If not recoverable from remaining consideration.KEY FACTS AT A GLANCESales commissions in SaaSCapitaliseIncremental costs ofobtaining a contractNot incrementalSalaries, general bonusesAmortiseStraight-line overservice periodPeriodIncludes renewals ifcommission notcommensuratePractical expedientExpense if period is ayear or lessImpairmentIf not recoverable fromremaining considerationTax BakersSales commissions in SaaSCapitalise: Incremental costs of obtaining a contract; Not incremental: Salaries, general bonuses; Amortise: Straight-line over service period; Period: Includes renewals if commission not commensurate; Practical expedient: Expense if period is a year or less; Impairment: If not recoverable from remaining consideration.KEY FACTS AT A GLANCESales commissions in SaaSCapitaliseIncremental costs of obtaining a contractNot incrementalSalaries, general bonusesAmortiseStraight-line over service periodPeriodIncludes renewals if commission notcommensuratePractical expedientExpense if period is a year or lessImpairmentIf not recoverable from remainingconsiderationTax Bakers
Key facts at a glance, as set out in this guide.

Which sales commissions are incremental?

Costs the company would not have incurred if the contract had not been obtained. A commission paid to a salesperson on signing a specific customer contract is incremental, and so are the employer's payroll taxes on it. Commissions paid to sales managers that are based on contracts signed by their teams can also be incremental. Salaries, bonuses based on company profit or other targets not tied to specific contracts, and costs of bidding for a contract the company would incur whether or not it wins are not incremental and are expensed. See contract costs.

Sales commissions in SaaS: one deal, three periods

A salesperson earns a commission of 12% of the first-year contract value on a new 3-year subscription worth US$ 100 thousand a year, paid on signing: 12 thousand. Renewals earn a commission of only 2%. Customers of this kind typically stay about 5 years.

Year 1 commission expense under each approach (US$)Year 1 commission expense under each approach (US$)12,000Expense now4,000Over contract term2,400Over customer lifeNot allowedMatching renewalsThis deal
The amortisation period decides the year 1 expense.
US$ thousandYear 1 expenseBasis
Expense immediately12.0Only allowed if the period is a year or less
Amortise over the contract term4.0If renewals earn a commensurate commission
Amortise over expected customer life2.4Renewal commission not commensurate

Because a renewal earns 2% rather than 12%, the initial commission is partly a payment for the renewals the company expects, so it is amortised over the 5-year expected customer relationship. The practical expedient to expense commissions immediately is not available here, because the amortisation period is longer than a year.

How is the amortisation period set?

IFRS 15 requires amortisation consistent with the transfer of the goods or services to which the asset relates, which can include services under specific anticipated contracts, such as renewals. Many companies compare the renewal commission with the initial commission: if they are broadly commensurate, the initial commission relates only to the initial contract term; if not, it covers expected renewals too, and the period is based on customer life data. The period is reviewed when customer behaviour changes, with any change applied prospectively.

How are renewal and expansion commissions treated?

Commissions on renewals are capitalised and amortised over the renewal term, or expensed under the practical expedient if that term is a year or less. Commissions on upsells or additional users are incremental costs of the modified contract and are amortised over the period of the additional services. Clawbacks, where the salesperson repays the commission if the customer cancels, reduce the asset when they are expected.

When is the capitalised commission impaired?

When its carrying amount exceeds the remaining consideration the company expects to receive for the related services, less the costs of providing them still to be recognised. A customer that signals it will not renew, or a contract repriced downwards, can trigger an impairment, recognised in profit or loss. Capitalised commissions are often tested in portfolios of similar contracts.

How are capitalised commissions presented?

As a separate asset, often called contract acquisition costs or deferred commissions, split between current and non-current, with amortisation usually in sales and marketing expense. Companies disclose the closing balance, amortisation and any impairment, and the judgements behind the amortisation period. In the cash flow statement, commissions paid are usually operating cash flows. US GAAP, under ASC 340-40, has the same requirements and the same practical expedient. See dealer commissions in telecom and SaaS accounting.

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Questions people ask

Are SaaS sales commissions capitalised under IFRS 15?

Yes, if they are incremental costs of obtaining a contract and expected to be recovered, unless the amortisation period is a year or less.

Over what period are capitalised commissions amortised?

Over the period the related services are provided, including expected renewals when renewal commissions are not commensurate with the initial commission.

Are sales managers' commissions capitalised?

Yes, if they are earned because specific contracts are signed; bonuses based on overall performance are expensed.

When are capitalised commissions impaired?

When the carrying amount exceeds the remaining expected consideration less the remaining costs of providing the services.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IFRS 15 Revenue from Contracts with Customers

Rules and fees change. If you are reading this long after October 8, 2026, confirm the figures with the source before you rely on them.

Technology and SaaSSaaS accounting: the key issuesIFRS 15Contract costs: costs to obtain and fulfil a contract under IFRS 15TelecomDealer commissions and contract costs in telecom

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This guide is general information. It is not tax or legal advice for your situation.