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What are the VAT guidelines on the Transfer of a business as a going concern in UAE?

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What are the VAT guidelines on the Transfer of a business as a going concern in UAE?
Shuraa Tax Consultant October 16, 2019

A person planning to make a business transfer should know the VAT guidelines centered around the TOGC i.e. Transfer of a business as a going concern. According to Article 7(2) of the Federal Decree-Law No. (8) of 2017 on VAT “transferring the whole business or an independent part of the business from a person to a taxable person for the reason of continuing the business (TOGC) is not treated as a supply for VAT purposes. These are a type of business asset transfers, which is not treated as supply, hence no VAT can be imposed. 

Here are the conditions for any transfer business to be treated as a TOGC which is not subject to UAE VAT

  1. The transfer of a whole or an independent part of the company

When an owner decides to make a transfer of its business, it should involve a complete takeover of the business or independent part of the business by the purchaser and not just transfer of assets as the latter does not qualify the conditions for TOGC. The transferred business should be in a working condition before and during the time of making the transfer so that the purchaser finds no difficulty in running the business. 

  1. A buyer is a taxable person

For a transfer of a business to be treated as a TOGC, the buyer must be a taxpayer at the time of transfer. This means he/she should be registered for VAT or has applied for the VAT registration and that application has been approved by FTA. 

  1. The buyer should genuinely be interested in running the business

The buyer’s intention for running a business should be genuine. They should continue the business exactly the way it was handed over to them without making any fundamental changes in the business. At the moment, there are no restrictions about how long a buyer should run a business however, what matters is the genuine intention of the buyer for running it.

 Federal Tax Authority (FTA) has also clarified the concept of an asset sale, share sale, business sale. Details are as below: –

Asset sale and share sale

There’s a difference between share sale and an asset sale. A company is easily sold or bought using the shares sale. Because the company is not directly involved in the transaction, so such share transfers don’t affect the ongoing business operations, and everything stays the same except for the change in the ownership. The new owner takes over the company with all its assets and liabilities which also includes the company’s existing tax obligations.

While in the assets sale because only assets get transferred there is no change in the ownership of the businesses. The buyer of assets has nothing to do with the existing liabilities of the company.  TOGC is a type of asset sale, which should qualify above mentioned three conditions and not a share sale.

Assets sale and business sale

On one hand, there’s a normal asset sale and on the second there’s asset sale involving TOGC. When a taxable person sells the assets of its company, it’s treated as a taxable supply since its supplying a good to the buyer and therefore VAT gets included. However, when the sale of assets happens as a part of TOGC, there is no real supply of goods, hence no VAT is applicable.

For example, a business owner decides to sell it’s a machinery that will be eligible for VAT. However, if the owner decides to sell ‘all machinery related to one business unit along with factory space’, which can be run independently, it should be treated as a Transfer of a business as a going concern (TOGC), meaning it is not subject to UAE VAT. 

We, Shuraa Tax and Accounting Services LLC, are among the best VAT Companies in Dubai, promising to give you the best Tax agency, VAT registration, and consultancy services in the UAE. To inquire more, contact our expert team members and know more about the VAT guidelines under TOGC.

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