VAT Public Clarification by FTA – Transfer of a Business as a Going Concern

FTA has recently issued a clarification that discusses the conditions that have to be met for a transfer to qualify as a ‘’transfer of a going concern’’ under Article 7(2) of the Decree-Law. As per Article 7(2) of the Federal Decree-Law No. (8) of 2017 on VAT, the transfer of whole or an independent part of a business from a person to a taxable person for the purposes of continuing the business that was transferred shall not be considered as a ‘supply’ and, therefore, out of scope for UAE VAT purposes. The following three conditions must be met for a transfer not to be treated as a supply for VAT purposes:-
  1. There must be a transfer of ‘’whole or an independent part’’ of a business;
    • Sale of assets as a part of a transfer of a business as a going concern and not mere transfer of assets.
    • Mere sale of shares is not a transfer of a business as a going concern as it does not give rise to any changes in the business operations of the company.
    • Transfer must give the recipient the possession of all the necessary goods and services including goodwill, licenses, premises, machinery, employees, ongoing contracts, and liabilities.
    • Transferred Business must be operational before and at the time of transfer
    • Where business is yet to commence or where the business has ceased operation before the transfer date, it will not qualify as Transfer of a Going Concern.
  2. The transfer must be made to a ‘’taxable person’’
    • The recipient should be registered or is required to be registered under mandatory registration rules and has applied for registration to the FTA, or has applied for voluntary VAT registration and the FTA has accepted the same. However, there is no requirement for the supplier to be registered for VAT for a TOGC to take place.
    • The supplier will remain responsible for its tax obligations incurred during its ownership of the business and the underlying assets.
  3. The recipient intends to ‘’continue the same kind of business’’ which was transferred
    • Although the minimum period for which the transferred business must be operational under the recipient’s ownership has not been defined but there must be the genuine intention of the recipient to carry the same kind of business after the transfer.
    • It is permissible to temporarily close the business immediately after the transfer, necessary to prepare the business for operation under the new ownership.
    • The onus is on the supplier to ensure that the purchaser has the genuine intention to use the assets for the same kind of business after the transfer. Where the supply has been incorrectly treated as a TOGC, the FTA may recover VAT retrospectively from the supplier.
Please contact us for more details. Last Updated: 27th August 2019 This article is contributed by:  CA Kashika Sajnani Consultant

Tag: Uae, Vat, VAT in UAE