VATP015

Issue

In accordance with Article 7(2) of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (the "Decree-Law"), 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 is not considered to be a supply for VAT purposes.

As a consequence of not being a "supply" for VAT purposes, such transfer of a business, commonly known as a "transfer of business as a going concern" or a "TOGC", is not subject to VAT. This rule has a compulsory application.

Summary

This Public Clarification 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.

Detailed discussion

Share sale vs assets sale:

A company can be bought and sold by transferring shares of that company. The company itself is not involved in the transaction and therefore such a transfer of shares does not give rise to any changes in the business operations of the company – it still retains all its assets, liabilities, licences, employees and relationships. The new owner takes over the purchased company with all of its assets and liabilities – including any existing tax obligations of the company.

In contrast, a transfer of assets (including a transfer of goodwill or trading licences) involves a transfer of title in the assets from one person to another person. In this kind of asset sale transaction, there is no change in the ownership of the entities involved in the transaction, and the purchaser does not take on liabilities that are not expressly part of the transaction or that are attached to the purchased asset.

A transfer of business as a going concern is a type of an asset sale, not a share sale. This is discussed in more detail below.

Sale of assets vs sale of business:

For VAT purposes, it is important to distinguish between a normal sale of assets and a sale of assets as part of TOGC.