The Transfer of business going concern rules are mandatory, so it is important to determine if the business is being sold as an ongoing business.
There are two methods of transfer of business has been described one is transfer through sale of shares and another is transfer through sale of assets.
sale of shares in the process of transfer of business is considered as supply under article (7) of the VAT Decree Law and this is not considered as supply. Sale of asset independently even in the process of transfer of business is not covered under article (7) of the VAT Decree Law and considered as supply and transferor is liable to pay 5% VAT on the same.
The following three conditions must be met for a transfer to be treated as a transfer of business going concern and therefore out of scope for UAE VAT purposes.
- There must be a transfer of the whole or an independent part of a business
- The transfer must be made to a taxable person
- The recipient intends to continue the business which was transferred
It is important for an organization to determine whether a transition of a company qualifies as a TOGC, subject to the above conditions. If a company treats the transfer incorrectly as a TOGC, VAT may be due on the delivery. If a company’s sale qualifies as TOGC, it is treated as neither a supply of goods nor a supply of services and is therefore beyond the scope of UAE VAT.