A transfer of business as a going concern is a type of an asset sale which involves a transfer of title in the assets from one person to another person. For VAT purposes, it is important to distinguish between a normal sale of assets and a sale of assets as part of transfer of business as a going concern (TOGC).
Sale of assets by a taxable person is treated as a taxable supply subject to VAT at the appropriate rate except sale of bare land or residential, but when the assets are sold as part of a transfer of a business as a going concern, the transfer is not a supply at all and therefore no VAT should be charged.
Conditions to fulfill the criteria of TOGC
- Transfer must be as a whole or an independent part of a business and must be operational before and at the time of transfer and where the business has ceased operation before the transfer date, the transfer will not qualify as a TOGC.
- Transfer must be made to a taxable person, recipient of TOCG must be a taxable person or obligated to register for VAT.
- The recipient intends to continue the transferred business. The parties should consider the potential consequences of treating the supply as TOGC incorrectly when entering into contractual arrangements.