The United Arab Emirates Federal tax authority issued a public clarification on VAT about sale of a business or transfer of a business on 20th August 2019.
Under Article 7(2) of the UAE VAT Law of the Federal Decree-Law No(8) the transfer of the whole or an independent part of a business from a person to a taxable person for the purposes of continuing the business shall not be considered a supply therefore will not be subject to VAT purposes. The TOGC rules are compulsory, so it is important to establish that the business is being sold as a going concern.
There are three conditions to be met for a transfer to be treated as TOGC
There must be a transfer of a business for a transfer to qualify as per Article 7(2) of the UAE VAT Law. The transfer should give the recipient possession of the whole business or part of a business which enables separate operation. All the goods and services necessary for the continued operation of the business must be transferred to the purchaser, including goodwill, licenses, machinery employees and ongoing contracts.
The recipient must be a taxable person at the time of transfer to qualify as TOGC. The recipient should be:
3)The recipient intends to continue the business which was transferred.
As per the third condition to qualify as TOGC the recipient must have a genuine intention to carry on the same kind of business, it should continue as how it existed. What matters is intention of the recipient to continue the business should be genuine. The way new owner operate the transferred business or time period for which the transferred business must be operational under the recipient’s ownership etc does not matter.
It is very important for a business to qualify as a TOGC. If a business incorrectly treats the transfer as a TOGC, VAT may be due on the supply. If the sale of a business qualifies as a TOGC, it is considered as neither a supply of goods nor a supply of services, and so it is outside the scope of UAE VAT.
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