On 30 July 2019, the Federal Tax Authority (FTA) published clarification VATP015 on Transfer of a Business (the clarification).
In accordance with article 7(2) of Federal Decree-Law No. 8 of 2017 on value added tax, the transfer of an entire or an independent part of a business, from a non-taxable person to a taxable person for the purposes of continuing the business is not considered a supply for VAT purposes.
Such a transfer of 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.
The clarification provides that the conditions to be met for the transfer to be qualified as a TOGC under the provisions of the aforementioned article 7(2) are as follows:
- the transfer must be a transfer of an entire or an independent part a business; the transferred business must be operational before and at the time of the transfer. Depending on the facts, this may include, among other things, goodwill, licences, premises, machinery and equipment, employees, ongoing contracts and liabilities;
- the recipient must be a taxable person at the time of the transfer; the recipient must be registered or obliged to register for VAT purposes; and
- the recipient intends to continue the business which is transferred; this requirement is met once the recipient intends to continue carrying on the same kind of business it acquires. Whether the buyer operates this business separately, or as part of any other business that he is already operating, is irrelevant.
The clarification provides that the supplier must satisfy himself that the recipient intends to continue to carry on the same business. It states that if the transfer was incorrectly treated as a TOGC, VAT may be due on the supply with retrospective effect.