VAT on Transfer of Business as a Going Concern
Many times, transactions that involve transfer of business from one party to another happen in the interest of investment opportunities and it is crucial to know about the VAT implications to ensure compliance and to plan the deals properly. FTA has published a clarification document exclusively to explain the features of a business transfer on going concern basis and respective VAT treatments, giving more transparency to the provisions in the VAT regulation in this context. In this section we will analyse more about VAT on transfer of business as a going concern.
Is VAT applicable for transfer of business as a going concern?
As per the VAT regulation, eligible transfer of a business as a going concern is not to be considered as a supply of goods/services and will not attract VAT. Since such transactions are not subject to VAT, no VAT payments are required to be made either by the transferor or transferee of the businesses. However, the parties involved in such deals shall go through the facts in each case and ensure they satisfy the conditions as stipulated by the VAT regulation which make those transactions eligible to be excluded from VAT application. It is always recommended to consult a VAT expert in the region to ensure VAT compliance when entering into business transfers. By availing the right VAT services in Dubai , you can get complete guidance for VAT on transfer of business as a going concern.
How to distinguish sale of assets from transfer of business?
Only sale of assets as part of transfer of business as a going concern is excluded from VAT. Hence it is crucial to segregate the normal sale of assets as part of business which is by default subject to VAT and taxable. For example, if a business entity sells a building alone, that will come under the normal sale of assets, which is subject to VAT and can be taxable at standard rate, zero rate or exempt based on the other factors included in the sale. However, if the transaction includes sale of the building alone with the printing press that it holds, which will enable the recipient to continue the printing business, this evokes the transfer of a business as a going concern and will not be subject to VAT.
What are the conditions to be met to qualify for transfer of business as a going concern?
It is to be noted that not all the business transfers are excluded from VAT. The clarification from FTA specifies certain conditions as listed below on how to identify the business transfers which are eligible to be treated as not subject to VAT:
- The transfer shall include the whole or an independent part of a business.
- The recipient in the transfer deal shall be a taxable person.
- There should be a genuine intention for the recipient to carry on the business being transferred.
How to ensure the transfer of the business is made to a taxable person?
For the transaction to be treated as not subject to VAT when transfer of business is made as a going concern, the recipient should fall under any of the following categories as of the date of the transfer:
- Already registered for VAT under UAE VAT rules;
- Has applied for VAT registration as required by the mandatory UAE VAT registration rules or
- Has applied for voluntary VAT registration under UAE VAT registration rules and FTA has accepted the application.
Since this is one of the significant conditions which can impact the VAT treatment of the business transfer, the stakeholders involved shall confirm the registration status of the recipient in the business deal before entering into any transfer arrangements.
How to ensure that the business is transferred on a going concern basis?
The intention of the recipient who receives the business, to carry on the business activities is important to qualify the transaction as not subject to VAT. Before the transfer is made, it is the responsibility of the supplier to ensure that the recipient has a genuine intention to continue the business being transferred and the supplier should apply the required diligence to prove the existence of such intention. Otherwise the transaction by default will be subject to VAT and the parties involved may have to face the consequence of non-compliance in this regard.
How CDA assists you in determining the VAT treatments for your business transactions?
CDA has been serving several clients in their business deals as transaction advisors for many years in UAE. Our advisory team consists of qualified professionals with experience of successfully undertaking multiple projects relating to business transfers, guiding the stakeholders with insightful perspectives and ensuring the correct application of VAT treatments on transactions. We understand the significance of maintaining the proactive approach of planning the action points, considering the implications of VAT in every step, thereby we provide our value adding feedback and thoughts beforehand to prepare our clients to navigate through their business transactions smoothly with ease. Do you have further queries regarding VAT on transfer of business as a going concern or want to know more about our consultancy services, feel free to contact us.