VAT Implications on Transfer of Business as a Going Concern (TOGC)
Introduction
In the UAE, business restructuring, mergers, and acquisitions are common, especially in sectors like real estate, gold trading, and retail. One important concept under UAE VAT law is the Transfer of Business as a Going Concern (TOGC), which allows certain business transfers to be treated as outside the scope of VAT.
Understanding TOGC is essential to avoid unnecessary VAT costs and ensure compliance with Federal Decree-Law No. 8 of 2017 on VAT and guidelines issued by the Federal Tax Authority.
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What is TOGC?
A Transfer of a Going Concern (TOGC) refers to the transfer of a whole or independent part of a business from one entity to another, where:
• The business is transferred as an ongoing operation, and
• The buyer intends to continue the same type of business activity
👉 If conditions are met, the transfer is treated as outside the scope of VAT, meaning:
• No VAT is charged on the transaction
• No VAT is payable to the tax authority
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Key Conditions for TOGC Treatment
For a transaction to qualify as TOGC in the UAE, the following conditions must be satisfied:
1. Transfer of Whole or Independent Business
• The transfer must include all necessary assets, liabilities, and operations required to continue the business.
2. Continuous Operation
• The buyer must continue operating the business without interruption.
3. VAT Registration
• The recipient must be VAT-registered or required to be registered at the time of transfer.
4. Same Type of Business
• The buyer must carry on similar business activities as the seller.
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Examples of TOGC
✔ Sale of a running retail store with inventory, employees, and systems
✔ Transfer of a restaurant business with licenses and staff
✔ Sale of a division within a company that operates independently
❌ Sale of only assets (e.g., machinery or inventory without business continuity)
❌ Transfer where the buyer does not continue the same business
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VAT Treatment Under TOGC
If all conditions are met:
• The transaction is not considered a supply for VAT purposes
• No VAT is charged on the sale
• No VAT reporting is required for the transaction itself
👉 However, proper documentation and structuring are critical to support the TOGC treatment.
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Accounting and Compliance Considerations
1. Documentation
Maintain clear evidence such as:
• Sale and purchase agreement
• Asset and liability transfer details
• Proof of business continuity
• VAT registration status of buyer
2. Contractual Clauses
The agreement should explicitly state:
• The intention to transfer the business as a going concern
• That the buyer will continue the same business
3. Due Diligence
Buyers should review:
• Outstanding VAT liabilities
• Compliance history
• Potential risks inherited with the business
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Common Mistakes to Avoid
• ❌ Treating asset sales as TOGC without meeting conditions
• ❌ Buyer not being VAT-registered at the time of transfer
• ❌ Lack of proper documentation
• ❌ Change in business activity post-transfer
• ❌ Not evaluating VAT liabilities of the transferred business
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Practical Impact on Businesses
The TOGC provision is highly beneficial because:
• It avoids cash flow issues (no VAT payable upfront)
• Reduces transaction costs
• Simplifies restructuring and acquisitions
However, incorrect application can lead to:
• VAT penalties
• Reclassification of the transaction as taxable supply
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Conclusion
The Transfer of Business as a Going Concern (TOGC) is a powerful provision under UAE VAT law that facilitates smooth business transfers without VAT implications. However, strict conditions must be met, and proper structuring is essential.
Businesses should always seek professional advice to ensure compliance and optimize tax efficiency.
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About Sheikh Anwar Accounting & Auditing LLC
At Sheikh Anwar Accounting & Auditing LLC, we provide expert advisory on:
• UAE VAT structuring and compliance
• Business restructuring and TOGC transactions
• Corporate Tax and Financial Advisory
• AML Compliance and Risk Assessment
We assist clients across UAE in ensuring their transactions are structured efficiently and in full compliance with regulatory requirements.
🌐 Website: www.sa-auditors.com
📧 Email: info@sa-auditors.com
📞 Contact: +971 56 651 9011
📍 Office: Dubai Creek Tower, M35, UAE
