The UAE Federal Tax Authority (FTA) has published Public Clarification VATP015 on the key considerations for a transaction to qualify as a transfer of business in the UAE. As a transfer of business is outside the scope of VAT, qualified transactions will have implications for both the seller and the buyer.
Although Public Clarifications merely reflect the view of the FTA (from the inception of VAT, e.g. 1 January 2018) and are not binding, they provide useful guidance on how the FTA interprets the legislation1.
Asset sale vs share sale
It is important to differentiate between a sale of shares and a sale of assets from a VAT perspective.
While a sale of shares is not subject to VAT, a sale of assets is, in principle, subject to VAT at the standard rate of 5%, unless:
- the zero rate applies (for example, for medical equipment);
- an exemption applies (for example, the sale of bare land);
- the sale takes place between members of the same VAT group; or
- the sale of assets qualifies as a transfer of business that is outside the scope of VAT.
Transfer of business
The FTA has now clarified its view on the three conditions required for a sale of assets to qualify as a transfer of business.
- The assets must constitute a business (as a whole or part).
- The transfer of assets must be made to a taxable person.
- The buyer must intend to continue the business.
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1Under Federal Decree-Law No. (8) of 2017, the transfer of whole or an independent part of a Business from a Person to a Taxable Person for the purposes of continuing the Business that was transferred is considered outside the scope of VAT.
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