Introduction
With the rapid growth of mergers and acquisitions (M&A), private equity investments, and group restructurings in the UAE and the wider GCC, there is a surge in complex transactions involving either the sale of shares or the transfer of assets and businesses. Macroeconomic factors such as economic stability, increased foreign investor participation and the removal of local sponsor requirements have further accelerated this trend.
From a VAT perspective, these transaction forms have fundamentally different implications, particularly in relation to VAT classification, cash‑flow impact, compliance obligations, and input VAT recovery. The UAE VAT framework draws a clear distinction between:
Sale of shares – treated as an exempt supply of financial services
Transfer of a Business as a Going Concern (TOGC) – treated as outside the scope of VAT
Understanding this distinction is critical for structuring transactions and managing VAT risk.
1. Sale of Shares
1.1 What is a Sale of Shares?
A sale of shares involves the transfer of ownership interests in a legal entity from one person to another. The buyer acquires the company “as is”, including assets, liabilities, licences, employees, contracts, and historical obligations. Importantly, there is no transfer of individual assets; the legal entity itself remains unchanged.
1.2 VAT Treatment
Under Article 42 of the UAE VAT Executive Regulations, the issue, allotment, or transfer of ownership of an equity security (including shares) constitutes a financial service and is therefore exempt from VAT.
Key Implications:
No VAT is chargeable on the share sale consideration.
The transaction must be reported as an exempt supply in Box 5 of the VAT Return.
1.3 Input VAT Recovery
Professional services linked to share sales (legal, advisory, due diligence) are subject to VAT at 5%. Input VAT recovery depends on attribution:
Directly attributable costs: Not recoverable, as the underlying supply is exempt.
General overheads: May be recoverable proportionally under the standard input VAT apportionment rules.
This distinction is crucial, as many M&A transactions involve significant advisory costs.
2. Transfer of Assets (Non- TOGC)
A transfer of individual assets (e.g., machinery, inventory, trademarks, property) without transferring a functioning business is treated as a taxable supply subject to VAT at 5%, unless a specific exemption or zero‑rating applies. Input VAT on related costs may be recoverable under normal rules.
This type of transaction should be clearly distinguished from both share transfers and TOGC arrangements.
3. Transfer of Business as a Going Concern (TOGC)
3.1 Concept
Article 7(2) of the UAE VAT Law provides that the transfer of a whole business or an independent part of a business capable of separate operation to a taxable person, for the purpose of continuing that business, is not treated as a supply for VAT purposes.
Accordingly, a qualifying TOGC is outside the scope of VAT, and no output VAT is charged on the transfer. Further, TOGC treatment is mandatory if conditions are met.
3.2 Key Characteristics
A TOGC typically involves:
Transfer of tangible and intangible assets
Transfer of employees
Assignment of contracts, customer relationships, and goodwill
Continuity of operations without material interruption
3.3 Mandatory Conditions for TOGC Qualification
For TOGC treatment to apply, the following conditions must be met:
- Transfer of a Whole or Independent part of a Business - The transferred business or part of business must constitute a business capable of independent operation at the time of transfer. Further, the transferred business must be operational before and at the time of transfer.
- Buyer Must Be a Taxable Person - The buyer must either be registered for VAT; or required to register and have applied to the FTA for VAT registration at the time of transfer.
- Business Continuity - The buyer must intend to continue the same type of business after the transfer. Temporary closures (e.g., handover or refurbishment) do not necessarily disqualify TOGC treatment, however, a change in the nature of business can disqualify transfer as a TOGC.
3.4. VAT Impact
For the Seller:
No VAT charged on the consideration received for transfer of business
May recover Input VAT on transaction-related costs if treated as overheads and subject to general recovery rules
Remains liable for historical VAT obligations up to the transfer date
For the Buyer
No VAT payable on acquisition
Assumes VAT responsibility from the transfer date onwards
Must maintain continuity of business operations
4. Comparative Analysis: Share Sale vs TOGC
Criteria | Sale of Shares | TOGC |
VAT Classification | Exempt supply | Outside the scope |
VAT Charged | No | No |
Input VAT Recovery | Blocked if directly attributable; overheads may be recoverable | Potentially Recoverable |
Transfer of Assets | No | Yes |
Historical Liabilities | Buyer inherits all historical liabilities | Clear split: Seller (pre-transfer), Buyer (post-transfer) |
5. Documentation and Risk Management
Robust documentation is essential, particularly for TOGC transactions, which are closely scrutinised by the FTA. Reference should be made to FTA Public Clarification VATP015 for guidance.
Share Sale Documentation
Share sale agreement
Board and shareholder resolutions
Updated shareholder registers
TOGC Documentation
Business transfer agreement
Evidence of operational continuity
Asset and liability schedules
Buyer’s VAT registration and written intent to continue business
Conclusion
The VAT consequences of UAE M&A transactions hinge on whether they are structured as share sales or TOGC transfers. Share sales are exempt but often lead to irrecoverable VAT on transaction costs unless costs qualify as overheads. TOGC transactions are VAT-neutral but require strict compliance with statutory conditions, which apply on a compulsory basis.
Given the FTA’s increasing focus on M&A and restructuring, early VAT analysis, careful structuring, and comprehensive documentation are essential to mitigate VAT risk, penalties, and unintended cash‑flow costs.
Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.
Contributor
Prateek Bothra, CA, ADIT is a seasoned tax professional with over a decade of experience in direct and indirect taxation. He currently leads the group tax function at Gulf Islamic Investments (GII), a leading financial services firm with over USD 4 billion in AUM. A Chartered Accountant from India and an ADIT-qualified international tax specialist from the UK, Prateek brings deep expertise in international tax, corporate taxation, and advisory, with prior experience at MMJS Consulting and KPMG India.
