Selling or transferring your successful business in the UAE to a new owner is a major milestone for any entrepreneur. You want to earn a profitable exit while ensuring continuity for your loyal staff and customer base.
Recent clarification from the Federal Tax Authority (FTA) has made this process much more well-defined. Businesses can now seamlessly transition to new ownership as a “going concern” to avail certain tax exemptions and operational ease.
FTA Guidelines for Business Transfers as a Going Concern
On January 1 2023, the FTA officially communicated conditions for small to medium business transfers to qualify as a “going concern” activity.
What does this mean?
Essentially, selling companies can avoid paying 5% VAT if:
- Assets like licenses, contracts, stock, intellectual property, and real estate get transferred
- Existing employees continue working without disruption
- New owner carries forward operations under same business name
- FTA notified within 30 days of sale agreement
Why Does This Matter?
- Tax exemption on sale value benefits the seller
- Asset/staff continuity benefits the buyer
- No business model changes retain brand value
Therefore, both parties must jointly notify the FTA with all transaction details once initial terms get agreed but before completion.
We’ll next understand all the advantages of transferring your enterprise as an active going concern.
4 Benefits of Business Transfers Qualifying as Going Concern
Avoid 5% VAT Charges
VAT at 5% applies on the sale value consideration exchanged between seller and buyer. This tax liability could run into tens of thousands of dirhams.
By meeting FTA’s going concern criteria, you legally reduce your financial burden.
Seamless Transfer of Contracts
An active business has multiple contracts – office rentals, utility supplies, vendor agreements, maintenance warrants, corporate insurance policies etc.
Typically when ownership changes, all contracts need modification or fresh issuance in new licensee’s name. This causes delays and legal fees.
Under going concern guidelines, all contracts move over to the acquiring company without requiring amendments. This maintains continuity.
Smooth Employee Transition
Visa cancellation, re-application and new work permit issuance for existing staff under the buyer’s sponsorship causes productivity loss.
But as a going-concern, employee visas simply get transferred along with all salary and benefits obligations to new sponsors. No disruptions occur.
Preserve Brand Value
The new owner can continue operating under your company’s established name, reputation, trademarks, and goodwill.
This retains existing customer base whose loyalty remains with proven products/services despite promoter change.
Now let’s see who exactly is eligible for such transfers.
Qualifying Criteria for Business Transfers as Going Concern
To avail the VAT exemption and continuity benefits, the following criteria must be fulfilled:
Actively Operating Business
The enterprise must provide goods and/or services to customers evidenced through trading history, financial records, tax reporting, etc.
Pure holding companies or completely dormant entities don’t qualify. Partial activity is acceptable.
Complete Ownership Transfer With Consideration
100% ownership and control should get transferred to the acquiring legal person for monetary consideration.
The deal value can be paid immediately or in instalments as mutually agreed.
Satisfying FTA’s Conditions
The FTA has outlined certain asset/employee related conditions that must be met post-transfer to ensure trade continuity of services.
The next section will cover the exact process to follow for smooth transition.
Step-By-Step Process for Transferring Your UAE Business
Follow these key steps to ensure successful ownership change:
Notify the FTA in Advance
Before signing any binding sale purchase agreement or handing over funds, both the selling and buying parties must jointly notify the FTA by submitting the required documents.
These documents should cover all commercial terms like ownership change date, sale value and payment timelines, business activity continuity, etc.
The FTA will then review and provide initial approval to enable signing the formal transfer contract.
Settle Commercial Terms & Sign Contract
Once FTA gives the go-ahead after scrutiny, the buyer and seller can proceed to settle all commercial aspects – finalized sale value, payment schedules, asset transfers, employee retention plans, trademarks licensing, etc.
It is highly advisable to appoint legal counsels to ensure all transaction contingencies get adequately covered in the business transfer contract.
The agreement must clearly specify that the company is being sold as a “going concern” and lay down terms for protecting workforce, assets, contracts, and brand usage rights.
Undertake Legal Formalities for Ownership Change
Post signing, the buyer must officially undertake all legal formalities – license amendments with DED, visa cancellations and issuances, bank signatory changes, financial liability assignments etc.
The seller should handhold during this transition period to ensure smooth customer and statutory communications.
Inform FTA Within 30 Days of Completion
Within 30 calendar days of concluding all legal amendments and completing operational takeover, both parties must again jointly notify FTA with final transaction documents.
The FTA will issue final certificate confirming going concern transfer terms have been satisfied. This completes the exit process.
Conclusion
Transferring your successful business as a going concern enables securing your enterprise’ future while earning maximum return on investment for all the effort put in.
With FTA mandating notification requirements and spelling conditions for tax exemptions, UAE business owners can now confidently work towards ownership transition as part of retirement or relocation planning.
Just make sure to engage reliable legal and financial partners early on to validate all regulatory aspects. If done right by the books, you can exit your venture while ensuring continuity for loyal employees and customers you’ve served.
FAQs
The notification should cover purchase consideration amount, payment timelines, share transfer date, business activity continuity proof, asset/staff transfer terms, buyer/seller details, and expected completion date.
Yes, as part of a going concern transfer, existing company branding including trade name and trademarks can continue under new ownership through licensing contracts.
The parties should factor in the possibility of delays in FTA approval leading to reworking of timelines mentioned in the business transfer contract through mutual consensus.
