For corporate taxpayers in Saudi Arabia, understanding the Input VAT rules on Transfers of a Going Concern (TOGC) is critical for ensuring compliance with the Zakat, Tax and Customs Authority (ZATCA) regulations. This guide explains when TOGC transactions are exempt from VAT, how to manage Input VAT recovery, and the compliance steps needed to avoid disputes during business transfers.
📌 What is a Transfer of a Going Concern (TOGC)?
A TOGC occurs when a business (or part of it) is transferred to a new owner as a continuing operation, rather than simply selling individual assets. This typically involves:
- Transfer of all assets and liabilities related to the business.
- Transfer of contracts, customers, and employees.
- The buyer continuing the same business activity without significant interruption.
In Saudi Arabia, TOGCs that meet specific ZATCA conditions may be treated as outside the scope of VAT, meaning no VAT is charged on the transaction.
Become Our Featured Tax Expert.
This premium ad space is reserved for one tax professional. Put your firm in the spotlight and reach qualified Saudi Arabia leads directly.
To claim this exclusive spot, contact us at [email protected].
✅ ZATCA Conditions for VAT Exemption on TOGC
For a TOGC to be treated as outside the scope of VAT under Saudi VAT law, the following conditions must be met:
- The transfer must be of a business or part of a business capable of operating independently.
- The buyer must be (or must become) VAT-registered before the transfer date.
- The buyer must continue the same type of business activity without significant changes.
- The transfer should include all assets necessary for the business to function as a going concern.
💰 Input VAT Recovery in TOGC Transactions
Since a qualifying TOGC is outside the scope of VAT, the seller does not charge output VAT, and the buyer does not pay VAT to recover. However:
- If VAT is incorrectly charged, the buyer cannot recover it as Input VAT unless ZATCA confirms the supply is not a TOGC.
- Input VAT on professional fees (e.g., legal or consultancy services) related to the TOGC may still be recoverable if these services relate to taxable business activities.
- Both parties must keep detailed documentation proving the transaction qualifies as a TOGC.
📝 Documentation Required
- Asset transfer agreement detailing business continuity.
- Evidence of the buyer’s VAT registration.
- List of transferred contracts, employees, and assets.
- Statements confirming the continuation of the same business activity.
⚠️ Common Mistakes to Avoid
- Charging VAT on a qualifying TOGC, leading to disputes.
- Failing to register the buyer for VAT before the transfer date.
- Not transferring essential assets or rights, disqualifying the transaction from TOGC treatment.
- Insufficient evidence of business continuity for ZATCA review.
💡 Best Practices for Compliance
- Engage tax advisors early in the transaction planning stage.
- Ensure buyer’s VAT registration is in place before finalizing the deal.
- Document every step of the transfer to meet ZATCA audit standards.
- Clarify in the sale agreement whether the transaction qualifies as a TOGC.
🏁 Conclusion
For Saudi corporate taxpayers, understanding Input VAT rules for TOGC transactions is crucial to avoid unnecessary VAT costs and penalties. By meeting ZATCA’s conditions, maintaining complete documentation, and ensuring VAT compliance, businesses can transfer operations efficiently and tax-effectively.
