Transfer of an economic activity outside the scope of VAT under amended Article 17

Article 8 of the VAT Law provides that the Implementing Regulations determine the transactions in which the Supply of Goods and Services is outside the scope of Tax. Article 17 of the Regulations addresses one of the most commercially significant of those transactions: the transfer of a business activity as a going concern. ZATCA Board Resolution No. (01-06-24), published in the Official Gazette on 18 April 2025, amended Paragraphs (1) and (2) of Article 17 and added Paragraphs (5) and (6). Paragraphs (3) and (4) were not amended by that Resolution.

The relief in amended Article 17(1)

Amended Article 17(1) provides that the transfer by a taxable person of its taxable business activity to another person, in whole or in part, in order for the transferee to continue conducting that activity, is not considered a taxable supply, provided that all of the following conditions apply.

The activity can operate independently. The goods and services representing the business activity, or part of it, that are the subject of the transfer must be capable of being operated as an independent business activity, and the elements of the transferred activity must include all tangible and intangible assets necessary to carry on that activity.

The transferee is, or becomes, a taxable person and continues the activity. The transferee must be a taxable person registered with the Authority, or become a taxable person as a result of the transfer, and must use the goods, services and assets directly to conduct the same business activity as the supplier.

Written agreement. The supplier and the transferee must agree in writing that they wish the transfer to be considered a transfer of business activity for the purposes of the Regulations.

Notification to the Authority. Both the supplier and the transferee must notify the Authority of the transfer at the latest by the end of the month following the month in which the transfer took place, using the form prepared for that purpose. The notification must include:

• the name and address of both the supplier and the transferee;
• the tax identification number of each, if registered;
• proof of the transferee’s registration with the Authority as a result of completing the transfer, where the transferee was not registered;
• the date of transfer of the business activity;
• details of the goods and services covered by the transfer;
• a copy of the business activity transfer agreement; and
• any other documents specified by the Authority.

The amended text expressly accommodates a partial transfer, and requires that all necessary tangible and intangible assets of the transferred activity be included. The notification condition is new.

Consequences of failing a condition

New Article 17(6) provides that if the transfer does not fulfil all the terms and conditions of Article 17, including notifying the Authority of the transfer, the goods and services representing the business activity transferred are considered a taxable supply. A missed notification is therefore not a procedural lapse only; it removes the relief.

Succession to rights and obligations

Amended Article 17(2) provides that, upon completion of the transfer on the date agreed in the agreement between the supplier and the transferee, the transferee replaces the supplier with respect to:

• the exercise of the right to deduct or refund the input tax associated with the transferred activity, or its adjustment;
• the output tax previously declared to the Authority in the cases provided for in Article 40 of the Regulations; and
• the related obligations to maintain and keep records associated with that business activity.

The same paragraph provides that this does not prejudice the liability of both the supplier and the transferee for tax liabilities arising before or after the transfer and related to the application of the Law and the Regulations, unless otherwise specified in the agreement. In all cases, the transferee does not replace the supplier with respect to the supplier’s liability for its tax violations committed before the date of transfer which relate to goods and services.

Registration and the tax identification number

New Article 17(5) provides that a transfer under Article 17 does not transfer the supplier’s tax identification number to the transferee. The transferee must submit a registration application to the Authority and obtain its own tax identification number, unless it was registered with the Authority before the date of the transfer.

Article 17(3), which was not amended, requires notification to the Authority within thirty (30) days of the transfer date where the transfer results in the supplier or recipient being required to register or deregister. Article 13(13), added by the same Resolution, separately requires notification of an assignment of the activity within thirty days. These timelines should be tracked alongside the end-of-following-month deadline in Article 17(1).

Records

Article 17(4), which was not amended, requires the supplier of an Economic Activity to provide the recipient with copies of all business records relating to that Activity which the Law requires to be retained.

Instruments relied on: Implementing Regulations, ninth edition, 26/11/1444H corresponding to 15/6/2023G, unofficial English translation, Articles 13(13), 17 and 40, with Article 17(1) and (2) amended and Article 17(5) and (6) added by ZATCA Board Resolution No. (01-06-24) dated 17/05/1446H, published in the Official Gazette (Umm Al-Qura, issue 5082) on 18 April 2025, unofficial English translation; VAT Law, Article 8. The Arabic text prevails.

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