Guideline for

Ownership transfer In some Islamic finance products, the financing structure may require the transfer of ownership of assets, including an agreement to transfer ownership at a later date16. Generally, the two types of transfer are distinguished as follows: 1. Legal Transfer of Ownership: This refers to the formal and legally documented transfer of ownership. 2. Economic Transfer of Ownership: This takes place when actual control and use of the asset is transferred, even if ownership is not formally registered. For VAT purposes, a transfer of ownership includes any transfer of tangible assets from one party to another, granting the recipient the right to effectively dispose of the assets as if they were the owner. Therefore, an economic transfer of ownership is considered a supply of goods, even in the absence of a legal transfer of ownership. Under the contracts governing Shari’ah Compliant Financing Products, reference is often made to actual possession or constructive possession. Generally, a person with actual possession has the assets actually at hand and able to be used; and a person with constructive possession merely holds the legal ownership of the assets. A transfer of economic ownership can also occur if the legal owner: • has entered into an agreement with another party under which any changes in the value of the property and all profits or outgoings are for the benefit or at the expense of that other party; • has agreed to transfer legal ownership of the property to the other party at any future time; • has agreed to grant the other party an irrevocable power of attorney to carry out any transactions necessary to execute that transfer of legal ownership; or • has pursuant to that agreement actually placed the property at the disposal of the other party. The transfer of ownership for VAT is therefore a matter that needs to be assessed based on the facts and circumstances at hand and will largely depend on the intentions of the parties and the exact arrangements between them. 16. Article 5, Unified VAT Agreement. 5. Murabaha Paragraph 5.1. discusses the specific characteristics of the financing structure in which financing is provided to a financee that wishes to become the owner of the asset for its own use. These structures are often referred to as Murabaha. A “commodity” Murabaha, where the transfer of the underlying assets is used to provide finance, is discussed separately in Section 8. In Paragraph 5.2, the corresponding VAT treatment is described. Other financing structures that meet this description will be subject to the same VAT treatment.