What Is Due Diligence When Buying a Business in the UAE — and What Does It Cover?

What Due Diligence Is and When It Takes Place

Due diligence is the structured investigation a prospective buyer conducts on a target business before committing to an acquisition. It takes place after the buyer and seller have agreed on a deal in principle — typically documented in a Letter of Intent or Memorandum of Understanding — but before a binding Sale and Purchase Agreement is signed. The purpose is to verify that the business is what the seller claims it is: that the financials are accurate, that the liabilities are as disclosed, that the assets are as described, and that no material risks exist that weren’t surfaced in the initial negotiations.

In the UAE context, due diligence has become considerably more comprehensive since 2023. A business under investigation now carries Corporate Tax history, VAT compliance records, potential transfer pricing exposure, and — where it operates in a free zone — Qualifying Free Zone Person status that may or may not be maintainable post-acquisition. A buyer who skips tax due diligence or treats it as a secondary step risks inheriting undisclosed FTA liabilities, unfiled returns, or a QFZP status that evaporates once the ownership structure changes.

Due diligence is also not exclusively a buyer’s tool. Vendor due diligence — conducted by the seller before going to market — allows a business to identify and address issues before they become negotiating points or deal-breakers, and signals to buyers that the seller is prepared and credible.

The Types of Due Diligence Conducted in UAE Acquisitions

A comprehensive due diligence process in the UAE covers several distinct workstreams, each examining a different dimension of the target business. These are typically conducted simultaneously by specialist teams rather than sequentially.

Financial Due Diligence

Financial due diligence examines the historical financial statements of the target — typically the last three to five years of audited accounts, together with management accounts for the current period — to verify the accuracy of the financial position and identify trends, anomalies, or risks that the headline numbers don’t reveal. The financial due diligence team assesses:

• The quality of earnings — whether reported profit reflects genuine, recurring business performance or has been inflated by one-off items, accounting policy choices, or timing differences
• Working capital — whether the level of working capital in the business at the time of the deal is normal and sustainable, or has been temporarily manipulated
• Net debt — a complete picture of all indebtedness, including contingent and off-balance sheet liabilities
• Accounting policies — whether the policies applied are appropriate and consistent, and what the impact of any changes would be on reported performance
• Adjusted EBITDA — the normalised earnings figure the valuation is built on, after removing non-recurring items

Tax Due Diligence

Tax due diligence has become one of the most important components of any UAE acquisition since the introduction of Corporate Tax. A buyer acquiring a UAE company acquires its full tax history — including any undisclosed FTA liabilities, unfiled returns, incorrectly calculated VAT, or transfer pricing positions that may not withstand scrutiny. Tax due diligence examines:

• Corporate Tax position — registration status, filed returns, assessed taxable income, any open assessments or FTA correspondence, transfer pricing documentation where related-party transactions exist, and whether any claimed exemptions or QFZP status are properly supported
• VAT compliance — registration status, return filing history, input tax recovery positions, any periods of non-compliance, and whether the FTA has previously audited the business and what findings arose
• Excise Tax — where the business operates in excise goods categories
• Pending or threatened tax disputes — any open voluntary disclosures, assessments under appeal, or unresolved FTA correspondence
• Employment tax and payroll — WPS compliance history and any outstanding MoHRE liabilities

A tax due diligence finding that reveals undisclosed FTA liabilities — particularly accumulated penalties under the pre-2026 daily-accrual model — can materially affect both the valuation and the deal structure. Price adjustments, escrow arrangements, and seller indemnities for pre-completion tax liabilities are all common deal mechanisms that flow from tax due diligence findings.

Legal Due Diligence

Legal due diligence examines the corporate and contractual foundation of the business — confirming that it is properly incorporated, that its ownership structure is as represented, and that its contracts, licences, and regulatory approvals will survive or can be transferred through the transaction. Key areas include:

• Corporate structure — articles of association and all amendments, shareholder register, board resolutions, minutes of meetings, and the complete ownership chain to ultimate beneficial owners
• Licences and regulatory approvals — the validity and transferability of the business’s trade licence, free zone licence, sector-specific approvals, and any government permits or concessions the business operates under
• Material contracts — customer contracts, supplier agreements, lease agreements, employment contracts for key staff, and any shareholder or joint venture agreements, with particular attention to change-of-control clauses that may be triggered by the acquisition
• Litigation and disputes — any pending or threatened court proceedings, arbitration, or regulatory action involving the business
• Intellectual property — registered trademarks, patents, copyrights, and domain names, together with any IP licences and the enforceability of confidentiality or non-compete agreements

Commercial Due Diligence

Commercial due diligence assesses the strategic and market position of the target — whether the business model is sound, whether the market it operates in is growing or contracting, and whether the assumptions behind the financial projections are realistic. This workstream includes customer concentration analysis (where a small number of customers account for a disproportionate share of revenue), competitive positioning, supplier dependency, and the sustainability of the margins the business earns.

Operational Due Diligence

Operational due diligence reviews the internal processes, systems, and infrastructure the business uses to deliver its products or services. It identifies operational risks — dependencies on specific individuals, inadequate IT systems, production bottlenecks, or supply chain vulnerabilities — that may not be visible in the financial statements but that materially affect the business’s ability to maintain its performance post-acquisition.

HR and Employment Due Diligence

Employment due diligence in the UAE context requires particular care because of the end-of-service gratuity obligation that accrues for every employee throughout their employment. Reviewing the accrued gratuity liability for the full workforce — particularly for long-serving employees — is essential for accurately calculating the total workforce cost the buyer is assuming. Employment due diligence also covers:

• Employment contracts and their terms for all staff
• Key person risk — which individuals are critical to the business’s operation and retention
• Non-compete and non-disclosure arrangements
• Any pending or threatened employment disputes
• WPS compliance history and outstanding payroll liabilities
• Emirati employee minimum wage compliance (AED 6,000/month from January 2026)

The Full Document Checklist for UAE Due Diligence

The documents typically requested during a UAE acquisition due diligence process span all workstreams above. The following represents a comprehensive but not exhaustive list:

Corporate and Organisational Documents

• Articles of association/incorporation and all amendments
• Trade licence and all regulatory licences, including their expiry dates and renewal status
• Board minutes and shareholder resolutions for the last three to five years
• Full shareholder register and capitalization table
• Ultimate Beneficial Owner (UBO) register and any notifications filed with the relevant authority
• Organisation chart showing reporting lines and key roles
• Any shareholder agreements, joint venture agreements, or voting arrangements
• Good standing certificates from the relevant licensing authority

Financial Documents

• Audited financial statements for the last three to five years, including auditor reports and management letters
• Current-period unaudited management accounts with comparative prior-period figures
• General ledger and trial balance
• Schedule of accounts receivable with ageing analysis
• Schedule of accounts payable with ageing analysis
• Inventory schedule with valuation methodology
• Fixed asset register with depreciation schedule
• Schedule of all debt, guarantees, and contingent liabilities
• Capital expenditure budget and history
• Cash flow projections and financial model

Tax Documents

• Corporate Tax registration certificate and all filed Corporate Tax returns
• VAT registration certificate and all filed VAT returns for the last five years
• Any FTA audit notifications, audit reports, or assessment letters
• Any voluntary disclosures filed with the FTA
• Transfer pricing documentation where applicable
• QFZP analysis and supporting substance documentation where free zone status is relevant
• Excise Tax filings where applicable

Commercial and Operational Documents

• All material customer contracts, with details of revenue, term, renewal options, and change-of-control provisions
• All material supplier agreements
• All property leases with term and renewal details
• Equipment leases and service agreements
• Insurance policies in force
• IT system inventory and any software licences

Intellectual Property Documents

• Registered trademark certificates and renewal status
• Patent registrations and applications
• Copyright registrations
• Domain name ownership records
• IP licence agreements (both inbound and outbound)
• Non-disclosure and confidentiality agreements

HR and Employment Documents

• Full employee list with roles, tenure, and compensation packages
• Employment contracts for all employees, particularly key personnel
• Calculated end-of-service gratuity accrual for all employees
• Non-compete and non-solicitation agreements
• Any pending MoHRE complaints or labour disputes
• WPS compliance records

How Due Diligence Findings Affect the Deal

Due diligence findings are not purely informational — they directly affect how the deal is structured and priced. Common outcomes include:

• Price adjustments — where findings reveal that liabilities are higher than disclosed, or that earnings were overstated, the purchase price is renegotiated
• Seller indemnities — the seller indemnifies the buyer against specific pre-closing risks identified during due diligence, such as undisclosed tax liabilities or pending litigation
• Escrow arrangements — a portion of the purchase price is held in escrow pending resolution of identified contingencies
• Deal conditions — specific conditions must be met before closing, such as obtaining regulatory approvals, resolving identified disputes, or cleaning up corporate documentation
• Deal termination — where findings are sufficiently material, the buyer may exercise any walk-away right in the Letter of Intent

Frequently Asked Questions (FAQs)

What is due diligence when buying a business in the UAE?

Due diligence is a structured investigation conducted by a prospective buyer to verify the accuracy of what a seller has represented about a business — covering its financials, tax history, legal structure, contracts, operations, and workforce — before a binding sale agreement is signed.

What are the main types of due diligence in a UAE acquisition?

The main workstreams are financial due diligence, tax due diligence, legal due diligence, commercial due diligence, operational due diligence, and HR and employment due diligence. Each examines a different dimension of the target business and is typically conducted simultaneously.

Why has tax due diligence become more important in UAE acquisitions since 2023?

A buyer acquires a target’s full tax history, including any undisclosed FTA liabilities, unfiled Corporate Tax or VAT returns, transfer pricing exposure, and penalties that have accrued. Since Corporate Tax took effect from June 2023, the potential tax liability inherited in a UAE acquisition is considerably more significant than it was before the new regime.

What is vendor due diligence?

Vendor due diligence is conducted by the seller before going to market, giving the seller an independent view of its own business before a buyer’s team examines it. It allows the seller to identify and address issues proactively and signals credibility and preparedness to potential buyers.

What happens when due diligence reveals problems?

Findings may result in a price reduction, seller indemnities for specific risks, escrow arrangements, conditions that must be met before closing, or in serious cases, termination of the deal where the issues are sufficiently material.

How long does due diligence typically take in the UAE?

Timeline depends on the complexity and size of the target business and the quality of its documentation. A straightforward SME acquisition may be completed in four to six weeks. A complex multi-entity or cross-border transaction may require three to six months. The quality and accessibility of the target’s records is the most common variable affecting duration.

How Farahat & Co. Can Help

Farahat & Co. provides acquisition due diligence and vendor due diligence services across the UAE, covering financial analysis, tax due diligence including Corporate Tax and VAT history review, and coordination with legal and operational workstreams. Our team has experience across mainland and free zone businesses, and across the full range of transaction types from SME acquisitions to complex multi-entity deals.

Contact Farahat & Co. today to discuss your due diligence requirements.