Acquiring a business in the UAE without thorough due diligence is how buyers inherit problems they didn't price for. The gratuity liability provisioned at 60% of actual exposure. The "Qualifying Free Zone Person" status that doesn't survive scrutiny. The key customer contract with a change of control clause nobody flagged. The competition filing nobody knew was required until three weeks before planned completion.

In transactions we handle, the issues that derail deals or destroy value post-closing are rarely the obvious ones. This guide focuses on what actually goes wrong, drawn from practice rather than textbooks.

What Buyers Underestimate

Before the detailed checklist, here's what frequently surprises buyers in UAE transactions.

Gratuity exposure is almost always under-provisioned. We regularly see targets with gratuity liabilities 30-50% higher than what appears in the financial statements.

The new competition law can add 90+ days to your timeline. Since March 2025, transactions meeting the AED 300 million turnover threshold or 40% market share threshold require mandatory pre-closing notification. The Ministry won't rush.

Free zone tax status is fragile. Companies claiming 0% corporate tax as Qualifying Free Zone Persons often don't meet the conditions. When that status fails, the 9% tax hits the entire taxable income, not just the non-qualifying portion.

Change of control clauses hide everywhere. Customer contracts, supplier agreements, bank facilities, leases. Any of these can contain provisions allowing counterparties to terminate upon acquisition.

Public information is almost useless. Unlike jurisdictions with extensive company registries, UAE private company records aren't publicly accessible. You cannot conduct meaningful due diligence without full cooperation from the target.

Corporate Structure

License and Registration Verification

Every UAE business requires a valid trade license from the relevant authority. For mainland companies, this means the Department of Economic Development (DED). For free zone entities, the applicable free zone authority.

Where to verify:

Key checks:

  • License is active (not expired, suspended, or cancelled)
  • Licensed activities cover all operations actually conducted
  • No outstanding fees or violations

A valid license doesn't help if the company is operating outside its permitted activities. We see this more often than you'd expect. Companies add service lines, expand into adjacent activities, or pivot their business model without updating the license. The regulatory exposure sits with the buyer post-closing.

Ownership and Shareholder Rights

Under Federal Decree-Law No. 32 of 2021 on Commercial Companies, LLC shareholders have statutory pre-emption rights on share transfers. These rights cannot be waived and must be observed in any acquisition.

Verify:

  • Complete ownership structure
  • Nominee arrangements or side agreements affecting control
  • Share pledges or encumbrances restricting transfer
  • Shareholders' agreement provisions (drag-along, tag-along, consent requirements)

Historical corporate changes matter too. Review share capital increases, changes in shareholding percentages, and amendments to constitutional documents. Each change should be supported by appropriate resolutions and regulatory filings. Gaps in the paper trail create uncertainty about whether previous transfers were validly completed.

Free Zone Distinctions

If the target operates in a free zone, each zone has its own authority and rules. For DIFC and ADGM entities, the legal framework is English common law with separate company regulations, court systems, and employment laws.

Key free zone due diligence points:

  • Registration status and good standing with the free zone authority
  • Special conditions attached to the license
  • Compliance with substance requirements
  • Restrictions on conducting business with mainland customers

Don't apply mainland assumptions to free zone entities. The differences in company law, employment regulations, and dispute resolution are significant.

Competition Law Clearance

This is where we see the most deal disruption right now.

Federal Decree-Law No. 36 of 2023 on the Regulation of Competition introduced a mandatory, suspensory merger control regime effective 31 March 2025.

Notification required if:

  • Combined annual turnover in the relevant UAE market exceeds AED 300 million, OR
  • Combined market share exceeds 40%

The practical impact:

Filings must be submitted at least 90 days before completion. Not before signing. Before you can close. The Ministry has 90 days to review, extendable by 45 days. If no decision is issued within the review period, the application is deemed rejected.

Failure to notify can result in fines of 2% to 10% of annual UAE revenues.

We've seen transactions where competition clearance wasn't identified as a requirement until weeks before planned completion. Build competition analysis into early due diligence. Calculate the thresholds. If there's any chance you're caught, plan the timeline accordingly.

Employment Due Diligence

Employment matters present the most significant hidden liabilities in UAE acquisitions. The treatment differs dramatically between share and asset purchases, but either way, the exposure is real.

End-of-Service Gratuity

This is one of the most frequently underestimated liabilities in UAE M&A.

The calculation:

  • 21 days' basic salary per year for the first five years
  • 30 days' basic salary per year thereafter
  • Capped at two years' total wages

What we typically find:

Targets routinely under-provision for gratuity. Common issues:

  • Using total salary rather than basic salary as the calculation base (understates liability)
  • Failing to account for salary increases over time
  • Not provisioning for employees approaching the one-year threshold
  • Using outdated headcount data

In a share purchase, this liability transfers to the buyer automatically. Every dirham of under-provisioning comes directly off your return.

In an asset purchase, employees must be terminated by the seller (triggering immediate gratuity payments) and re-hired by the buyer. This changes the cash flow dynamics and requires careful coordination.

Our approach:

Calculate the total accrued gratuity independently using current payroll data. Don't rely on the target's provision. Compare your calculation to the balance sheet and understand any difference before agreeing on price.

We've never seen a target where our calculation matched the balance sheet provision exactly. It's almost always higher.

Check whether any employees are enrolled in alternative savings schemes such as the DIFC Employee Workplace Savings Plan (DEWS), which changes the liability profile entirely.

Workforce Compliance

Under Federal Decree-Law No. 33 of 2021, verify:

  • Employment contracts are fixed-term and MOHRE-compliant
  • Wage Protection System compliance is current
  • All work permits and visas are valid
  • Emiratisation requirements are met

Review contractor arrangements carefully. Misclassification of employees as contractors is common and creates significant back-pay exposure.

Request disclosure of employment disputes, MOHRE complaints, and claims for unpaid wages or wrongful termination. Past disputes reveal systemic HR issues. Pending claims are quantifiable liabilities.

Non-compliance creates exposure that multiplies with headcount. A company with 200 employees and systemic WPS issues has a very different risk profile than one with 20.

Tax Due Diligence

The UAE's tax landscape has evolved significantly since 2018. Tax due diligence is no longer optional.

Corporate Tax

With corporate tax effective from June 2023 under Federal Decree-Law No. 47 of 2022, due diligence must cover:

  • Registration status and tax identification number
  • Taxable income calculations and deductions claimed
  • Transfer pricing policies for related party transactions
  • Compliance with economic substance requirements

For companies with inter-company transactions, verify whether appropriate transfer pricing documentation exists. The Federal Tax Authority aligns with OECD principles and can deny deductions for non-arm's length pricing. Related party transactions are particularly scrutinised and rarely survive rigorous analysis at arm's length terms.

Free Zone Tax Status

If the target claims Qualifying Free Zone Person (QFZP) status for the 0% rate, this requires rigorous verification. Getting this wrong is expensive.

Here's what catches buyers out:

A company that claims QFZP status but fails to meet the conditions faces 9% on its entire taxable income. Not just the non-qualifying portion. Everything. A target that thought it had zero tax exposure could actually owe 9% on everything, going back to the start of the regime.

We frequently see free zone companies with:

  • Mainland customers (non-qualifying)
  • Services provided to UAE residents (potentially non-qualifying)
  • Inadequate substance to support their claimed status

The seller often genuinely believes the company qualifies because they've never tested the position rigorously.

Due diligence must include:

  • Detailed review of revenue by customer location and type
  • Assessment of actual substance versus requirements
  • Analysis of any de minimis non-qualifying income
  • Realistic assessment of the FTA's likely position on audit

If there's material doubt about QFZP status, price the deal assuming 9% applies. Or get a specific indemnity.

VAT Compliance

VAT has been in effect since January 2018, providing longer compliance history to review.

Key areas:

  • Registration status and group registration arrangements
  • Accuracy of returns filed
  • Input tax recovery positions (particularly for exempt or partially exempt businesses)
  • Any FTA assessments, audits, or disputes

Contract Due Diligence

Change of Control Provisions

This is where deals go wrong after signing.

We've seen transactions where critical contracts were identified as having change of control issues only during the disclosure letter process. Days before planned signing. By then, options are limited and leverage is gone.

Where change of control clauses hide:

  • Customer contracts (particularly strategic or enterprise accounts)
  • Supplier agreements (especially where the target is a key customer)
  • Financing arrangements and credit facilities (almost always)
  • Joint venture agreements
  • Franchise and distribution agreements
  • Leases for key premises
  • Technology and IP licenses

What these clauses do:

A change of control provision may allow the counterparty to terminate the contract, renegotiate terms, accelerate payment obligations, or exercise other rights. The trigger is typically defined as a change in majority ownership or voting control. Exactly what happens in an acquisition.

For critical contracts (top 10 customers, key suppliers, bank facilities, headquarters lease), understand these provisions before you commit. If consent is required, build the consent process into your timeline. If consent is unlikely, understand the value at risk and price accordingly.

Practical advice:

Create a change of control matrix early in due diligence listing every material contract, whether it has such a clause, what the clause allows, and whether consent is required. This becomes your roadmap for the pre-closing period.

Customer Revenue Quality

Customer contracts warrant particular attention as they represent the revenue you're acquiring.

Analyse:

  • How much revenue is contractually committed versus at-will
  • Concentration risk among key customers
  • Contract expiration schedules
  • Historical renewal rates
  • Any pending renegotiations or disputes

Revenue that can walk away 30 days after closing isn't worth the same as locked-in contracts. Business conducted on verbal agreements or emails is extremely risky. The revenue isn't secure and the terms are open to dispute.

Financing Arrangements

Review all credit facilities, loans, and financing arrangements for:

  • Principal amounts and repayment schedules
  • Financial covenants
  • Events of default (including change of control triggers)
  • Security interests over assets

Bank facilities almost always include change of control provisions requiring lender consent. Early engagement with lenders is often necessary to ensure continued availability of financing post-acquisition.

Real Estate

Property Verification

For owned property, verify ownership through the Dubai Land Department or relevant emirate authority using the title deed number or plot number.

Confirm:

  • No mortgages, liens, or encumbrances
  • Property is in an area permitting foreign ownership (if applicable)

The DLD register is private. You cannot verify title without a no-objection certificate from the seller or a copy of the title deed. Don't assume ownership matches what you've been told.

Lease Agreements

For leased premises, review:

  • Remaining term and renewal options
  • Assignment and subletting restrictions (critical for asset purchases)
  • Permitted use provisions (must align with business activities)
  • Rent escalation clauses
  • Ejari registration status

Assignment restrictions in leases can complicate asset purchases. If the lease cannot be assigned without landlord consent, or cannot be assigned at all, you may face relocation costs or operational disruption.

Intellectual Property

Verify registered trademarks, patents, and designs through the Ministry of Economy. The official trademark inquiry fee is AED 350.

Confirm:

  • Registration status
  • Classes covered
  • Renewal dates
  • Any pending oppositions

For key intellectual property, trace the chain of title to verify proper ownership. Common issues include:

  • IP developed by founders before incorporation that was never formally assigned
  • Employee-created IP without proper assignment agreements
  • IP developed by contractors without work-for-hire provisions

Gaps in the ownership chain should be remedied through confirmatory assignments before closing.

Review all IP licenses (both inbound and outbound) to confirm critical licensed IP continues post-acquisition and that no change of control provisions are triggered.

Litigation and Disputes

Request disclosure of:

  • All current, pending, or threatened litigation and arbitration
  • Regulatory investigations
  • Outstanding judgments
  • Historical disputes (covering three to five years)

Beyond formal litigation, identify regulatory investigations or audits that could result in penalties. FTA tax audits, MOHRE labour compliance reviews, sector regulator inquiries. Ongoing investigations represent contingent liabilities that should be disclosed and addressed in transaction documentation.

Review dispute resolution clauses in material contracts. UAE courts, DIFC Courts, ADGM Courts, and various arbitration centres (DIAC, ADCCAC, DIFC-LCIA) have different procedures, costs, and enforceability implications. Understanding where existing disputes would be resolved matters for assessing litigation risk.

For related guidance, see our article on Enforcement of Foreign Judgments in the UAE.

Common Mistakes

Relying on public records. There are no meaningful public records for UAE private companies. If you haven't seen it in the data room, you don't know it.

Treating all UAE jurisdictions the same. Mainland, JAFZA, DMCC, DIFC, and ADGM all have different rules.

Accepting the seller's gratuity provision. Calculate it yourself.

Discovering change of control issues late. Build contract review into the first two weeks, not the last two.

Ignoring competition clearance until signing. If you might hit the thresholds, you need to know immediately.

Assuming free zone tax status is correct. QFZP qualification is complex and often claimed incorrectly.

How We Can Help

The issues that destroy value in UAE acquisitions are rarely the ones buyers expect. They're the compliance gaps that seemed minor until the FTA audit. The customer contract that terminated 30 days after closing. The gratuity shortfall that wiped out a year's projected EBITDA.

Our corporate and commercial team conducts due diligence focused on what actually goes wrong in UAE transactions. We flag issues early (particularly competition clearance requirements, change of control exposure, and tax position risks) and quantify exposures so you can negotiate price or protection.

Related expertise:

For guidance on structuring acquisitions, see our article on Share Purchase vs Asset Purchase in UAE.

If you're considering an acquisition in the UAE, contact us before you sign the LOI. The earlier due diligence planning starts, the fewer surprises emerge at the wrong time.

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