UAE M&A Structuring: Choosing Between Share and Asset Purchases

When acquiring a business in the UAE, one of the most consequential decisions is how to structure the transaction. Should you buy the shares in the target company, or should you purchase its underlying assets? The answer affects everything from tax exposure and liability transfer to employee arrangements and regulatory approvals.

Both structures achieve the same commercial outcome - control of the business - but through fundamentally different legal mechanisms. A share purchase transfers ownership of the company itself, carrying all its assets, liabilities, contracts, and history. An asset purchase transfers specific assets and liabilities that the parties agree to include, leaving the corporate shell behind.

This guide examines both structures under UAE law, helping buyers and sellers understand the practical implications of each approach for M&A transactions in the Emirates.

Quick Reference: Share vs Asset Purchase at a Glance

The Fundamental Difference

The distinction between share and asset purchases is straightforward in principle but profound in consequence.

Share Purchase

In a share purchase, the buyer acquires ownership interests - shares - from the existing shareholders. The target company continues to exist unchanged. Its trade licence, contracts, employees, bank accounts, assets, and liabilities all remain with the company. Only the ownership of the company changes hands.

From a legal perspective, the target company's relationships with third parties continue uninterrupted. Customers, suppliers, landlords, and lenders remain contracted with the same legal entity. Employment relationships continue without termination. The company retains its operating history, tax position, and regulatory authorisations.

This structure is often described as buying the business "as is" - the buyer inherits everything, including problems the buyer may not have anticipated.

Asset Purchase

In an asset purchase, the buyer acquires specific assets and assumes specific liabilities directly from the target company. The company itself - the legal entity - remains with the seller. What transfers are the tangible and intangible assets that comprise the business: equipment, inventory, intellectual property, contracts (with counterparty consent), customer relationships, and goodwill.

The buyer essentially reconstructs the business within a new or existing corporate structure. This requires individually transferring each asset, obtaining necessary consents for contract assignments, and re-establishing relationships that cannot be transferred.

This structure offers selectivity - the buyer can choose what to acquire and what to leave behind - but at the cost of administrative complexity and potential business disruption.

Why Structure Matters in the UAE

The choice between share and asset purchase carries particular significance in the UAE context due to several factors unique to the region's legal and regulatory environment.

Regulatory Approval Requirements

Share transfers in UAE mainland limited liability companies (LLCs) require approval from the relevant Department of Economic Development and must be executed before a notary public. The process involves documentation in Arabic, attestation requirements for foreign corporate buyers, and registration of the transfer. While procedural rather than discretionary, these requirements add time and complexity.

Asset transfers face different but equally significant requirements. Real property requires registration with the relevant land department. Intellectual property must be recorded with the Ministry of Economy. Licences typically cannot be transferred at all - the buyer must obtain new authorisations.

Pre-emption Rights

Under Federal Decree-Law No. 32 of 2021 on Commercial Companies, shareholders in UAE LLCs enjoy statutory pre-emption rights on share transfers. When a shareholder wishes to sell to a third party, existing shareholders must be offered the opportunity to purchase on the same terms. This right cannot be waived in the company's constitutional documents, though shareholders may waive it at the time of a specific transaction.

For asset purchases, no equivalent statutory pre-emption right applies. However, contracts being transferred may contain change of control or assignment restrictions that create similar obstacles.

Employment Considerations

UAE law does not provide for automatic transfer of employees in business sales - a significant difference from many other jurisdictions. In a share purchase, employees remain employed by the same legal entity, so no transfer occurs and employment continues uninterrupted.

In an asset purchase, the employment position is fundamentally different. Employees must be terminated by the seller and re-hired by the buyer. This triggers end-of-service gratuity obligations, requires visa cancellation and re-sponsorship, and gives employees the practical ability to decline the transfer.

Corporate Tax Implications

Since the introduction of UAE Corporate Tax (effective for financial years commencing on or after 1 June 2023), transaction structure has acquired new significance. The 9% corporate tax rate applies to taxable income exceeding AED 375,000, and the treatment of gains, losses, and deductions differs materially between structures.

Share Purchase: Detailed Analysis

Share purchases remain the dominant structure for UAE M&A transactions due to their relative simplicity and the preservation of business continuity.

How Share Transfers Work in UAE LLCs

The mechanics of a share purchase in a UAE LLC involve several steps:

1. Documentation preparation: The parties negotiate and execute a share purchase agreement (SPA) setting out the commercial terms - price, conditions, representations, warranties, and indemnities. This agreement is typically governed by English law or the law of a financial free zone (DIFC or ADGM), though UAE law may also be chosen.

2. DED initial approval: An application is submitted to the relevant Department of Economic Development with supporting documentation, including board or shareholder resolutions from both buyer and seller, powers of attorney, and constitutional documents. Initial approval typically takes one to eight business days.

3. Notarisation: A short-form Arabic share transfer agreement must be executed before a notary public. All parties - or their duly authorised representatives holding notarised powers of attorney - must attend. If the buyer is a foreign company, its documents must be legalised through the UAE embassy in its country of incorporation, attested by the UAE Ministry of Foreign Affairs, and translated into Arabic by a sworn translator.

4. Registration: The executed documents are submitted to DED, which updates the company's commercial register and issues an updated trade licence reflecting the new ownership.

For companies in UAE free zones (other than DIFC and ADGM), the process is similar but the free zone authority handles registration rather than DED. Document legalisation requirements may be less onerous in some free zones.

What Transfers in a Share Purchase

In a share purchase, the buyer acquires everything the company owns and owes:

• Assets: All tangible and intangible assets owned by the company transfer automatically by operation of law
• Liabilities: All liabilities remain with the company - trade payables, loans, contingent liabilities, tax obligations, pending litigation, unknown claims
• Contracts: Business contracts generally remain in place with the company, subject to change of control provisions
• Employees: All employees remain employed by the company with unchanged terms
• Licences and permits: Operating licences, regulatory authorisations, and permits generally remain with the company
• Tax history: The company's tax position - including any historic liabilities, available losses, and compliance history - transfers with the shares

Share Purchase: Advantages and Risks

Protecting the Buyer in Share Purchases

Sophisticated share purchase agreements address these risks through several mechanisms:

Representations and warranties: The seller represents the accuracy of specific facts about the company and its business. Breaches may give rise to indemnification claims.

Indemnities: The seller agrees to compensate the buyer for specified losses, often including identified risks, tax liabilities for pre-completion periods, and matters that due diligence could not fully address.

Purchase price adjustments: Mechanisms such as completion accounts or locked box arrangements ensure the buyer pays an appropriate price for the business delivered.

Escrow or retention: A portion of the purchase price is held back to satisfy potential indemnification claims, protecting the buyer against seller insolvency or unavailability.

Tax indemnities: Specific protections for pre-completion tax liabilities have become increasingly important following the introduction of UAE Corporate Tax, with consideration of appropriate time limits aligned with applicable statutes of limitation.

Asset Purchase: Detailed Analysis

While less common than share purchases in the UAE, asset purchases offer advantages in specific circumstances - particularly where the buyer wants to acquire a business selectively or avoid inherited liabilities.

How Asset Purchases Work

An asset purchase requires identifying, valuing, and individually transferring each asset to be acquired:

1. Asset identification: The parties agree precisely what will transfer - tangible assets (equipment, inventory, vehicles), intangible assets (intellectual property, goodwill, customer lists), contracts, and working capital. They also agree what liabilities, if any, the buyer will assume.

2. Transfer mechanisms: Each asset type requires its own transfer method:

• Movable property transfers by delivery and documentation
• Real property requires registration with the relevant land department (4% transfer fee in Dubai)
• Intellectual property (trademarks, patents) requires recording with the Ministry of Economy
• Contracts require counterparty consent for assignment or novation
• Receivables require debtor notification or consent
• Employees require termination and re-hiring

3. New corporate structure: The buyer must have a UAE entity with appropriate licensing to operate the acquired business. If the buyer does not already have a suitable vehicle, company formation adds time to the transaction.

4. Business continuity planning: Because the transaction involves reconstructing the business rather than acquiring it whole, careful planning is needed to minimise operational disruption.

VAT Treatment: Transfer of Going Concern

A critical consideration for asset purchases is VAT treatment. The sale of individual assets by a VAT-registered business is generally a taxable supply subject to 5% VAT.

However, when assets are transferred as part of a "transfer of a going concern" (TOGC), the transfer falls outside the scope of VAT - meaning no VAT is charged. The Federal Tax Authority has clarified the conditions for TOGC treatment:

The transfer must be of a whole business or an independent part capable of separate operation - not merely individual assets. All goods and services necessary for continued operation must transfer, including goodwill, licences, premises, equipment, employees, and ongoing contracts.

The transferred business must be operational before and at the time of transfer.

The recipient must be a taxable person - registered for VAT or required to register and having applied.

The recipient must intend to continue the same business. Fundamental changes to the business model may disqualify TOGC treatment.

A share sale, by contrast, is not a supply for VAT purposes at all, since shares are not goods or services. VAT does not apply to share transfers.

Getting TOGC classification wrong can be expensive. If a transfer that should have been treated as a taxable supply is incorrectly treated as a TOGC, the seller may be liable for uncollected VAT plus penalties.

Employment: The Critical Difference

The treatment of employees is often the most significant practical difference between structures. This is particularly important in the UAE, where there is no equivalent to the European "transfer of undertakings" protections that automatically transfer employees.

Share Purchase: Employment Continuity

In a share purchase, employees remain employed by the same company. Nothing changes from their perspective - same employer, same contract, same terms, same visa sponsor. No termination occurs, so no end-of-service gratuity is triggered.

The only consideration is whether key employment contracts contain change of control provisions that might be triggered. This is uncommon in UAE employment contracts but may appear in executive service agreements.

Asset Purchase: Termination and Re-Hire

In an asset purchase, the employment relationship must be severed and recreated:

1. The seller terminates existing employment contracts
2. End-of-service gratuity becomes payable (21 days' basic salary per year for the first five years, 30 days thereafter)
3. The seller cancels employee residence visas
4. The buyer offers new employment
5. Employees may accept or decline (they have no obligation to transfer)
6. The buyer sponsors new residence visas for employees who accept
7. New employment contracts are executed

This process creates multiple points of friction:

Cost allocation: Who bears the gratuity liability - buyer or seller? This must be negotiated and addressed in transaction documentation. The answer affects the economics of the deal.

Time and administration: Visa processing takes time. During the transition, employees may be unable to work legally. The business may be understaffed at a critical moment.

Employee cooperation: Employees can decline the transfer. Key personnel may use the transition as an opportunity to leave, join competitors, or negotiate improved terms.

Continuity of service: If the parties want employees to retain their historical service for gratuity purposes with the buyer, a tripartite agreement (seller, buyer, employee) can provide for "rolled over" service - but this requires employee consent and careful documentation.

Corporate Tax Considerations

The introduction of UAE Corporate Tax has added a significant dimension to transaction structuring. Both buyers and sellers must now consider tax implications when choosing between share and asset structures.

Share Purchase Tax Implications

For the seller: Gains from the sale of shares in a UAE company may be exempt from corporate tax under the participation exemption, provided certain conditions are met:

• Minimum 5% ownership (or acquisition cost of at least AED 4 million)
• 12-month holding period (or intention to hold for 12 months)
• The company is subject to UAE corporate tax or foreign tax at a minimum rate of 9%
• Not more than 50% of the company's assets consist of non-qualifying ownership interests

Where these conditions are met, the seller can realise gains tax-free - a powerful incentive for share sale structures.

For the buyer: The buyer acquires the company with its existing tax basis in assets - typically historic cost. There is no step-up to fair market value. Future depreciation deductions are based on the company's pre-acquisition asset values, not the price paid for the shares.

The buyer also inherits the company's tax history, including any available tax losses (subject to restrictions), prior period positions that may be challenged by the Federal Tax Authority, and compliance history with potential audit exposure.

Asset Purchase Tax Implications

For the seller: Gains from the sale of assets are generally taxable at the 9% corporate tax rate as part of the selling company's taxable income. There is no participation exemption for asset sales (though business restructuring relief may apply in limited circumstances).

For the buyer: The buyer acquires assets at fair market value, creating a "stepped-up" tax basis. This means higher depreciation deductions on tangible assets over their useful lives, higher amortisation deductions on qualifying intangible assets, and lower taxable gains if assets are later sold.

Over time, the step-up can produce meaningful tax savings that partially offset the higher complexity and costs of an asset purchase.

The buyer does not inherit the seller's tax attributes - no losses, no audit exposure, no compliance history.

Due Diligence Implications

The scope and focus of due diligence differs meaningfully between structures.

Share Purchase Due Diligence

Because the buyer acquires the entire company with all its history, comprehensive due diligence is essential:

• Corporate: Confirm share ownership, constitutional documents, board composition, corporate authorisations, and regulatory filings
• Financial: Review financial statements, management accounts, working capital, debt and financing arrangements
• Tax: Examine corporate tax position, VAT compliance, transfer pricing, and historical tax filings
• Employment: Verify employee terms, benefit obligations, visa status, pending disputes, and gratuity accruals
• Commercial contracts: Review material customer and supplier contracts, change of control provisions, assignment restrictions
• Litigation: Identify pending, threatened, or potential claims
• Real property: Confirm ownership, encumbrances, lease arrangements
• Intellectual property: Verify ownership, registration status, licensing arrangements
• Regulatory: Confirm licence validity, compliance with sector-specific regulations

Asset Purchase Due Diligence

Due diligence for asset purchases is more focused but still substantial:

• Title to assets: Confirm the seller owns the specific assets being acquired, free from encumbrances
• Contracts: Identify assignment provisions and change of control triggers in contracts to be transferred
• Employees: Understand which employees the buyer wishes to hire, their terms, and transition costs
• Intellectual property: Verify ownership and registrability of IP to be acquired
• Licences: Determine what new licences the buyer will need
• VAT: Confirm whether TOGC treatment applies

The buyer has less need to investigate liabilities that will not transfer, though understanding what is being left behind remains relevant to valuation.

When to Use Each Structure

Neither structure is inherently superior. The right choice depends on the specific circumstances of the transaction.

Share Purchase Preferred When:

• The business has valuable operating licences that cannot easily be replaced
• Key contracts lack assignment provisions or counterparties are unlikely to consent
• Employee continuity is critical and re-hiring risks are unacceptable
• The seller qualifies for participation exemption on share sale gains
• Business continuity and speed are priorities
• The buyer has conducted thorough due diligence and is comfortable with inherited liabilities
• The transaction involves a clean company with limited historical exposure

Asset Purchase Preferred When:

• Significant known or potential liabilities exist that the buyer wants to avoid
• The buyer only wants specific assets or business units
• Tax basis step-up provides meaningful benefit to the buyer
• The seller does not qualify for participation exemption
• Operating licences can be readily obtained by the buyer
• Contracts are assignable or counterparties will consent
• Employee transition is manageable
• The buyer wants a fresh start without inheriting the company's history

Hybrid Approaches

Some transactions combine elements of both structures:

Pre-sale restructuring: The seller transfers unwanted assets or liabilities out of the target company before the share sale, delivering a cleaner vehicle to the buyer.

Partial asset sale followed by share sale: The seller first sells specific assets outside the transaction, then sells shares in the remaining business.

Simultaneous transactions: Different parts of the business are acquired through different structures - shares of one entity, assets of another.

Transfer Costs and Fees

Understanding the cost implications helps inform structure selection.

Free Zone Considerations

M&A transactions involving UAE free zone entities present additional considerations.

DIFC and ADGM

The Dubai International Financial Centre and Abu Dhabi Global Market operate under separate legal frameworks - English common law rather than UAE civil law. Companies in these jurisdictions:

• Are not subject to the UAE Commercial Companies Law
• Have no statutory pre-emption rights on share transfers
• Benefit from more flexible corporate governance rules
• May be structured as holding companies for mainland operations

For share purchases, DIFC and ADGM offer simpler transfer mechanics and greater contractual flexibility. Many complex transactions are structured with a DIFC or ADGM holding company owning the operating entity.

Other Free Zones

Most other UAE free zones apply mainland commercial law with some modifications. Share transfer procedures vary by zone but generally involve registration with the free zone authority rather than DED. Document attestation requirements may be less onerous.

Free zone entities face restrictions on conducting business outside the zone, which may affect how assets can be deployed following an acquisition.

Common Mistakes to Avoid

Several pitfalls recur in UAE M&A transactions:

Underestimating notarisation requirements: Share transfers in mainland LLCs require notarisation in Arabic. Foreign documents require embassy legalisation, MOFA attestation, and certified translation. This process takes time - build it into the transaction timeline.

Ignoring pre-emption rights: Statutory pre-emption rights cannot be waived in advance. Ensure existing shareholders provide waivers at the time of the transaction, or structure around them.

Assuming contracts transfer automatically: Even in share purchases, change of control provisions may be triggered. Review material contracts carefully and plan for consent processes.

Neglecting employee considerations in asset deals: The termination/re-hiring process is more disruptive than parties often anticipate. Plan carefully, communicate with employees early, and budget realistically for gratuity costs and transition time.

Mishandling VAT treatment: TOGC qualification requires meeting specific conditions. Get it wrong and 5% VAT applies to the entire transaction value. Seek specialist advice and document TOGC qualification carefully.

Inadequate tax due diligence: With corporate tax now in effect, historical tax positions matter. The extended audit period means exposure can persist for years. Tax indemnities must be drafted carefully.

Leaving structure choice too late: Structure should be addressed early in the transaction process. Last-minute changes create problems with documentation, pricing, and third-party arrangements.

Sector-Specific Considerations

Certain industries present unique structuring challenges.

Regulated Sectors

Financial services, healthcare, education, and media businesses operate under specific regulatory frameworks. Share transfers may require pre-approval from sector regulators (Central Bank, DHA, KHDA, NMC) in addition to standard DED procedures. Asset purchases may face restrictions on licence transferability.

Real Estate Intensive Businesses

Where the target owns significant UAE real property, asset purchase triggers 4% Dubai Land Department fees - potentially millions of dirhams. Share purchase avoids this cost entirely, making it strongly preferred for property-rich targets despite other disadvantages.

Technology and IP-Centric Businesses

Businesses whose value lies primarily in intellectual property require careful attention to IP ownership, registration, and assignment. In asset purchases, ensure all IP is properly documented and assignable. In share purchases, confirm IP is owned by the target company (not founders personally) and properly registered.

Labour-Intensive Businesses

Businesses with large workforces face significant practical challenges in asset purchases. Terminating and re-hiring hundreds of employees is administratively intensive, expensive (aggregate gratuity costs), and risky (key personnel may not transfer). Share purchase is almost always preferred for such targets.

Key Documentation

Share Purchase Agreement

The SPA is the primary transaction document, addressing:

• Parties and definitions
• Sale and purchase of shares - which shares, from whom, at what price
• Conditions precedent - regulatory approvals, consents, due diligence matters
• Pre-completion obligations - conduct of business, information access
• Completion mechanics - what happens on closing day
• Representations and warranties - seller's statements about the company
• Limitations on claims - time limits, caps, thresholds, exclusions
• Indemnities - specific protections for identified risks
• Tax covenant - detailed allocation of tax liabilities between parties
• Restrictive covenants - non-compete, non-solicit, confidentiality
• Post-completion matters - transition, cooperation, further assurances

Asset Purchase Agreement

The APA addresses similar themes but with different mechanics:

• Identification of assets - detailed schedules of included and excluded assets
• Assumption of liabilities - precise specification of what buyer assumes
• Transfer mechanisms - how each asset type will transfer
• Consents and approvals - process for obtaining counterparty consent
• Employee matters - termination, re-hiring, gratuity allocation
• VAT treatment - TOGC qualification and risk allocation
• Representations and warranties - focused on specific assets
• Purchase price allocation - for tax purposes across asset categories

Ancillary Documents

Both structures require supporting documentation:

• Disclosure letter (seller's qualifications to representations)
• Board and shareholder resolutions
• Powers of attorney (particularly for foreign parties)
• Escrow arrangements
• Transition services agreement (if seller provides post-completion support)
• Employment agreements for key personnel
• Lease assignments or new leases
• IP assignment documents

Dispute Resolution Considerations

Transaction disputes may arise post-completion, whether over warranty claims, indemnification obligations, or completion mechanics. The choice of dispute resolution mechanism should be addressed in the transaction documentation.

UAE Courts: Proceedings in Arabic, civil law framework, 2-3 years through all levels. Appropriate for straightforward enforcement matters.

DIAC Arbitration: Flexible procedures, language choice, international enforceability under the New York Convention. Increasingly common for substantial M&A transactions.

DIFC/ADGM Courts: English language, common law framework, international judges. Available where jurisdiction can be established through agreement.

For cross-border transactions or deals with international parties, arbitration typically offers advantages in terms of flexibility, confidentiality, and enforcement. Awards can be enforced internationally more readily than court judgments.

How Kayrouz & Associates Can Help

Structuring M&A transactions correctly is essential to achieving commercial objectives while managing risk. Our corporate and commercial team advises buyers and sellers across sectors on transaction structuring, documentation, and execution.

Transaction advisory:

• Analysing share purchase vs asset purchase options
• Identifying deal-specific risks and structuring solutions
• Advising on tax-efficient structures following corporate tax introduction
• Coordinating with tax advisers on corporate tax and VAT implications

Documentation:

• Drafting and negotiating share purchase and asset purchase agreements
• Preparing disclosure letters, ancillary documents, and closing mechanics
• Structuring representations, warranties, and indemnities to allocate risk appropriately
• Addressing UAE-specific requirements including Arabic documentation

Due diligence:

• Conducting legal due diligence on targets
• Identifying material issues and advising on risk mitigation
• Reviewing contracts for change of control and assignment provisions
• Assessing regulatory and licensing requirements

Execution:

• Managing notarisation and registration processes
• Coordinating with free zone authorities
• Handling third party consent processes
• Supporting post-completion integration

Dispute resolution:

• Advising on warranty claims and indemnification disputes
• Representing parties in post-acquisition litigation or arbitration
• Enforcing transaction documentation

Contact us to discuss how we can support your M&A transaction in the UAE.

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