Financial and tax due diligence before buying a company in the UAE covers revenue quality, unrecorded liabilities, VAT and Corporate Tax exposure, loans and guarantees, leases, employee end-of-service liabilities, inventory and receivables, owner transactions, and pending disputes. In a share purchase, those liabilities transfer to the buyer. Abdelhamid & Co (MOE LC0106-01, FTA TAN 30003958) performs this review.
Why financial and tax due diligence precedes signing
In a share deal the investor acquires the company with its assets and its liabilities together. Tax exposure for prior years transfers with it, even though it arose before the buyer arrived.
The Federal Tax Authority may audit within the period set by Federal Decree-Law No. 28 of 2022 on Tax Procedures. A breach committed before the purchase can therefore surface years afterwards, with the buyer carrying the cost.
The review produces three practical outputs: a price that reflects the risks identified, contractual protections covering contingent liabilities, and a post-closing remediation list.
Revenue quality and substantiation
The team tests the source of each material revenue stream and whether it survives a change of ownership. The procedures applied are:
- Reconciling recorded revenue to revenue declared in VAT returns.
- Reconciling bank receipts to recorded revenue month by month.
- Analysing revenue concentration and the share of the top five customers.
- Reviewing customer contracts for remaining term and termination rights on change of control.
- Isolating non-recurring revenue, such as asset disposal gains or compensation, from operating revenue.
Reliance on a single customer for more than 30% of sales is a risk that must be addressed expressly in the agreement.
Liabilities not recorded in the books
Many obligations sit outside the balance sheet the seller presents. The team searches for them in these sources:
- End-of-service gratuity accrued under Federal Decree-Law No. 33 of 2021 on Labour Relations.
- Unpaid accrued leave, accumulated allowances and air ticket entitlements.
- Guarantees issued for the obligations of sister companies.
- Administrative or tax penalties assessed but not recorded.
- Product warranty or maintenance obligations on past sales.
- Disputed supplier claims not recognised in the books.
Tax position: VAT and Corporate Tax
The team reviews the company's complete file with the Federal Tax Authority. On VAT it covers:
- Validity and date of registration, and any period of trading before mandatory registration.
- Reconciliation of filed returns to the books for every tax period.
- Compliance of issued tax invoices with Article 59 of the Executive Regulation.
- Entitlement to input tax recovered and the existence of supporting tax invoices.
- Correct treatment of zero-rated, exempt and intra-GCC supplies.
On Corporate Tax, under Federal Decree-Law No. 47 of 2022, it covers:
- Registration within the prescribed deadline and any late registration penalty.
- Correct computation of taxable income and the adjustments applied.
- Whether Small Business Relief conditions were met where claimed.
- Free zone status and whether Qualifying Free Zone Person conditions are genuinely satisfied.
- Related party documentation against arm's length requirements.
Loans, guarantees and lease agreements
The team reads banking facility agreements clause by clause, looking specifically for change-of-control provisions that entitle the bank to demand immediate repayment when ownership changes.
It also tests financial covenants such as coverage and gearing ratios, and assesses whether the transaction itself puts the company in breach.
On leases it reviews the remaining term, transferability to the new owner, the annual escalation, and eviction provisions. A head office lease expiring within twelve months is a direct operational risk.
Employees, benefits and owner transactions
The team counts the actual workforce and reconciles payroll to the Wage Protection System and to residence visa and work permit records. It computes end-of-service gratuity accrued to the review date.
It then separates transactions with the current owner and his related parties and identifies which will cease after closing. In UAE companies these typically include:
- Owner salary and allowances charged to expenses.
- Rent on property owned by the owner and leased to the company.
- Loans from the owner to the company or from the company to him.
- Purchases and services from other companies he owns.
Normalised operating profit is recomputed after removing these items, because the adjusted figure is what drives pricing.
Inventory, receivables and pending disputes
The team requests a physical inventory count attended by the buyer's representative, tests ageing by line item, identifies obsolete and slow-moving stock, and assesses write-downs required under IAS 2.
It tests receivables ageing, issues independent confirmations to major customers, and computes the expected credit loss provision under IFRS 9.
Finally, it schedules pending litigation and requests a letter from the company's legal counsel setting out the status of each case, the amount claimed, and the assessed likelihood of loss.
Key facts on financial and tax due diligence in the UAE
| Item | Reference or figure |
|---|---|
| Corporate Tax rate | 9% on taxable income above AED 375,000 |
| Standard VAT rate | 5% |
| Mandatory VAT registration threshold | AED 375,000 of taxable supplies |
| Record retention | Minimum five years for tax purposes |
| Tax invoice requirements | Article 59, VAT Executive Regulation |
| End-of-service gratuity | Federal Decree-Law No. 33 of 2021 on Labour Relations |
Our methodology for financial and tax due diligence before buying a company
We perform five sequenced steps and report within three to six weeks depending on company size:
- Step 1: Agree scope and materiality with the buyer and issue the document request list.
- Step 2: Analyse revenue quality and normalised earnings, removing non-recurring items and owner transactions.
- Step 3: Compute actual net debt and normalised working capital, and schedule unrecorded liabilities.
- Step 4: Review the complete tax file for VAT and Corporate Tax and quantify the potential exposure for open years.
- Step 5: Issue a report setting out each finding, its estimated financial effect, its impact on price, and the contractual clause proposed to address it.
Common mistakes when buying a company in the UAE
- Relying on audited financial statements alone: an audit opines on presentation as a whole and does not measure risks specific to the purchase decision.
- Skipping the tax file for open years: penalties and assessed differences transfer to the buyer after closing.
- Using reported profit without normalising it: this inflates value, because reported profit carries the owner's personal items.
- Ignoring change-of-control clauses in bank and customer contracts: facilities may be withdrawn and contracts terminated.
- Omitting warranties and indemnities from the agreement: this leaves the buyer unprotected when a liability later emerges.
Why choose Abdelhamid & Co
- Licensed by the Ministry of Economy under registration LC0106-01 and entered in the Local Auditors Record under No. 956.
- Registered FTA Tax Agent (TAN 30003958, TAAN 20033908), allowing a full technical review of the target's tax file.
- Financial and tax due diligence combined in a single report, which prevents coverage gaps between separate advisers.
- Experience handling FTA audits, reconsideration requests and voluntary disclosures.
- Reports delivered in Arabic or English with an executive summary written for the investor and legal counsel.
Frequently Asked Questions
How long does financial and tax due diligence take in the UAE?
Three to six weeks for a typical SME. The range depends on the quality of the books, the number of years under review, how quickly the seller responds to document requests, and the number of branches and activities involved.
Does tax liability transfer to the buyer?
It transfers in a share purchase, because the taxable person remains the same company. It generally does not transfer in an asset purchase. Deal structure therefore determines the exposure, which makes structuring primarily a tax decision.
How does financial and tax due diligence differ from a statutory audit?
A statutory audit opines on the fair presentation of the statements as a whole within a set materiality threshold. Due diligence is built around the buyer's decision, covering earnings quality, contingent liabilities and tax exposure, and extends beyond the financial statements.
What if the seller refuses to provide documents?
Document every unanswered request. The gap is then handled in one of two ways: widening the contractual warranties to cover the item, or holding back part of the price in escrow until the tax limitation period expires.
Does the review include valuing the company?
The review supplies the inputs a valuation rests on: normalised earnings, net debt and normalised working capital. Valuation itself is a separate engagement using those inputs, delivered under our Business Valuation service.
Is due diligence necessary for free zone companies?
Yes. Free zone companies are within the scope of Corporate Tax, and relief applies only to qualifying income where Qualifying Free Zone Person conditions are met. The team tests whether those conditions genuinely hold, because losing them subjects all income to the 9% rate.
Related Services
- Business Valuation — valuing the company or the stake being acquired.
- Corporate Tax Compliance Review — testing the tax position for open years.
- VAT & Excise Compliance Review — reconciling VAT returns to the accounting records.
- External Audit Service — auditing the financial statements after completion.
- Insights — more UAE financial and tax guidance.
Contact Us
To start financial and tax due diligence on a target company, call Abdelhamid & Co in Sharjah on 00971065610040 or visit our contact page.
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