A European technology group signs a term sheet to acquire a Dubai-based software company. The target operates under a free zone licence, holds contracts with two government-linked entities, and has a payroll of forty employees. Weeks into the process, the acquirer discovers that the target's principal operating licence was issued by a different authority than the holding entity. and that the share transfer requires written consent from that authority before any closing can proceed. The deal timeline extends by two months. Legal costs rise sharply. One government contract contains a change-of-control clause that had not been disclosed.
M&A due diligence in the UAE requires a structured review across corporate, regulatory, employment, and contractual records – conducted separately for each legal vehicle involved, whether mainland, free zone, or offshore. The applicable body of law differs depending on the jurisdiction of incorporation: onshore companies fall under UAE federal commercial legislation. While entities in financial free zones such as the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) operate under their own distinct regulatory systems. A thorough process typically spans four to ten weeks and concludes with findings that directly shape the representations and warranties in the share purchase agreement.
This guide sets out the procedural steps, documentary checklist, common errors made by foreign acquirers, and a decision framework for choosing the right approach depending on the target's structure and sector.
The UAE M&A regulatory setting: what foreign acquirers must understand first
The UAE does not operate as a single, unified legal environment for M&A purposes. Three distinct legal systems run in parallel, and the due diligence process must account for all of them if the target has presence in more than one.
Federal commercial legislation governs mainland companies registered with the Department of Economic Development (DED) or its emirate-level equivalents. Ownership changes in these entities require approval from the relevant licensing authority and, in many cases, a notification to or approval from the Ministry of Economy. Sector-specific regulators – covering financial services, healthcare, education, and energy – add further layers of approval.
Free zone entities are incorporated under the rules of their respective Free Zone Authority. There are more than forty active free zones across the UAE. Each maintains its own company registry, issues its own licences, and sets its own procedures for share transfers. There is no single registry that consolidates free zone corporate records. A foreign acquirer targeting a free zone company must request records directly from the relevant authority and verify whether that authority requires prior approval before a share transfer takes effect.
Financial free zones operate differently again. The DIFC Courts and the ADGM Courts maintain common-law judicial systems modelled on English law. Companies incorporated in these centres are governed by their own company legislation, dispute resolution rules, and insolvency regimes. For acquirers familiar with English common law transactions, DIFC and ADGM structures will feel more familiar procedurally – but they introduce their own compliance requirements that differ from both mainland and standard free zone rules.
Understanding which legal system governs the target is the first task in any UAE due diligence exercise. Misidentifying the applicable regime leads to wrong document requests, missed approvals, and closing conditions that cannot be satisfied on the intended timeline.
Step-by-step due diligence process and documentary checklist
A well-managed UAE due diligence exercise follows five sequential phases. Each phase has defined deliverables and triggers a go/no-go decision before the next phase begins.
Phase 1 – Corporate structure verification (weeks 1–2)
The process begins with confirming the legal structure of the target group. This means obtaining and verifying the certificate of incorporation, the current trade licence, the memorandum and articles of association, and the shareholder register. For mainland companies, the DED or relevant emirate authority holds the official register. For free zone companies, the applicable Free Zone Authority is the source of record.
Key documents to request at this phase include:
- Certificate of incorporation and any amendments
- Current trade or commercial licence, with activity list
- Memorandum and articles of association, including all amendments
- Shareholder register and share certificates
- Board resolutions and general assembly minutes for the past three years
A common error at this stage is accepting copies provided by the seller without independent verification from the issuing authority. Trade licences in the UAE have annual renewal cycles. An expired licence is a material issue – it can render the company's contracts voidable and expose the acquirer to regulatory liability from day one of ownership.
Phase 2 – Ownership and foreign investment compliance (weeks 2–3)
UAE commercial legislation has undergone significant change in recent years regarding foreign ownership. The federal body of law now permits full foreign ownership across a broad range of activities. However, a defined list of sectors retains minimum local ownership requirements. The due diligence exercise must confirm the target's licensed activity against the current permitted list and verify whether any existing shareholder arrangement reflects pre-amendment structures that may now be reorganised. or that may carry legacy compliance obligations.
Where a nominee or agency arrangement was used to satisfy previous ownership requirements, the legal status of that arrangement under current law must be assessed. Undisclosed side agreements affecting beneficial ownership are one of the most frequently encountered issues in UAE M&A transactions and one of the hardest to price without full disclosure.
For our detailed analysis of the regulatory conditions applicable to foreign-owned businesses across the UAE, including sector restrictions and licensing requirements, see our overview of corporate law services in the UAE.
Phase 3 – Contractual and commercial review (weeks 2–4)
This phase covers the target's material contracts, including customer agreements, supplier contracts, government concessions, and any joint venture or partnership arrangements. The focus is on two categories of risk: change-of-control provisions and government-contract conditions.
Change-of-control clauses are prevalent in UAE commercial contracts, particularly where one party is a government-linked entity or a regulated financial institution. These clauses may permit the counterparty to terminate or renegotiate on a change of ownership. Identifying them early allows the acquirer to seek counterparty consent as a closing condition in the share purchase agreement (SPA), rather than discovering post-closing that key contracts have lapsed.
Government contracts – including those with Abu Dhabi Global Market-regulated entities or federal authorities – frequently contain specific assignment and change-of-control restrictions that go beyond standard commercial practice. Failing to identify these during due diligence is among the costlier errors a foreign acquirer can make in the UAE context.
Phase 4 – Employment and visa records (weeks 3–5)
UAE employment legislation imposes specific obligations on employers regarding visa sponsorship, end-of-service gratuity, and Emiratisation quotas in certain sectors. In an M&A context, the acquirer effectively assumes all existing employment obligations upon completion. The due diligence exercise must therefore confirm the number of employees, their visa categories, the accuracy of end-of-service gratuity calculations, and any open labour complaints or tribunal proceedings.
A particular risk arises where employee records are held under a different legal entity than the one being acquired. This structure – sometimes used for operational flexibility – can leave the acquirer holding a company whose workforce is technically employed by a related entity not included in the transaction perimeter. Confirming the legal employer for each employee is a non-negotiable step.
To receive an expert assessment of employment and regulatory compliance risks in a UAE target, contact us at info@ferrazwhitmore.com.
Phase 5 – Litigation, regulatory notices, and financial records (weeks 4–6)
The final phase covers pending or threatened litigation, regulatory investigations, tax positions, and financial statement accuracy. Litigation searches in the UAE require searches across the relevant court system. DIFC Courts, ADGM Courts. Alternatively. The relevant emirate civil courts. depending on the target's jurisdiction of incorporation and the governing law of its contracts.
The UAE does not currently operate a publicly searchable, centralised litigation register comparable to those in some common-law jurisdictions. Practitioners in the region rely on formal searches and seller representations, which makes the quality of the representations and warranties in the SPA – and any indemnity structure behind them – particularly significant. Warranty and indemnity insurance is increasingly used in UAE transactions to bridge the gap where seller balance-sheet cover is limited.
Financial due diligence should confirm whether the target is subject to UAE corporate tax legislation, which now applies to most businesses. The applicable tax legislation took effect for financial years starting from mid-2023. Acquirers should verify the target's registration status, filing history, and any outstanding assessments.
Common errors by foreign acquirers – and their consequences
Experience in UAE cross-border transactions identifies several recurring mistakes that foreign buyers make during due diligence. Each carries a specific cost.
Treating the UAE as a single jurisdiction. A foreign acquirer familiar with EU or US transactions often approaches the UAE as a single regulatory environment. In practice, a target with entities in a mainland DED-registered company, a free zone subsidiary, and a DIFC holding structure requires three separate streams of due diligence. Merging them into one review misses jurisdiction-specific approval requirements and produces an incomplete risk picture.
Relying on seller-provided documents without independent verification. Trade licences, shareholder registers, and regulatory approvals in the UAE can all be verified through the issuing authority. Relying solely on seller-provided copies – without confirming currency and authenticity – has resulted in acquirers completing transactions on the basis of documents that were either outdated or, in rarer cases, inaccurate. Independent verification adds days to the process but eliminates a material category of risk.
Underestimating the free zone approval timeline. Where the target is a free zone company, most Free Zone Authorities require formal approval of the share transfer before it is registered. This approval process typically takes two to four weeks. Where it is not factored into the SPA's closing conditions timeline, acquirers find themselves bound to a closing date they cannot meet, with contractual consequences.
Missing the beneficial ownership register. UAE corporate legislation now requires companies to maintain and file a beneficial ownership register. Non-compliance is a regulatory offence. Discovering post-closing that the target was non-compliant creates an immediate remediation obligation for the new owner and may expose the acquirer to regulatory scrutiny.
Overlooking Emiratisation obligations. For targets operating in certain sectors, UAE employment legislation requires a minimum proportion of UAE national employees. Failure to meet the applicable quota triggers financial penalties. Due diligence should confirm whether the target meets its current quota obligations and whether any penalty exposure is outstanding.
Our M&A practice covers the full transaction cycle in the UAE and across the Gulf region. For a tailored strategy on due diligence and transaction structuring for your acquisition, reach out to us at our UAE M&A practice page or contact info@ferrazwhitmore.com.
Structuring the SPA: closing conditions, representations, and risk allocation
Due diligence findings directly inform the structure of the share purchase agreement. In UAE transactions, the SPA must address several jurisdiction-specific issues that differ from standard European or US deal documents.
Closing conditions specific to the UAE. The SPA's closing conditions should include, at minimum: receipt of all required regulatory approvals (Free Zone Authority, Ministry of Economy. Alternatively. Sector regulator as applicable). confirmation that all trade licences are current and renewed. and counterparty consents for any material contract containing a change-of-control clause. Where government contracts are involved, obtaining formal consent – rather than a deemed waiver – is strongly advisable.
Representations and warranties tailored to UAE-specific risks. Standard international SPA warranty packages often do not address UAE-specific risks adequately. Warranties should specifically cover: the accuracy of the beneficial ownership register. compliance with Emiratisation obligations. the absence of undisclosed nominee or agency arrangements. the validity of all free zone or mainland licences. and compliance with corporate tax legislation obligations.
Governing law and dispute resolution. UAE onshore transactions may be subject to UAE federal civil and commercial legislation, with disputes referred to local courts unless the parties have agreed otherwise. Where the transaction is structured through a DIFC or ADGM holding entity, English common law applies and disputes may be referred to the DIFC Courts or ADGM Courts respectively. Practitioners in the region note that DIFC Courts and ADGM Courts provide enforcement mechanisms and procedural clarity that many international acquirers prefer. The choice of governing law and dispute resolution forum should be deliberate – not a default.
Escrow and indemnity structures. Where due diligence reveals specific identified risks. such as an open tax assessment or an unresolved labour complaint – the SPA should provide for an escrow retention or a specific indemnity. The quantum of any escrow should reflect the estimated maximum liability. Warranty and indemnity insurance has become more accessible in the UAE market and can be used to provide the seller with a clean exit while giving the buyer balance-sheet protection.
For a comparative perspective on how similar due diligence and SPA structuring considerations apply in another major Asian financial hub, see our guide on M&A due diligence in Singapore.
Self-assessment checklist before proceeding
This due diligence process in the UAE is well-suited to your transaction if the following conditions are met:
- The target's jurisdiction of incorporation has been confirmed and the applicable regulatory system identified
- A data room request list has been issued covering corporate, contractual, employment, and financial records
- Independent verification of trade licences and shareholder registers from the issuing authority has been scheduled
- Change-of-control provisions in material contracts have been identified and counterparty consent strategy agreed
- The SPA closing conditions reflect all required regulatory approvals and their realistic timelines
Before proceeding to signing, verify that each of the following has been addressed:
- Beneficial ownership register is complete, accurate, and filed with the relevant authority
- All trade licences are current and due for renewal within the post-closing period
- End-of-service gratuity calculations for all employees have been independently reviewed
- Corporate tax registration status and filing compliance confirmed under applicable tax legislation
- Governing law and dispute resolution forum in the SPA are deliberate choices, not defaults
If any item on the second list cannot be confirmed before signing, the corresponding risk should be addressed in the SPA through a specific closing condition, warranty, indemnity, or escrow arrangement.
Frequently asked questions
Q: How long does M&A due diligence typically take in the UAE?
A: A standard due diligence process for a mid-market UAE target takes between four and ten weeks. Free zone targets where records are centralised tend to fall at the shorter end. Onshore targets with multiple licensing authorities and real estate holdings typically require closer to ten weeks. Compressed timelines increase the risk of missing material issues in regulatory or employment records.
Q: Can a foreign acquirer own 100% of a UAE mainland company?
A: UAE commercial legislation now permits full foreign ownership of most mainland companies, following amendments to the commercial companies body of law. However, certain strategically sensitive sectors retain minimum local ownership requirements. Due diligence must confirm the target's licensed activity against the current permitted-ownership list maintained by the relevant licensing authority.
Q: What is the biggest misconception foreign buyers have about UAE due diligence?
A: Many foreign acquirers assume that a UAE free zone company operates under a single, unified regulatory system comparable to an EU jurisdiction. In practice, each free zone authority maintains its own company registry, licensing regime, and transfer-of-shares procedures. A share purchase agreement drafted without addressing the specific free zone's consent and approval requirements can result in a transfer that is valid contractually but unenforceable at the registry level.
About Ferraz & Whitmore
Ferraz & Whitmore is an international law firm based in Lisbon, advising clients on M&A transactions and cross-border due diligence across 46 jurisdictions, including the UAE, the wider Gulf region, and major Asian financial centres. Engaging a lawyer in the UAE with structured transaction experience reduces the risk of the documentation gaps and missed approvals that most commonly delay closings in this market. Our team combines Portuguese civil law expertise with English common law tradition – giving us direct fluency with both the DIFC Courts and ADGM common-law systems and the civil-law structures that govern mainland UAE entities. As an international law firm advising clients on UAE transactions, Ferraz & Whitmore brings practitioners with experience across Free Zone Authority approvals, Ministry of Economy filings, and SPA structuring under UAE commercial legislation. The firm's M&A practice covers the full transaction cycle: due diligence, SPA negotiation, regulatory approval, and post-closing integration support. To discuss your acquisition target in the UAE or the Gulf region, contact us at info@ferrazwhitmore.com.
Disclaimer: This publication is provided for informational purposes only and does not constitute legal advice. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Ferraz & Whitmore assumes no liability for actions taken or not taken based on the contents of this material. For advice regarding your particular situation, please contact info@ferrazwhitmore.com.