The UAE-specific findings
Standard financial diligence applies here as anywhere: quality of earnings, working capital, debt-like items, customer concentration. What is different in this market is the tax layer, because three regimes arrived in quick succession and a great many businesses did not keep up with all three.
The findings we see most often in UAE targets are not clever accounting. They are a group company that was never registered for corporate tax. A VAT classification error repeated across four years. An end-of-service liability that appears nowhere on the balance sheet. Related party transactions with no agreements behind them. A free zone company whose QFZP status will not survive examination.
Each of those follows the entity, which means they become the buyer’s problem on completion unless they are found and priced beforehand.
Who this is for
Buyers acquiring a UAE business, whether a full acquisition or a stake. Investors taking a minority position and wanting to understand what they are joining. Sellers preparing for a sale, who benefit considerably from finding the problems before the buyer does.
Also partners buying each other out, where the absence of an arm’s-length process makes an independent view more rather than less important, and lenders assessing a facility against a business rather than against a security.
What the work involves
How we run it:
- Quality of earnings. Normalise reported profit for one-offs, owner remuneration above or below market, related party pricing, and accounting policy choices that flatter the result.
- Working capital analysis. Establish the normal level, the seasonality, and what the business actually needs to run — which is the number that drives the completion mechanism.
- Debt and debt-like items. Borrowings, leases, unpaid gratuity, deferred consideration, tax liabilities and anything else that behaves like debt whether or not it is described as such.
- Tax diligence. Registration status across every entity, filing history, historic VAT exposure, corporate tax position, transfer pricing documentation, and free zone status where relevant.
- Revenue analysis. Concentration, contract terms, renewal profile, and whether the revenue is genuinely recurring or simply repeated.
- Cost base review. What is fixed, what is variable, what depends on the seller personally.
- Balance sheet verification, particularly receivables recoverability, stock condition and provisions.
- Report findings with their transaction consequence — price adjustment, warranty, indemnity, or a condition precedent.
What we find in UAE targets
The pattern is consistent enough to work through as a checklist, and most of it is invisible on the face of the accounts:
- Unregistered group entities — a dormant or holding company nobody registered for corporate tax, with a penalty per entity
- Historic VAT exposure — a classification error repeated over several years, which follows the entity
- Unprovided end-of-service liability — gratuity accruing since inception and appearing nowhere on the balance sheet
- Owner remuneration well off market — in either direction, materially distorting reported profit
- Related party transactions with no agreements — both a tax exposure and a question about what happens post-completion
- Free zone status that will not survive examination — usually de minimis breached, or substance that exists on paper only
- Receivables long overdue and unprovided, particularly in construction and contracting
None of these are exotic. All of them are cheaper to find during diligence than after completion, which is the entire argument for the exercise.
Sell-side diligence is usually worth more
Sellers commission diligence far less often than buyers, which is the wrong way round given who bears the cost of a late finding.
A problem found by the buyer during diligence is a price adjustment, a retention, or in a bad case a reason to walk. The same problem found by the seller three months earlier is something that can be fixed, or at minimum disclosed on the seller’s own terms with a remediation plan attached.
The economics are straightforward: an unregistered entity fixed before a process costs a registration fee and a penalty. Found during diligence, it costs that plus whatever discount the buyer attaches to the discovery that the seller did not know what they owned.
What goes wrong
These are the failures we are brought in to correct, in rough order of frequency:
- Relying on audited accounts alone. An audit opinion addresses true and fair presentation, not sustainability of earnings or hidden tax exposure.
- Skipping tax diligence in the UAE, where the regimes are new enough that gaps are common and follow the entity.
- Ignoring end-of-service liability, which in a business with long-serving staff is a material balance sheet item that frequently is not there.
- Taking reported EBITDA at face value without normalising owner remuneration and related party pricing.
- Diligence without a working capital analysis, leaving the completion mechanism to be argued after the price is agreed.
- Sellers going to market without preparing, and letting the buyer find the problems first.
The timing
Buy-side, after heads of terms and before exclusivity expires, with enough time for findings to be reflected in the agreement rather than raised at signing.
Sell-side, three to six months before going to market — long enough for anything found to be fixed rather than merely disclosed. Registering a missed entity, correcting a VAT position through voluntary disclosure, or documenting related party arrangements all take time, and all of them are cheaper as preparation than as a negotiation point.
Deliverables
- A due diligence report with findings and their transaction consequence
- Quality of earnings analysis with normalisation adjustments explained
- Working capital analysis, including the normal level for the completion mechanism
- Debt and debt-like items schedule
- Tax exposure assessment across all entities
- Recommended price adjustments, warranties, indemnities and conditions
What we need from you
Nothing exotic, and most of it you already have:
- Financial statements for the last three years, audited where available
- Management accounts to the most recent month
- Trial balance and general ledger for the period under review
- Tax registrations and filing history for every entity in the structure
- Details of related party transactions and balances
- Employment contracts and the gratuity position
- Customer and supplier contracts, particularly the largest
- Group structure, licences and constitutional documents
What it costs
Fixed fee, scoped on the size and complexity of the target and the depth required. A single-entity business with three years of audited accounts is a contained exercise; a group with several licences, a free zone entity and no tax documentation is a larger one.
We scope after an initial call about the target and the transaction, because the right depth depends on deal size and on what the buyer is actually protecting against. Diligence disproportionate to the transaction helps nobody.
Related
Frequently Asked Questions
What does financial due diligence cover?
Quality of earnings, working capital, debt and debt-like items, revenue analysis, cost base, and balance sheet verification — plus, in the UAE, tax diligence across every entity, because registration gaps and historic VAT exposure follow the entity to the buyer.
Is due diligence necessary if the accounts are audited?
Yes. An audit opinion addresses whether the financial statements give a true and fair view. It does not address whether earnings are sustainable, what working capital the business needs, or whether a group company was never registered for corporate tax.
What do you find most often in UAE targets?
Unregistered group entities, historic VAT classification errors repeated over years, unprovided end-of-service liability, owner remuneration well off market, related party transactions with no agreements, and free zone status that would not survive examination.
Should sellers commission diligence too?
It is usually the better economics. A problem found by the buyer is a price adjustment or a retention; the same problem found three months earlier can be fixed, or disclosed on your own terms with a remediation plan attached.
When should diligence happen?
Buy-side, after heads of terms and with enough time left for findings to be reflected in the agreement rather than raised at signing. Sell-side, three to six months before going to market, so anything found can actually be remediated.
How long does it take?
Two to four weeks for a straightforward single-entity target with reasonable records. Longer where there are multiple entities, no tax documentation, or records that have to be reconstructed before they can be analysed.
Can you also value the business?
Yes, though they are separate exercises with different purposes. Diligence tells you what you are buying; valuation tells you what it is worth. Findings from the first frequently change the second, which is why the sequencing matters.
Tell us about the target and the transaction. Scope should follow deal size — diligence disproportionate to the deal helps nobody.
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Last reviewed 27 July 2026. Rates, thresholds and deadlines change — the e-invoicing provider deadline has already moved once. Confirm current requirements with the Federal Tax Authority before acting, or ask us to check your position.