Financial Due Diligence in UAE: A Complete Guide for Investors and Acquirers

At Daxin Global UAE, we define Financial Due Diligence (FDD) as the bridge between an offer and a successful closing. In 2026, that bridge matters more than ever because the UAE’s tax environment is now operationally stricter: Corporate Tax is a normal part of valuation math, and VAT + Tax Procedures amendments effective 1 January 2026 sharpen how refunds, audits, and procedural compliance play out in real disputes.

If you’re asking what is due diligence process in the UAE today, the honest answer is: it’s not just verifying historical numbers. It’s testing whether the business has surviving exposures—tax, working capital, and compliance liabilities—that can show up after closing and quietly drain returns.

You’ll also hear buyers talk about technical due diligence (tech stack, cybersecurity, IP, product architecture). That matters too—but it’s different. This guide focuses on Financial Due Diligence and how it connects to price, risk, and SPA protections.

Navigating the UAE Investment Landscape: Why FDD is Different Here

The UAE is a high-opportunity market, but it’s not a “copy-paste” diligence environment. Deals often involve multi-entity structures, Free Zone nuance, and compliance rules that work differently in practice than they do on paper. That’s why experienced M&A Advisory Dubai teams treat UAE diligence as a specialist discipline—not a generic checklist.

The Complexity of Multi-Jurisdictional Entities (Mainland vs. Free Zone)

Many targets aren’t a single company—they’re a group built for licensing, banking, contracting, and operational convenience. One business might include:

• A Mainland LLC for local contracting

   

• A DMCC entity for trading and invoicing

   

• A DIFC or ADGM holding structure for investment and governance

   

On paper, that looks tidy. In diligence, it often isn’t.

Here’s where buyers get surprised:

• Licensing and activity mismatch: Revenue sometimes sits in an entity that isn’t actually licensed for that activity (or is licensed, but with conditions).

   

• Free Zone vs Mainland revenue segmentation: Free Zone tax positioning depends on what income is earned and with whom. The operational reality (customers, contracts, delivery location) has to match the tax story.

   

• Intercompany flows that don’t behave like intercompany flows: Management fees, staff recharge, shared offices, and “rent” payments can be genuine—or just profit extraction.

   

• Free Zone substance expectations: If the Free Zone entity is supposed to benefit from preferential treatment, its Free Zone Substance needs to be credible (people, premises, decision-making, and records), not cosmetic.

   

• UBO/AML consistency across entities: Discrepancies across registers and KYC files can become a regulatory headache or delay approvals during a transaction.

   

A simple way to think about it: the more entities, the more “edges” where liability can hide. FDD’s job is to map those edges before you inherit them.

Impact of the 9% UAE Corporate Tax on Valuations

The UAE Corporate Tax framework (standard 9%) applies for financial years beginning on/after 1 June 2023, which means most acquisitions today include at least one full tax period in scope. That changes the valuation conversation in three practical ways:

1. Cash flow is now meaningfully “post-tax.”
   Buyers have to model effective tax rates, not assume a near-zero tax environment.

    

2. Compliance quality affects price, not just risk.
   A business with weak documentation, unclear positions, or inconsistent filings is harder to underwrite—so the deal either gets discounted or heavily protected via SPA clauses.

    

3. Free Zone positioning can’t be assumed.
   Free Zone outcomes are conditional. If the target’s facts don’t support the tax position, the buyer’s model can be wrong from day one.

    

Daxin Insights: How “Hidden” Tax Risk Can Follow the Deal

Here’s the deal reality: many tax and compliance exposures do not sit neatly on the balance sheet. They exist as contingent liabilities—and without the right SPA protections, they can become the buyer’s problem after closing.

• Refund timing is now more unforgiving. With VAT amendments effective 1 January 2026, businesses need to treat refund and credit management like a cash discipline. If a target carries large historic VAT credits, diligence should test whether the credits are valid, supported, and still recoverable under applicable time limits.

   

• Audit and assessment risk is procedural, not just technical. The Tax Procedures Law amendments expand the FTA’s ability to act beyond standard limitation periods in specific cases (for example, scenarios tied to refund requests submitted late in a limitation window). That’s exactly why procedural compliance and documentation quality matter in 2026-era diligence.

   

• The SPA is where you “lock in” diligence value. If you identify a credible risk—say, a weak position, missing evidence, or a disputed exposure—you translate it into tax-specific indemnities, escrow/holdbacks, longer survival periods, or a clear net debt adjustment.

   

This is why Daxin’s UAE Tax Due Diligence doesn’t stop at findings—we convert findings into protections.

The Daxin Global Approach: Key Pillars of Financial Due Diligence

Daxin doesn’t just “check” numbers; we “interrogate” them. Our Transaction Advisory – Daxin Global UAE approach is built to answer one core buyer question:

What earnings are real, repeatable, and transferable—after tax, after normalization, and after the deal terms are applied?

Quality of Earnings (QoE) – Identifying Sustainable Cash Flow

Quality of Earnings (QoE) is where deals are won or overpaid. In simple terms: QoE tells you whether reported profit reflects sustainable operating performance—or whether it’s inflated by timing, one-offs, or owner behavior.

In the UAE, QoE work commonly includes:

• EBITDA adjustments for items that look “business” but behave like “owner”
  Examples: personal vehicle leases, family payroll, related-party rent above market, offshore “management fees” without support.

   

• Revenue recognition reality checks
  Especially in contracting, trading, and project businesses—does revenue follow performance obligations, or billing convenience?

   

• Customer concentration and contract risk
  If one customer is 20–40% of revenue, you stress-test what happens if pricing, volume, or payment terms change.

   

• Related party income quality
  Intercompany revenue might be real—or it might disappear the moment ownership changes.

   

A human way to put it: we look for earnings that survive daylight.

Quality of Assets & Net Debt Analysis

Buyers don’t buy revenue—they buy cash generation plus assets that convert to cash. That’s why we test both asset quality and Net Debt like a deal model, not like an audit file.

Common UAE deal focus areas include:

• Receivables: aging by customer type, dispute history, and collection patterns

   

• Inventory: obsolescence, valuation method, and count integrity

   

• Debt-like items that often get missed in SMEs:

   

  • Under-accrued employee obligations

     

  • Tax exposures and penalty risk

     

  • “Hidden financing” via related parties

     

• IFRS 16: verifying lease liabilities against actual contracts
  Lease accounting can materially change leverage and net debt—especially in retail, logistics, and multi-site businesses.

   

This is also where FTA Compliance shows up financially: if documentation and filing practices are weak, you don’t just have a compliance issue—you have a valuation risk.

Working Capital Analysis: Finding the ‘Peg’ for the SPA

Most buyers underestimate how often working capital becomes the real fight.

The Net Working Capital (NWC) Peg is the agreed “normal” level of working capital that the business must deliver at closing. If the target delivers less, the buyer pays less (or gets a post-closing true-up). If it delivers more, the seller is compensated.

In UAE deals, a good NWC analysis usually includes:

• Seasonality (Ramadan/Eid, tourism cycles, year-end procurement, tender patterns)

   

• Normalization over at least 24 months (not just trailing 12)

   

• Alignment on policies (inventory valuation, provisions, revenue cut-off)

   

• Clear definitions that match real operations

   

Then we translate it into the Share Purchase Agreement (SPA) mechanism—because the peg only matters if the SPA calculation is unambiguous.

Crucial UAE Compliance Checks (The Daxin Checklist)

This is what we will do for you—evidence-tested procedures designed to surface deal-breaking exposures early and convert them into price adjustments or SPA protections.

1. FTA Tax Health Check: VAT and Corporate Tax audit history.
   We review filings, correspondence, assessments, refund positions, and dispute history. In 2026, we pay extra attention to refund and procedural rules tightened by the VAT and Tax Procedures amendments effective 1 January 2026, because “recoverable” tax on paper can become unrecoverable cash in practice if the file quality is weak.

    

2. Labor Law & Gratuity: Calculating the true “End of Service” liability (often underestimated in the UAE).
   We calculate the economic liability—not the “we’ll pay it later” assumption. Under-accrual is common, and it directly impacts Net Debt and purchase price.

    

3. AML & UBO Compliance: Ensuring the target meets UAE’s strict anti-money laundering standards.
   We test KYC completeness, UBO consistency, and onboarding processes (especially for high-risk customer segments). Compliance gaps can delay deal timelines, banking continuity, or licensing steps.

    

4. Related Party Transactions: Scrutinizing “owner expenses” disguised as business costs.
   We identify and normalize these in QoE, then ensure the SPA protects you from post-closing leakage via related parties.

Beyond the Report: How Daxin Global UAE Adds Value to Your Deal

A report is useful. A report that changes your deal outcomes is better. That’s why Daxin stays involved after delivery—especially where the buyer needs help turning findings into action.

Structuring the Share Purchase Agreement (SPA) Financial Clauses

This is where the diligence work becomes deal protection.

Working alongside counsel and your Tax Advisory – Daxin Global UAE team, we help structure:

• Purchase price mechanisms (locked box vs completion accounts)

   

• Definitions of Net Debt, including debt-like items and IFRS 16 impacts

   

• NWC Peg and true-up mechanics (calculation, timeline, dispute resolution)

   

• Tax covenants and cooperation obligations for future audits tied to pre-closing periods

   

• Specific indemnities and escrow/holdbacks where risks are known and quantifiable

   

If you want one practical takeaway: findings that aren’t translated into SPA language are discounted value.

Post-Merger Integration (PMI) Readiness

Even good deals get damaged by messy integration. PMI readiness is about preventing “day-two surprises.”

We support:

• Day-1 finance controls (approvals, treasury, reporting cadence)

   

• IFRS alignment (policies, chart of accounts, close process)

   

• Tax registrations and a compliance calendar (so deadlines don’t get missed)

   

• Banking continuity and mandate changes

   

• ERP and reporting integration

   

This is a key differentiator versus report-only competitors—and it’s why clients engage Daxin for end-to-end Transaction Advisory Services Abu Dhabi and beyond.

Audit vs. Due Diligence: Understanding the Critical Difference