Mergers, Acquisitions, and Corporate Tax in UAE: The Importance of Due Diligence with Tax Consultants
Corporate tax in UAE is a key regulatory consideration that affects an organisation’s financial obligations, operational structure, and long-term viability. With the UAE implementing a federal corporate tax regime applicable to business profits from June 2023 onwards, the due diligence process has assumed greater significance in the context of mergers, acquisitions, and business restructuring.
What is Due Diligence?
Due diligence is a process of structured research and analysis conducted prior to an acquisition, investment, joint venture, partnership, or funding arrangement. The objective is to determine the actual value of the target entity, assess associated risks including tax-related exposures and verify material facts relevant to the transaction. The insights gathered are compiled into a due diligence report, which becomes a critical input in commercial decision-making.
The Role of Due Diligence in the UAE
From a corporate tax in UAE perspective, due diligence plays a vital role in identifying current and potential tax liabilities, ensuring compliance with Federal Tax Authority (FTA) regulations, and uncovering tax planning opportunities that may impact transaction structuring. Whether on the buy-side or the sell-side, businesses must now account for UAE’s evolving tax obligations as part of their pre-deal risk assessment and valuation models.
Transactions That Require Due Diligence
Due diligence is essential in a wide range of corporate transactions, including:
- Mergers and Acquisitions: Buyers assess the target’s financials, legal standing, tax compliance, and operational stability, while sellers evaluate the buyer’s ability to complete the transaction and meet financial commitments.
- Strategic Partnerships and Alliances: A thorough due diligence process helps evaluate the commercial viability and tax obligations of the partner entity under UAE corporate tax regulations.
- Joint Ventures and Collaborations: Understanding the other entity’s financial and operational background—including any tax exposures—is critical to successful collaboration.
- Public Offerings: Companies preparing for an IPO must comply with extensive disclosure norms, including transparency around their corporate tax position in the UAE.
Key Areas of Focus in Tax Due Diligence
In the context of the corporate tax in UAE, a well-executed due diligence report typically includes an analysis of the following:
- Tax Compliance Status: Reviewing whether the company has registered for corporate tax in UAE, filed returns, and met all relevant obligations under the UAE Corporate Tax Law.
- Historical Tax Filings and Assessments: Identifying any prior assessments, penalties, or pending disputes with the FTA.
- Transfer Pricing Exposure: With transfer pricing rules now applicable in the UAE, intercompany transactions are closely scrutinised for compliance.
- Deferred Tax and Provisions: Assessing the treatment of tax-related provisions and deferred tax assets or liabilities on the balance sheet.
- Successor Liability Risks: In share acquisitions, the buyer may inherit historical tax liabilities. This requires an in-depth examination of the target’s tax position.
Why Engage Tax Consultants?
Engaging professional tax consultants is critical to ensuring a well-rounded due diligence process. Specialists in corporate tax in UAE bring:
- Local Regulatory Expertise: Deep understanding of UAE’s tax regime, including recent updates, exemptions, and compliance requirements.
- Transaction Structuring Advice: Insights into how to structure deals for optimal tax efficiency, particularly in cross-border scenarios.
- Risk Identification and Mitigation: Clear identification of tax risks and support in developing mitigation strategies pre- and post-transaction.
- Seller-Side Support: For companies looking to divest or raise capital, proactive tax due diligence can help identify and resolve red flags before buyers enter the picture.
The introduction of corporate tax in UAE has added a new dimension to the due diligence process for M&A and other corporate transactions. At Bizilance Consultants, we combine strategic insight with deep technical knowledge of corporate tax in UAE to support clients through every stage of their transaction. Our tailored due diligence services help mitigate tax risk and enhance value creation across all deal types.
