The UAE has established itself as a prominent centre for M&A on the global scale, fostering a unique economic and regulatory landscape conducive to the growth of both local and international enterprises. The appeal of the UAE as an M&A hub stems not only from its strategic geographical location, bridging eastern and western markets, but also from its robust economy, high degree of investment stability, and progressive corporate legislation. These factors combine to create an advantageous environment for cross-border transactions, drawing foreign investment and enabling the execution of intricate corporate strategies through M&A activities.
Options available for company registration: FEZs, offering foreign investors an array of benefits and preferences, and the mainland, affording companies access to a broader domestic market. These frameworks facilitate the establishment of various business ventures, including private M&A transactions, which have emerged as a pivotal strategic tool for numerous enterprises operating within the Emirates.
From a regulatory standpoint, the UAE provides clear and streamlined mechanisms for conducting M&A transactions. This includes standardized registration and licensing procedures, as well as the option to opt for foreign law to govern corporate agreements. Such flexibility establishes a solid foundation for safeguarding the rights and interests of involved parties, thereby fostering a conducive investment climate within the country.
Foundations of private M&A transactions in the UAE
Private M&A stand as the primary mechanism driving the advancement and development of businesses within the UAE. These transactions entail scenarios wherein one business entity transitions into the ownership of another, or where two entities amalgamate to form a new legal entity.
Distinguished by their confidentiality, bespoke negotiation dynamics, and adaptable asset valuation frameworks, private M&A transactions differ significantly from their public counterparts.
In the UAE context, such transactions often involve family-owned enterprises, privately-held companies, and entities situated within FEZs, seeking to augment or fortify their market presence through mergers or acquisitions.
Key facets characterising private M&A transactions in the UAE encompass:
- Confidentiality: unlike public transactions, private dealings afford the involved parties the ability to maintain strict confidentiality until the conclusion of the transaction.
- Flexibility in evaluation and structuring: private M&A transactions in the Emirates typically offer heightened flexibility in company valuation and transaction structuring, thus yielding advantages for both parties involved.
- Regulatory framework: private M&A transactions in the UAE adhere to local corporate legislation, alongside specific regulations pertinent to FEZs.
Comparison with public transactions
The distinctions between private and public M&A transactions in the UAE largely stem from variances in structure and regulatory requisites:
- Regulatory compliance and transparency: public transactions necessitate extensive documentation and disclosure, fostering a heightened level of transparency, whereas private transactions may entail lesser public disclosure.
- Shareholder impact: public transactions often entail the consideration of a broad spectrum of shareholders' interests, whereas private transactions predominantly involve interactions among a limited number of parties.
- Execution expediency: private transactions typically boast swifter closure timelines owing to reduced regulatory hurdles and approval processes.
Some aspects of M&A transactions regulation in the UAE
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Aspect |
Details |
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Legal framework |
The primary law is the Commercial Companies Law (CCL):
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Specific entities |
Certain entities wholly owned by the UAE federal or local government may operate under rules that deviate from those specified in the CCL. |
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Private JSCs |
Establishment involves compliance with additional ministerial regulations, in conjunction with the CCL. |
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Oversight authorities |
Mainland enterprises fall under the jurisdiction of the UAE Ministry of Economic Development and regional economic departments. |
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FZs |
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FZs' authorities |
DIFC and ADGM possess comprehensive regulatory powers, exempting them from the constraints of the CCL. |
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SEZs |
Each SEZ maintains its regulatory authority and distinct set of regulations, which may differ from those outlined in the CCL. |
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SPAs |
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Requirements for establishing a business in the Emirates
The UAE now is the premier ecosystem for startups and entrepreneurs, boasting significant inflows of capital. When juxtaposed with countries like France or other European counterparts, the Emirates exhibit a notable contrast in pace. The latter often exhibit elongated planning horizons spanning 5 to 10 years, contrasting with the dynamic nature of Ukrainian society.
Establishing a company in the UAE and securing a visa typically takes no more than one month. Notably, opening a bank account is mandatory during the company formation process.
Initial capital requirements in the Emirates average around $10K for company incorporation.
Tax implications
When evaluating the UAE's GDP by economic sector, the service industry, including IT services, accounts for 58% of the total. This stems from the favourable legislative and tax environment created for various industries, such as blockchain and the crypto sector, particularly in Dubai.
The UAE offers an advantageous tax regime:
- Zero taxation on corporate profits and personal income.
- Companies conducting business within the UAE are subject to a 5% VAT.
- Entities situated in the UAE but engaged in foreign trade are exempt from value-added tax.
- Consequently, businesses registered in Dubai benefit from tax-free operations.
Following recent geopolitical events, numerous companies have relocated their personnel, particularly within the crypto and IT sectors, to the UAE. Employees find the Emirates an attractive destination due to the absence of income tax deductions, resulting in higher net salaries. Moreover, the UAE serves as a prominent educational hub, hosting various IT conferences, offering networking opportunities and insights into industry developments.
Offshore company registrations have dwindled due to challenges in opening bank accounts. Free zone companies face scrutiny based on their activities, while local or mainland companies offer a more straightforward bank account setup process. The mainland structure is particularly conducive to IT enterprises, although some opt for free zone registration.
Noteworthy, the DMCC, popular for crypto and IT projects, and the DIFC, governed by English law, albeit at a higher registration cost exceeding $20K.
To diminish reliance on oil revenues, the UAE has prioritized the development of intellectual sectors, enticing foreign investment through robust data protection laws. Government initiatives in health, space, aviation, and cybersecurity necessitate skilled IT professionals.
Given the conducive business environment and global prospects in the IT sector, the UAE stands as an attractive destination for expanding existing businesses or initiating novel ventures.
Acquisition of “Shelf” companies in the UAE
Corporate service providers in the UAE and other jurisdictions occasionally propose the acquisition of pre-registered “shelf” companies, complete with the option of an accompanying bank account. While this proposition may appear enticing initially, it warrants meticulous scrutiny due to underlying complexities and potential risks.
At first glance, opting for a pre-existing company in the UAE may seem time-efficient, promising swift acquisition of requisite documentation. However, this assumption is often misleading.
We advocate for strict adherence to the nation's laws, mandating the lawful transfer of entity ownership. This transfer necessitates the preparation of a share transfer form and subsequent entry into the company register, a process inherently time-consuming. For instance, the average timeline for transferring ownership of an offshore company in the UAE ranges from one week to ten days, contrasting with the expedited registration process of a new offshore entity within 2-3 business days. Consequently, acquiring a pre-established company not only fails to expedite proceedings, but typically prolongs the process.
Nominee shareholder participation in offshore entities, ostensibly offering enhanced confidentiality or expediting ownership rights transfer, poses substantial risks. UAE legislation lacks provisions pertaining to nominee shareholders, treating registered shareholders as de facto owners. Consequently, nominee shareholders wield full rights over the company, depriving you of rightful ownership and control.
Exercise prudence when offered pre-existing offshore entities with established bank accounts in Dubai, UAE. International banking regulations stipulate requisite disclosure of ownership changes to the bank. Non-compliance incurs significant account risks, potentially resulting in asset freezing.
Furthermore, retaining original signatory rights to the account, while granting remote internet access, poses inherent vulnerabilities. Granting unmonitored access jeopardises financial security, enabling unauthorized fund withdrawals or account blocking, notwithstanding implicit trust in the service provider.
Purchasing a pre-existing offshore entity carries inherent risks of undisclosed prior business activities. Absent requisite accounting records obligations in the UAE, assessing historical activities is challenging, exposing you to unforeseen liabilities.
The financial outlay for acquiring a “shelf” company significantly exceeds that of registering a new entity. Clean-slate acquisitions command premium fees, negating cost efficiency.
Choosing a company name also merits consideration. Opting for a pre-registered entity imposes constraints on name selection, limiting options to available offerings.
In summation, for expedited and secure acquisition of an offshore company with a Dubai bank account, registering a new legal entity is unequivocally recommended. This transparent process affords comprehensive control and security over company and account assets.
Stages of a private M&A transaction in the UAE
The private M&A transaction process in the United Arab Emirates entails several pivotal stages, each demanding meticulous planning, analysis, and execution. Herein lies a comprehensive delineation of each stage:
In this inaugural phase, the company delineates its strategic and financial objectives, envisaged to be realised through an M&A transaction in the United Arab Emirates. Formulating a coherent strategy aids in defining criteria for selecting an apt target company, laying the groundwork for subsequent steps in the merger or acquisition process.
Following strategy formulation, the subsequent stride involves identifying and preliminarily evaluating potential target companies. Here, market analysis is conducted to pinpoint candidates aligning with established criteria, gauging their compatibility with strategic objectives and potential value addition.
This pivotal phase encompasses a preliminary assessment of the target company's financial health, business model, market positioning, and prospective risks. Subsequently, exhaustive due diligence ensues, affording a comprehensive understanding of all facets of the target company’s operations, encompassing:
- Legal due diligence, scrutinising legal risks and debt obligations of the target entity.
- Financial due diligence, scrutinising the financial standing and outlook of the target company.
- Commercial due diligence, appraising market positioning and expansion prospects.
At this juncture, a preliminary proposition for the target company is formulated and presented, heralding negotiations on the terms of concluding an M&A transaction in the UAE. Concurrently, financing sources for the transaction are delineated, encompassing internal funds, external borrowings, or securities issuance.
Resultant negotiations precipitate the preparation of foundational agreements, including:
- A preliminary agreement (letter of intent, LOI), stipulating core parameters of the impending transaction.
- A confidentiality agreement safeguarding the exchange of confidential information between parties.
- A final purchase agreement elucidating all transactional terms.
Following consensus on terms and financing arrangements, final agreements are formulated and executed, legally formalising the transaction. Subsequent payment is rendered, effectuating the transfer of ownership or control of the target company. Closing an M&A transaction in the UAE entails executing all agreements, amending commercial registers, and undertaking requisite legal procedures for transferring ownership rights.
Post-transaction formal closure, the integration phase commences, incorporating:
- Assimilating corporate cultures and workforces.
- Harmonising operational protocols and systems.
- Implementing strategic plans and attaining envisaged strategic objectives.
The cardinal objective of this phase is to realise agreement objectives by seamlessly amalgamating organisational capabilities and resources.
Document preparation for commencing an M&A transaction in the UAE
The meticulous preparation of documents is paramount in facilitating seamless M&A transactions, necessitating comprehensive attention from both the seller’s and buyer’s perspectives. Below delineates key documents required at various stages of the process:
- Letter of Intent (LOI): a preliminary document outlining the parties' intent to proceed with the transaction, delineating key terms and conditions.
- Memorandum of Understanding (MoU): an initial agreement outlining the parties' mutual understanding and commitment to negotiate exclusively for a specified period.
- Term Sheet: an agreement summarising the principal terms and conditions of the transaction, serving as a framework for subsequent negotiations.
- Contract of Sale: a legally binding agreement delineating the terms of the sale, including purchase price, payment terms, and conditions precedent.
- Shareholders Agreement: a comprehensive document outlining the rights, obligations, and governance structure of shareholders post-transaction.
- Option Agreements: agreements conferring the right, but not the obligation, to purchase or sell shares at a predetermined price within a specified period.
- Non-compete, Non-solicitation, and Non-disclosure Agreements: contracts prohibiting parties from engaging in competitive activities, soliciting employees or clients, and disclosing confidential information, respectively.
- Corporate Resolutions and Minutes: formal resolutions and minutes documenting key decisions and actions taken by the board of directors and shareholders throughout the transaction process.
- Disclosure Letter: a document affirming compliance with tax obligations and debt-free status, providing assurances to the buyer regarding the financial and legal standing of the target company.
Each document plays a crucial role in delineating the rights, obligations, and responsibilities of the parties involved, ensuring clarity and mitigating risks throughout the transaction lifecycle.
