Acquiring a UAE Company: A Legal Framework for Foreign Investors

Introduction

The UAE has firmly established itself as one of the world's most attractive destinations for foreign direct investment. Backed by a progressive regulatory environment, strategic geographic positioning, and a series of landmark legislative reforms, the country now offers foreign investors a level of market access that was largely unavailable a decade ago.

The liberalisation of foreign ownership rules under Federal Decree-Law No. 32 of 2021 on Commercial Companies (the "Companies Law"), alongside the introduction of a competitive corporate tax regime under Federal Decree-Law No. 47 of 2022, has fundamentally reshaped the M&A landscape. For a foreign investor seeking to acquire a UAE-based business, however, the process is far from uniform.

The UAE operates a dual-track legal architecture: companies may be established either on the Mainland, governed by UAE federal laws, or within one of the country's many Free Zones, each operating under its own distinct legal framework. Understanding this distinction — and its consequences for deal structuring, due diligence, and regulatory approvals — is fundamental to any successful acquisition.

The Legal and Regulatory Framework

M&A transactions in the UAE are primarily governed by the Companies Law, which came into force on 2 January 2022 and replaced the previous Federal Law No. 2 of 2015. The law introduced significant structural reforms, including the formal recognition of Holding Companies and Special Purpose Vehicles (SPVs), enhanced corporate governance standards, and critically, the codification of 100% foreign ownership for most Mainland commercial activities.

Beyond the Companies Law, a transaction may also trigger obligations under Federal Decree-Law No. 36 of 2023 on Competition Regulations, which introduced a mandatory pre-closing merger control regime effective from 31 March 2025. Under Cabinet Resolution No. 3 of 2025, a filing with the Ministry of Economy is required at least 90 days before closing where the parties' combined annual turnover in the relevant UAE market exceeds AED 300 million, or where their combined market share exceeds 40% of the relevant market. Failure to file can expose parties to fines of between 2% and 10% of annual relevant sales — a significant and often overlooked risk in cross-border deals.

Sector-specific approvals may also be required. Acquisitions involving financial services firms require prior approval from the Central Bank of the UAE (CBUAE), the Dubai Financial Services Authority (DFSA), or the Financial Services Regulatory Authority (FSRA), depending on where the target is licensed. The Healthcare, Legal, Telecoms, Media, and Defence sectors each carry their own regulatory gatekeepers and, in some cases, residual foreign ownership restrictions.

Mainland vs. Free Zone: A Critical Distinction

The most consequential threshold question in any UAE acquisition is whether the target is a Mainland entity or a Free Zone entity. The answer determines governing law, share transfer mechanics, regulatory approvals required, and the commercial rights the acquired company may exercise within the UAE.

Mainland Companies

The UAE Mainland recognises several distinct legal structures under the Companies Law. The most prevalent is the Limited Liability Company (LLC), which is the vehicle of choice for most commercial operations due to its operational flexibility and relatively straightforward incorporation requirements. For holding and investment purposes, the Law formally recognises Holding Companies and Special Purpose Vehicles (SPVs), offering structural flexibility for investors looking to organise ownership across multiple subsidiaries or ring-fence specific assets. The Mainland also provides for Private Joint Stock Companies (PrJSCs) and Public Joint Stock Companies (PJSCs), the latter being listed on the UAE's public exchanges and subject to the additional oversight of the Securities and Commodities Authority (SCA), including its tender offer rules in the context of an acquisition.

Mainland companies are regulated by the relevant Emirate-level Department of Economic Development (DED). The 100% foreign ownership reform applies to most commercial activities, though investors must verify the specific activity of the target against the permitted lists published by the Abu Dhabi Department of Economic Development and Dubai's Department of Economy and Tourism respectively.

Transferring shares in a Mainland LLC requires a formal Arabic-language Share Transfer Agreement, which must be notarised before a UAE notary public. Where the agreement is bilingual, it must be attested by a sworn legal translator. Crucially, Article 79(1) of the Companies Law preserves statutory pre-emption rights for remaining shareholders, which must be validly waived before any transfer can be effected. The concerned DED will then update the trade licence and commercial register to reflect the new ownership.

Free Zone Companies

The UAE hosts over 40 Free Zones, each constituting a separate regulatory jurisdiction with its own company law, licensing authority, and procedural requirements. All Free Zone companies permit 100% foreign ownership by design. The key distinction, however, is between the two financial Free Zones — the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) — and the broader universe of operational or industry-specific Free Zones.

ADGM and DIFC are common-law jurisdictions with their own court systems, company registries, and sophisticated corporate frameworks. The ADGM's legal system is expressly based on English law, where English common law precedents are directly enforceable. The DIFC operates under a comparable English common-law regime supervised by the DFSA. Both jurisdictions are frequently used as holding company platforms for regional M&A precisely because their legal infrastructure is internationally familiar and their courts command strong confidence.

Share transfers in ADGM and DIFC are comparatively streamlined. No notarisation is required; parties file standard-form transfer documents — including updated registers of members, corporate resolutions, and revised articles of association — directly with the ADGM Registration Authority portal or the DIFC Registrar of Companies respectively.

Where the target is a financial services firm licensed by the DFSA or FSRA, additional change-of-control approvals apply. Both regulators assess the fitness and propriety of the acquirer, financial soundness, and the likely impact on the regulated entity's ability to meet its ongoing obligations. Non-compliance constitutes a serious regulatory breach and may result in withdrawal of the entity's licence.

Operational Free Zones such as JAFZA, DMCC, RAKEZ, and Dubai Airport Free Zone each have their own licensing authorities and share transfer procedures. The formalities are generally lighter than Mainland — Arabic-language documents are typically not required, and execution takes place before the Free Zone authority rather than a notary. Investors must nonetheless carefully review each Free Zone's regulations, including the commercial activities permitted within the zone, the ability to conduct business with UAE Mainland customers directly, and the applicable courts in the event of a dispute.

Key Differences at a glance:

Prerequisites Before Entering the UAE Market

Before committing to an acquisition, a foreign investor should satisfy several foundational prerequisites that are specific to the UAE market.

First, the investor must confirm the target's jurisdiction — whether Mainland, ADGM, DIFC, or another Free Zone — as this determines the entire deal mechanics, from governing law to the practicalities of share transfer.

Second, the investor should verify whether the target's business activity is one for which 100% foreign ownership is permitted on the Mainland, or whether residual restrictions apply. This requires a review of the permitted activity lists published by the relevant DED.

Third, competition clearance must be considered at the outset, not as an afterthought. Given the mandatory 90-day pre-closing notification requirement under the Competition Law, any transaction approaching the prescribed thresholds must begin the analysis at term-sheet stage. A failure to notify is treated as an automatic rejection, with significant financial consequences.

Fourth, sector-specific licensing requirements must be identified early. Where the target operates in a regulated sector — financial services, healthcare, telecoms, or media — the required regulatory approvals will form conditions precedent to closing and can materially affect transaction timelines.

Fifth, investors should assess the target's Ultimate Beneficial Owner (UBO) register and AML compliance position before proceeding. This obligation is governed by Cabinet Resolution No. 109 of 2023. Deficiencies in either area can delay or derail a transaction and may signal deeper governance concerns.

Finally, a foreign investor must be prepared for the sequence of legal agreements that a UAE acquisition demands. From the initial Term Sheet or Letter of Intent — which, though largely non-binding, establishes the commercial framework and contains critical binding provisions on exclusivity and confidentiality — through to the Confidentiality Agreement governing information exchange during due diligence, the Share Purchase Agreement recording the full terms of the deal, the Shareholder Agreement governing post-completion relationships, and the mandatory amendment to the Memorandum of Association in any Mainland LLC transaction, each document serves a distinct and essential purpose. Ancillary documents including board and shareholder resolutions, powers of attorney, and regulatory filing submissions are equally important to the mechanics of closing and should not be treated as an afterthought. Understanding this documentary architecture in advance, and engaging experienced UAE counsel to structure and negotiate each instrument, is itself a prerequisite to a well-managed acquisition.

Common Deal Structures

Most UAE acquisitions are structured as share purchases, whereby the buyer acquires the shares of the target company, taking the business as a going concern together with its liabilities. An asset purchase, by contrast, allows the buyer to cherry-pick assets and assume only specified liabilities, but requires separate transfer of each asset, novation of key contracts, and re-licensing of the business, which can be time-consuming and commercially cumbersome.

The Companies Law also formally recognises statutory mergers, under which two companies can combine with one surviving entity, and introduces SPVs incorporated for the sole purpose of acquiring or merging with a target.

ADGM and DIFC are increasingly used as holding company jurisdictions for acquiring UAE Mainland or other Free Zone targets. A foreign buyer will often establish an ADGM or DIFC SPV as the acquisition vehicle, preserving the benefits of the common-law environment — including robust shareholder agreement protections, drag-along and tag-along rights, and English-law governed warranties — while still acquiring a Mainland operating company.

On deferred consideration, UAE law imposes no express prohibition on earn-out mechanisms, but enforceability can be complex. Parties should ensure any performance metrics are clearly defined and that the governing law and dispute resolution clause are carefully chosen. DIFC or ADGM governing law with arbitration is strongly preferable to pure UAE Mainland law where earn-out disputes are foreseeable.

Legal Due Diligence

Legal due diligence in a UAE M&A transaction follows the same broad structure as in other mature jurisdictions, but with a series of UAE-specific considerations that demand particular attention.

1. Corporate and Constitutional Documents: The starting point is verification of the target's corporate existence, legal form, and authority to transact. For a Mainland LLC, this means reviewing the Memorandum and Articles of Association (MoA), trade licence, commercial register extract, and shareholders' register. A lawyer must confirm that the MoA permits the contemplated transfer and that there are no unamended ownership provisions that would restrict a foreign acquirer. For ADGM and DIFC entities, the articles of association, certificate of incorporation, and register of members should be obtained directly from the relevant registry portal.

Share transfer restrictions and pre-emption rights must be mapped carefully. In Mainland LLCs, existing shareholders hold statutory pre-emption rights under Article 79(1) of the Companies Law. The due diligence process should confirm whether any shareholders are likely to exercise these rights and, if not, whether valid waiver mechanisms are in place.

1. Beneficial Ownership and AML Compliance: UAE law requires all companies to maintain a UBO register identifying any natural person who owns or controls 25% or more of the company, holds 25% or more of voting rights, or has authority over senior management appointments. A buyer's counsel must verify that the target's UBO register is current, accurate, and filed with the relevant authority.

AML compliance is a separate and increasingly critical strand of any UAE due diligence. The UAE's AML regime is now governed by Federal Decree-Law No. 10 of 2025, which came into force on 14 October 2025. Counsel should review whether the target has maintained adequate AML and KYC policies and procedures, and conduct sanctions screening on all UBOs, directors, and key counterparties against applicable lists.

1. Regulatory Licences and Compliance: The trade licence must be reviewed for scope of permitted activities and any conditions that could be affected by a change of ownership. In regulated sectors, the buyer's counsel should identify all sector-specific approvals required to complete the acquisition and build these into the conditions precedent. A change-of-control provision in a regulatory licence that operates automatically to suspend or revoke the licence upon transfer — without requiring a separate application — can be a fatal deal risk if not identified early.

1. Employment, Contracts, and Other Key Areas: Employment liabilities in the UAE can be material. Counsel should review the target's compliance with Ministry of Human Resources and Emiratisation (MOHRE) requirements, Emiratisation quotas where applicable, and the adequacy of end-of-service gratuity provisions under UAE Labour Law. All employment agreements should be reviewed for change-of-control protections or termination triggers.

Material contracts must be reviewed for change-of-control clauses that could allow counterparties to terminate upon completion. IP ownership, registration status, and any assignments should be verified — particularly for technology businesses, where IP may sit in a different entity or jurisdiction from the operating company. Real property and lease arrangements, outstanding litigation or arbitration, and the target's tax position under the 9% Corporate Tax regime and VAT framework should also form part of a comprehensive review.

Conclusion

The UAE's M&A market has matured significantly. Legislative reforms — from the Companies Law to the new Competition Law regime — have aligned the country's framework with international standards while preserving the distinct character of its dual-track legal system. For foreign investors, the opportunity is real, but so is the complexity.

Understanding the target's legal home — Mainland, ADGM, DIFC, or another Free Zone — must be the first step of any acquisition strategy. It will dictate the governing law of the transaction, the mechanics of transfer, the regulatory approvals required, and the contractual protections available. Satisfying the market-entry prerequisites, conducting rigorous legal due diligence, and ensuring that the transaction documents are properly structured and enforceable are not merely procedural formalities — they are the foundations on which a successful acquisition is built.

A rigorous legal due diligence, conducted by experienced UAE counsel and attentive to the specific requirements of each jurisdiction, remains the most reliable tool for managing acquisition risk and ensuring that the investment delivers its intended value.