Share Purchase Agreement (SPA) in the UAE: key conditions

Mainstream

The Share Purchase Agreement (SPA) in the UAE is not just a share purchase and sale agreement. It is a mechanism for fixing value, allocating risk and ensuring a managed exit from an investment.

It is a mistake to think that SPA comes down to price. The key issue of the international deal in the Emirates: How will the rights of the buyer be protected in a jurisdiction where the corporate, regulatory and procedural field is fundamentally different from the usual one?

Therefore, effective SPA in the UAE is built around three vectors:

What structure of the transaction will provide real control over the asset, taking into account restrictions on foreign ownership.What package of assurances, guarantees and squabbles compensate for the specific risks of the local market.Where and how the dispute will be resolved so that the decision can be executed in respect of assets located in the UAE.

Without these three elements, even a bargain price does not guarantee either control or return on investment.

When the Share Purchase Agreement is Necessary in the UAE

An internationally oriented SPA is required if:

• A private investor acquires a stake in a company in the mainland UAE (onshore) or in a free zone;
• Private Equity Fund structured the entry into the local business;
• Family Office buys a minority or majority stake for a private equity portfolio.
• a restructuring of the joint venture with a local partner;
• the exit of the asset through the sale to a strategic or financial buyer;
• The transaction is cross-jurisdictional (the buyer or holding is located outside the UAE);
• Shares transfer requires prior regulatory approvals, escrow mechanisms and the structuring of deferred payments.
• Protection through assurances, guarantees and special indemnities is necessary in the context of incomplete transparency of local reporting.

The mistake that most participants in the transaction make

Many investors focus solely on the purchase price and subject matter, neglecting:

• Ownership structure (onshore, free zone, DIFC, ADGM)
• mandatory notarization of transfer of shares in Arabic;
• Continuity of regulatory licenses and commercial permits;
• the mechanism of price adjustment upon closing;
• Limits of liability of the seller on assurances;
• Lack of effective arbitration mechanism in neutral jurisdiction
• The need to obtain prior approvals from local authorities before signing an SPA.

A price without structure and without protection is an illusion of investment result.

Step 1. Determine the structure of the transaction

Before drafting the text of the SPA, you must choose the legal architecture of the transaction. In the UAE, this directly affects the scope of rights, the closing procedure and the applicable law.

Basic options:

• Onshore LLC (mainland company). Until recently, the law required 51% local participation, but after changes to the Federal Decree-Law No. 26 of 2020) 100% foreign ownership is allowed in many sectors. At the same time, strategic activities retain limitations – an analysis of the licensing authority (DED, SCA, etc.) is necessary.
• Free Zone Company (DMCC, JAFZA, ADGM, DIFC, etc.) Allows 100% foreign ownership, but is restricted to doing business outside its zone.
• DIFC/ADGM. Independent jurisdictions with their own legal system based on English common law. The transactions in these zones allow the use of Anglo-American legal constructs without the obligatory Arabicization of the document.

The choice of structure determines the entire future design of the SPA: From the need for local partners to the dispute resolution mechanism.

Step 2. Check corporate title and internal procedures

The SPA will not correct the vices of title. Before signing, it is necessary to check:

• proper ownership of the seller's shares;
• Pre-emption rights of other participants (pre-emption rights) 24, 26 of Federal Law No. 32 of 2021 on Commercial Companies;
• corporate approvals of the transaction (decisions of the general meeting, consent of the board of directors);
• registration of statutory changes in the commercial register;
• No restrictions on transfer, bails and arrests.

In transactions with mainland companies, the protocol of the notarized general meeting of shareholders is additionally checked - without it, the transfer of shares will not be registered.

Step 3. Design the price and adjustment mechanism

The transaction price in an SPA is rarely reduced to a fixed amount paid at the closing date. The practice of international transactions in the UAE uses:

• Closed box – the price is fixed on the basis of historical balance with a mechanism of protection against loss of value;
• Complementary accounts – the price is restated based on actual net debt, working capital and cash.
• Deferred consideration – a portion of the price is withheld and paid when financial indicators are reached.
• Earn-out is a variable part of the price, depending on future EBITDA or other KPIs.
• Escrow and Holdback – funds are placed in an escrow account with a UAE bank or an international escrow agent to secure claims for loss recovery.

Adjustment mechanisms are critical in transactions where financial statements are prepared according to local standards, and the investor needs a transparent picture of net debt and rationed working capital.

Step 4. Create a package of assurances and guarantees

Representations and warranties are the central unit of the SPA. In transactions in the UAE, it must be calibrated for local risks.

Fundamental assurances (title, legal capacity, validity of the transaction) are usually provided without limitation on the amount and term.

Business assurances should cover:

• legality of conducting activities (licenses, approval);
• Compliance with the Emirate’s Business Companies Act and regulatory requirements;
• tax liabilities, including new corporate tax (9% from 2023), VAT, customs duties;
• Employment relations and obligations on emiratization;
• real estate, lease agreements, land rights;
• intellectual property objects registered to related persons or a local service agent;
• absence of hidden debts, guarantees and litigation.

Limits of liability (cap, basket, de minimis) and deadlines for claims are agreed individually, but neglecting them turns SPA into an endless warranty design.

Step 5. Include squabbles for identified risks

An indemnity mechanism is used to cover specific, already identified risks that go beyond standard assurances.

In the UAE, the most typical indemnities in relation to:

• tax additional charges for historical periods (including the period before the introduction of corporate tax);
• claims by local regulators related to non-compliance with licensing conditions;
• Violations of foreign property laws or strategic restrictions;
• clandestine obligations to a local sponsor or service agent;
• environmental requirements in industrial zones (KIZAD, JAFZA, etc.).

Indemnities should be accompanied by clear procedures for settling third-party claims so that the buyer does not lose control of the defense.

Step 6. Establishing the conditions for closing the transaction

The UAE transaction closure is often divided into SPA signing and the actual registration of the transfer of shares.

Standard conditions of closure (conditions of precedent):

• obtaining regulatory approvals (licensing authority, SCA, Central Bank for financial companies, FDI approval);
• refusal of other participants from the preferential right of purchase;
• No significant adverse change (MAC)
• obtaining the consent of counterparties under substantial contracts;
• Performing a restructuring if pre-closing restructuring is agreed upon;
• transfer of signed forms of transfer of shares in Arabic for notarization.

In mainland companies, the final stage is the appearance to the notary, payment of fees and registration of changes in the commercial register. In DIFC/ADGM, the closure is implemented through the updating of the shareholder register without the participation of a notary.

Step 7. Agree on exit options and minority shareholder protection

SPA for Private Equity and Family Office is not just an input, but also a managed exit.

Key conditions:

• Drag-along – forced accession of minority shareholders to the sale by majority shareholders;
• Tag-along – the right of minority shareholders to join the sale under the same conditions;
• Put/Call Options – the right to sell or buy out a share when certain events occur.
• Lock-up: Restriction on sale within an agreed period.
• First Opt-Out (ROFR/ROFO) is a mechanism for maintaining control over the investor community.

In the UAE, where the protection of minority shareholders under the Commercial Companies Act is limited, it is the SPA contract designs that give real protection to investments.

Step 8. Select applicable law and dispute resolution mechanism

Choosing a law and forum for SPA in the UAE is a strategic moment.

Applicable law:

• DIFC/ADGM – predictable for an international investor, based on English law, allows free use of SPA designs
• English law – is often used in international holding structures with arbitration in neutral jurisdiction;
• Onshore Law of the UAE (Civil Code, Commercial Companies Law) – is applied by default in mainland transactions, requires the adaptation of the concepts of assurances and indemnity to the norms of civil law.

Dispute forum:

• DIAC Arbitration (with the new 2022 Rules) is the main center for onshore disputes.
• ADGM Arbitration Centre – for transactions within ADGM and cross-border;
• DIFC Courts – for disputes with the choice of DIFC jurisdiction, as well as as a conduit court for the enforcement of foreign arbitration awards in the UAE;
• Local courts are inevitable unless the parties choose a different forum, but the process is conducted in Arabic, which is critical for assessing risks.

An error in the arbitration clause in an SPA with a mainland company could lead to the need to sue in Arabic in state court.

Step 9. Consideration of tax and currency aspects

The UAE’s corporate tax (9% on profits over AED 375,000) has created a new layer of tax risk for M&A transactions.

The SPA shall contain:

• assurances of correct payment of corporate tax for periods after 2023 and registration with the FTA;
• indemnities on additional VAT and corporate tax;
• allocation of responsibility for the transfer tax (if applicable, for example, in real estate);
• Settlement mechanisms in terms of currency peg dirham – transactions are denominated in AED or USD, but multi-currency structures require currency clauses.

The UAE does not provide for capital gains tax for most sectors, but tax indecencies must cover the risk of changes in legislation.

Step 10. Close the UAE’s Special Requirements

The SPA in the Emirates contains a number of local features:

• Language. To register the transfer of shares in the mainland company, a notarized contract in Arabic is required. Bilingual performance (English/Arabic) with the prevailing version is mandatory.
• Notary fees. Fees vary depending on the emirate and can be calculated as a percentage of the transaction price or as a fixed amount.
• Escrow. Emirati banks provide escrow agent services, but require strict compliance with KYC and AML. The terms of the issue of funds should be spelled out in detail in the SPA.
• Regulatory deadlines. Obtaining separate permits (e.g. for the education, health, finance, and other sectors) can take several months to complete, which must be factored into the closing timing.
• Identification of the beneficiary. The ultimate beneficiary disclosure requirements (UBO/ESR) are mandatory and the SPA should oblige the parties to provide the relevant information.

Comparison of UAE jurisdictions for M&A transactions

The choice of jurisdiction is not a technical issue, but a decision that determines the legal protection of all SPA terms.

How to strengthen your position before signing an SPA

The best deal is one whose risks are settled before the contract is signed.

Before finalizing the SPA, the investor is recommended to:

• conduct a comprehensive due diligence (financial, tax, regulatory, corporate, labor);
• to fix commercial terms in a detailed Term Sheet, which is binding on key points (exclusivity, confidentiality);
• to submit requests to the licensing authority in advance about the fundamental possibility of transferring corporate control;
• receive confirmation from the bank about the readiness to open an escrow account and its conditions;
• Prepare a package of assurances with reference to the identified risks, and not according to a template;
• agree on the arbitration clause, taking into account the location of the assets and the enforceability of the future award.

Typical mistakes in preparing SPA in the UAE

1. Ignore the obligation of notarial certification in Arabic, believing that the English text is self-sufficient.
2. Not checking the preferential rights of other participants leads to challenging the transaction and blocking the registration.
3. Choosing a price mechanism without reference to the quality of local reporting leads to price disputes post-closure.
4. Do not provide for squats under hidden regulatory obligations - the risk of fines and license revocation falls on the buyer.
5. Not regulating labor obligations for emiration – costs can be substantial.
6. To leave the arbitration clause without taking into account the nuances of enforcement in the UAE – “winning” in arbitration does not guarantee the real receipt of money.
7. Sign an SPA without analyzing the ownership structure of the IP registered to nominee holders.
8. Not laying a time gap for obtaining regulatory approvals - failure of the closure and loss of investment opportunity.

Investor checklist: 15 Questions Before Signing a SPA in the UAE

1. What is the exact ownership structure of the target company and is there any restrictions on foreign participation?
2. Have all corporate approvals been obtained, including the waiver of preferential rights?
3. What regulatory approvals are required for closure and what is the typical timeframe?
4. What price mechanism is chosen and how is it related to debt load and working capital?
5. What are the assurances and what are the limits of the seller’s liability?
6. Are special indemnities covered by the tax and regulatory risks identified?
7. What language does the SPA sign and how does the Arabic version compare to the English version?
8. What is the notarization procedure and how much are the registration fees estimated?
9. Where disputes will be dealt with: DIAC arbitration, DIFC courts or local courts?
10. What is the real feasibility of the future solution in the UAE and the country of assets?
11. Is there an escrow or a retention of a portion of the price to cover possible claims?
12. Is the new UAE corporate tax accounted for and is responsibility for historical tax periods allocated?
13. How are the options for exit and minority investor protection regulated?
14. What is the status of intellectual property and are they related to a local service agent?
15. What post-closing structure does the seller offer: Who stays in management, how do key customer relationships and licenses get transferred?

What a strong SPA strategy looks like

A strong strategy in UAE M&A transactions typically involves five levels:

1. The choice between onshore and free zone, determining the proportions, the mechanism of entry and the payment schedule.

2. Full due diligence, aimed not at reporting, but at identifying the risks that should be covered in the SPA.

3. A set of assurances, guarantees and identifiers commensurate with the risks identified, with realistic limits and timelines.

4. Closing and settlement mechanisms Procedures escrow, holdback, final reconciliation, notarization, approval of price adjustment formulas.

5. Post-closure and exit options drag/tag, call/put, mechanisms for resolving deadlocks and contractual liquidity guarantees for the investor.

Without a fifth level, an investment can become illiquid even if it is a successful business.

FAQ

Yes, in many sectors of the mainland UAE, following changes in the Foreign Investment Law. In free zones and in DIFC/ADGM, 100% foreign ownership is available almost always. However, there are still limitations for strategic industries that require prior analysis.

To register the transfer of shares in the mainland company, a notary will require a document in Arabic. International transactions are usually made bilingually with the indication of the prevailing version. In DIFC/ADGM, Arabic is not required.

For transactions with onshore element most often used arbitration DIAC (Dubai) or ad hoc arbitration with a seat in the DIFC. It is important to ensure that the arbitration clause is correct in terms of enforceability of the award in the mainland UAE.

Direct choice of English law for onshore transactions is risky, as local courts can apply mandatory provisions of UAE law. However, the parties can choose English law, provided that the dispute is submitted to international arbitration, which increases the chances of its observance.

In general, there is no capital gains tax, but it is necessary to analyze the specific sector and structure of the transaction. Tax indemnities should cover the risk of future legislative changes.

How long does the registration of the transfer of shares in the mainland company last?In the presence of all documents and approvals received - from several days to several weeks. However, prior approval with the licensing authority may take much longer.

It is not legally required, but is strongly recommended for structuring deferred payments and securing claims for loss recovery, especially when the seller is an individual or holding with an opaque structure.

Related services

• M&A, Private Equity and Direct Investment in the UAE
• International Arbitration and Cross-Border Disputes
• Structuring Family Office and Private Equity
• Due Diligence (Due Diligence) when buying a business
• Corporate structuring and registration of companies in the UAE
• Tax planning and support of transactions (corporate tax, VAT)
• Support of transactions with commercial real estate
• Currency Regulation and International Settlements

Related material

• Due Diligence when buying a business in the UAE: point out
• The choice of arbitration in the UAE: DIAC, ADGM or DIFC Courts
• UAE’s new corporate tax and its impact on M&A deals
• How to structure Family Office in UAE for direct investment
• Transfer of shares in the mainland company: notaryship, registration and fees
• Risk management when buying a share in the UAE family business
• Execution of foreign arbitral awards in the UAE

Conclusion

The Share Purchase Agreement in transactions involving the UAE is not a formality, but a central tool for protecting investments. An international investor, Private Equity Fund or Family Office, acting through the UAE structure, should not only agree on a price, but build a contractual architecture that takes into account the regulatory specifics of the jurisdiction, guarantees real control over the asset and provides a working exit mechanism.

The success of a transaction is not determined by the moment of signing, but by how accurately risks were identified, responsibility was allocated and the path from commercial intent to liquid investment was designed before signing. The winner in international transactions in the Middle East is the one who structures SPA not as a template but as a strategic weapon for protecting and increasing capital.