How to Conduct Due Diligence on a Small Business in Dubai

Why Is Due Diligence Important Before Buying a Small Company?

When you buy a business, you are not just acquiring its assets—you also inherit its liabilities.
If unpaid salaries, fines, blocked visas, or debts exist, they become your legal and financial responsibility once the company transfers to your name.

Skipping proper legal due diligence or commercial due diligence services can expose you to unexpected risks that might not be visible at first glance.

Real-Life Example: A Costly Lesson

One of our clients recently purchased a small company at a bargain price, thinking it was a great deal. Unfortunately, he skipped any form of due diligence.
Post-acquisition, he discovered:

• WPS salary issues and labor blocks
• Employees with expired visas and absconding cases
• Pending fines with immigration and labor ministry
• Bounced cheques and unpaid loans
• VAT non-filings and FTA penalties

All these problems became his responsibility overnight. What seemed like a cheap purchase turned into an expensive nightmare.

This situation could have been avoided with basic due diligence steps.

Essential Due Diligence Checklist for Buying a Small Business

If you are planning to acquire a small company, here’s the minimum you must check:

1. License and Company Ownership History

• Obtain the full license history from the Department of Economic Development (DED) or relevant Free Zone.
• Check:
  • Any remarks or restrictions on the license.
  • How many times ownership changed hands.
  • All MOA (Memorandum of Association) amendments.
  • Outstanding penalties linked to the license.

2. Immigration File Audit

• Check the immigration file for:
  • Status: Active or closed?
  • Any bans or remarks?
  • Pending expired visas.
  • Absconding employees.

3. Labor (MOHRE) Record Verification

• Review:
  • Number of active, expired, and absconded labor cards.
  • Any pending salary complaints.
  • Blocked labor files—if blocked, investigate the reason.
  • Ensure no "ghost employees" on record.

4. Financial & Banking Due Diligence

• Request the seller to provide:
  • An Etihad Credit Bureau report.
  • Disclosure of bounced cheques, outstanding loans, or credit facilities.
• Review the bank statement for at least 6–12 months if possible.

5. Tax and VAT Compliance Review

• Confirm Corporate Tax (CT) and VAT registration status.
• Check:
  • Number of VAT returns filed.
  • Any VAT penalties or CT penalties.
  • Pending tax liabilities.

6. Commercial Due Diligence Services

• If the business is trading/importing:
  • Check Dubai Customs record.
  • Investigate any pending shipments or penalties.

7. Financial Due Diligence

• If the seller is valuing the company based on sales figures:
  • Verify through audited financials.
  • Cross-check bank deposits against declared sales.
  • Ensure no financial misrepresentations.

Q&A Section

What is a due diligence report?
A due diligence report is a detailed document summarizing all the findings about a company’s legal, financial, operational, and compliance status before acquisition.

What is tax due diligence?
Tax due diligence involves reviewing a company’s Corporate Tax and VAT compliance to identify unpaid taxes, penalties, or reporting risks.

How to do due diligence on a small business?
Focus on licensing history, immigration and labor records, financial debts, tax compliance, and operational risks. Even basic checks can reveal major red flags without needing expensive audits.

What is commercial due diligence?
Commercial due diligence assesses a business’s market position, customer base, revenue streams, competitive advantages, and operational risks to understand the true value and sustainability of the business.

Conclusion

When buying a small company, never underestimate the importance of due diligence.
Even without heavy legal bills, you can perform a practical and smart review to protect yourself from future liabilities.

At CSPZone, we specialize in affordable commercial due diligence services, helping clients secure their investments safely and confidently.

Need Expert Assistance?

Ready to acquire a business but want to minimize risk?
Contact CSPZone today for professional due diligence support tailored for SMEs.
Your safe acquisition starts here.

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