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Bhawana , Manager - Kreston ME Consulting
Valuing a Tech Company in the Middle East
Imagine you have built a successful tech company in the Middle East, offering technology solutions in the UAE and Saudi Arabia. Years of hard work have paid off, and now a big client, a multinational corporation, wants to buy your business.
But how do you decide the value of what you have achieved? This is the dilemma for the owners of this private tech company as they plan to sell the business they have built from scratch.
The Valuation Challenge
Valuing a private company in an emerging market is not easy. Without stock prices or market consensus, it’s a mix of growth potential, regional factors, and market competition. To navigate this dilemma, the owners enlisted KMEC, a trusted advisor for advisory services, to guide them through two contrasting valuation methods: the forward-looking Discounted Cash Flow (DCF) approach, which looks at the company’s future cash potential, and the EBITDA multiple method, which builds on current earnings strength.
With these valuations, the owners must negotiate with a savvy multinational buyer aiming to enhance its capabilities. Should they go with the optimistic DCF, the realistic EBITDA, or a mix of both? The multinational will examine every detail, but the tech company’s strategic advantage might influence the final price.
This case study explores valuation and negotiation in an emerging market, where ambition meets opportunity, and every decision impacts the outcome—a story of strategy, risk, and seeking fair value in a fast-changing tech world
Background
The technology company provided enterprise solutions focused on emerging sectors in the region. It had established a solid presence in the UAE and Saudi Arabia, benefiting from the region’s increasing demand for technology solutions. The firm served a diverse client base, including several large multinational companies.
One of these clients, a multinational corporation, had been a significant customer for years. Impressed by the technology company’s solutions and regional expertise, the multinational expressed interest in acquiring it to expand and build its own in-house capabilities. The owners considered this as a good opportunity to exit the business. However, they needed to establish a fair valuation of the business for negotiations.
The Challenge
Valuing a privately held technology company operating in an emerging market is complex. Unlike public companies with market-driven stock prices, these firms lack a clear benchmark. The valuation had to also take into account the organization’s growth potential in a region undergoing digital transformation, while also factoring the risks of a competitive and fast-changing industry.
To address this, the owners approached KMEC, a business consulting firm specializing in business valuations for companies in the Middle East. The firm was engaged to provide a range of valuations to support the owners in the negotiations it could have with the potential buyer.
H.E. Edward Hobart
Financial services at the heart
The UAE-UK financial relationship is built on deep historical foundations pre-dating the UAE’s Union in 1971. British banks were among the first international financial institutions to establish operations in the UAE, creating a foundation for cross-border banking relationships that continue today. Investment quickly started to flow in both directions. The financial centres of Abu Dhabi Global Market and Dubai International Financial Centre were built on a UK model, with English Common Law at their core.
Earlier in May, the Lord Mayor of London visited the UAE with a delegation which included representatives from Howden, Aberdeen, KPMG and Guavapay, a global fintech company. Capital markets and professional services continue to provide a promising area for UK-UAE financial cooperation, with the London Stock Exchange positioned to attract more landmark UAE listings beyond Masdar’s green bonds and ADQ’s multi-billion-dollar offerings. The UAE’s introduction of corporate tax and evolving sustainability requirements increases demand for specialised UK accounting expertise, particularly in ESG reporting and AI-powered financial management.
Both the UK and UAE are leaders in the fintech revolution with British innovators like Smart, Checkout.com, and Wise engaged in modernising banking solutions throughout the Emirates, with the UK’s fintech expertise complementing the UAE’s digital transformation agenda.
Alex Peal , Managing Partner - James Cowper Kreston Peal
Trade and Investment
The latest statistics on trade and investment between the UK and the UAE highlight the strength of this partnership. At the end of 2024, total trade in goods and services between the UK and the UAE amounted to £24.3 billion, an increase of 11.1% from the previous year. Of this, UK exports to the UAE were £15.5 billion, while imports from the UAE were £8.9 billion.
The UAE and UK are actively working towards a free trade deal with the GCC, which has the potential to increase bilateral trade by 16%, adding an extra $10.85 billion per year to the trade between the UK and GCC countries in the long run. This effort underscores the deep-rooted economic relationship between the UAE and UK, which continues to evolve and expand, reflecting their shared vision for a dynamic and sustainable global economy.
Ravishanker , Ravishanker V, Director - Taxation, Kreston Menon
Unrealised Gains and Losses: The Realisation Basis Election
A critical one-time choice in the first CT return is whether to elect the “realisation basis” for unrealised gains and losses. Under normal accrual accounting, certain assets or liabilities can have unrealised gains or losses (for example, a rise in value of an investment property or securities portfolio) that are recorded in profit before any actual sale or settlement. By default, such unrealised gains would be included in accounting income and thus taxable. The realisation basis election allows a company to defer tax on unrealised gains and losses until they are actually realised.
This election is only available in the first tax period, and once made, it applies to all future periods unless exceptionally revoked with Federal Tax Authority (FTA) approval. The election can be applied in one of two ways: either to (a) all assets and liabilities that are measured at fair value through profit (or subject to impairment accounting), or (b) to all assets and liabilities held on capital account. For example, if an investment property’s fair value increased by AED 2 million during 2024, electing the realisation basis would mean this AED 2 million unrealised gain is not taxed in 2024 – instead, tax will only be due when the property is actually sold and that gain is realised.
Businesses with significant fair-value adjustments should strongly consider making this election in their first return, as it can defer the tax on such unrealised gains until a future sale, improving cash flow.
kreston Global
kreston Global
London – Kreston Global is happy to announce the re-election of Sudhir Kumar, Senior Partner and Head of Corporate Communications at Kreston Menon, as Board Director for Kreston Global, representing the newly formed Middle East and Africa (MEA) region.
His leadership in the Middle East has been exemplary in terms of driving collaboration and commercial partnerships as well as ensuring high standards of client service delivery. Sudhir will continue to focus on supporting Kreston’s strategic vision, and being a strong voice for member firms in the Middle East and Africa. His ongoing commitment aligns with Kreston Global’s mission to drive collaboration, innovation, and sustainable growth across its international network.
Sudhir Kumar said
“I am so pleased to be able to continue serving on the Kreston Global Board. Being re-elected is an honour and testament to the collaborative spirit we have built. I look forward to continuing to help support the network’s strong focus on risk and international expansion to help create opportunities for our member firms, and strengthening our presence in emerging markets.”
Liza Robbins. Chief Executive, said:
“Sudhir is an excellent board member and a wonderful advocate for the network – having won our global network entrepreneur award in previous years demonstrates how much he cares about what we do and how we do it. I am so pleased we can continue to work together on the Board. “
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gulfnews
, Gulf News
Demand runs high for auditors, with more corporate tax focused firms set for launch
If anyone asks about the job category with the fastest and highest hiring rates in the UAE, don’t look beyond tax auditors and specialists. The hiring process continues even as the UAE Corporate Tax formally launched on June 1, with industry sources saying there are still more positions to be filled.
Where they are not getting filled internally, businesses are contracting those tasks to outside audit firms, which are expanding their own workforce to cope with the demand rush.
At the manager level, the salary structure for a tax auditor would vary between Dh18,000 to Dh24,000 a month depending on the firm.
Entry level salaries and incentives too have improved in the last 6-8 months, while candidates are lining up 10-25 per cent increases in their take-homes when they make the jump to a new employer.
Hiring in ‘surge’ mode
So, is hiring of tax auditors in ‘surge’ mode? Shibu Abraham, Director – Human Resources at the consultancy Kreston Menon, stops short of saying that a surge is on.
“There is demand for qualified and experienced tax consultants and auditors,” he said. “We have seen an increase of 10 percent in our staff strength this year, mostly at entry and mid-level.
“We have a structured career path for auditors, where most of them join as trainees or associates and who over time get promoted to senior auditors, supervisors and managers.”
Audit industry sources say that more specialist tax firms will launch in the coming weeks, and they too will get onto the hiring spree.
“Not every business can afford to have an in-house team of tax specialists, which is why outsourcing offers a big opportunity,” said an auditor.
“These new businesses are either launching on their own and hope to gradually build up a clientele, or opt for joint ventures to speed up the process.”
“Companies are increasingly outsourcing their tax functions to external tax consultants or firms,” said Abraham. “This approach is prevalent among many businesses, especially SMEs that might not have the resources or expertise to handle complex tax matters in-house.”
– Shibu Abraham, Director – Human Resources at Kreston Menon
More graduates enter the fray
It’s also a good time for new tax professionals to seek their chances in a trending job market. This week, Dubai’s DIFC Academy saw the passing out of the first 28 candidates who went through the UAE Corporate Tax Diploma Programme, run in tandem with PwC Middle East. Some of them had already passed the Final Certificate Examination provided by ATT-UK.
Focus on awareness
At the DIFC Academy, they went through a ‘condensed’ 30-day programme that equips them ‘to guide companies in complying with the new UAE corporate tax requirements’.
That’s exactly what the market wants.
“Finance professionals have gained the practical knowledge and skills to successfully ensure that all practices, systems, and processes of their respective companies comply with the new tax regime,” said Christian Kunz, Chief Strategy, Innovation and ventures Officer at DIFC Authority.
Everyone’s hiring
“The Big 4 and other top accounting firms are looking for qualified and experienced auditors and tax consultants who can combine tech know-how with their finance and taxation skills,” said Abraham.
“We had seen many individual tax consultants moving to the UAE to capitalize on the opportunities thrown open by the introduction of VAT a few years ago. We have also recently seen the emergence of tax boutique firms.
”Other industry sources say that the current buzz around hiring tax professionals far exceeds anything during the launch of the VAT regime in 2018.
“It will be no exaggeration to say that tax professionals are among the most active when it comes to registering for UAE’s Golden Visa program,” said a consultant. “The rush is unprecedented.”
Is every UAE business up to speed on tax?
Registering for the corporate tax UAE continues apace, but there is still time to start the process towards tax filings and making sure the books are in order.
“Companies are increasingly outsourcing their tax functions to external tax consultants or firms,” said Abraham. “This approach is prevalent among many businesses, especially SMEs that might not have the resources or expertise to handle complex tax matters in-house.”
This is why ‘to attract and retain the right talent, there is always a cost involved.”
It’s all showing up in the frenetic hiring in the UAE for auditors. Particularly those who specialise on tax matters.
Source: “More jobs, salary hikes: Is UAE’s demand boom for tax professionals only getting started? ’” by Manoj Nair, Business Editor, Business Section, Gulf News newspaper, 23 August 2023 and online article here.
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gulfnews
, Gulf News
Businesses, their owners, and auditors in the UAE are awaiting the next big update on the corporate tax – the one related to ‘qualifying income’ for free zone entities and on which they get the 0 per cent tax benefit. A decision on this is ‘imminent’, according to multiple audit industry sources.
Any income that these free zone-based businesses generate outside of that qualifying income will come under the 9 per cent corporate tax coverage. And there lies the crux, which is why these businesses are awaiting the guidelines on QI with such a heightened sense of anticipation.
The confirmation of the qualifying income benchmark will also be of significance to the many UAE free zones, given the clarity it brings in their dealings with existing entities licensed by them and prospective ones they are looking to sign up.
The UAE Corporate Tax comes into effect on June 1.
What could make up the qualifying income?
Raju Menon, Chairman and Group Managing Partner at Kreston Menon, says : “Income that conforms to business ‘restrictions’ of each free zone authority should be regarded as QI.
“Accordingly, export of goods from a free zone, the trade in goods within a free zone or between free zones – and without any ‘contamination’ in the UAE mainland – may be regarded as qualifying income for the ‘qualifying free zone person’.”
“So would any ‘passive income’ earned by free zone companies.”
These are the confirmations that all stakeholders are looking to from the Ministry of Finance. In recent weeks, debates have intensified over whether businesses should retain their free zone status or go for a full license from the mainland. Particularly among those businesses with a heavy chunk of their income derived direct from operations or services rendered on the mainland.
Deepak Bansal of Ask Pankaj Tax Advisors says, “The scope of qualifying income is an evolving issue. The crucial point is to understand the subtle difference between honoring the promised tax incentives (given to free zone licensed companies) and offering a new set of tax incentives.”
What makes up a ‘Qualifying Free Zone Person’?
The entity must maintain ‘adequate substance’ in the UAE, or in other words have a definable direct exposure in the local market.
Derive qualifying income as specified in a Cabinet Decision.
Comply with ‘transfer pricing’ rules and maintain relevant transfer pricing documentation.
Not have made an election to be subject to corporate tax in full.
‘Proportionate’ or ‘activity’ based incentives?
“The concept of proportionate taxation is prevalent in India for tax incentives to companies based in Special Economic Zones (SEZs) and certain other countries,” said Bansal. Singapore offers ‘activity-based’ tax incentives as compared to ‘entity-based’ incentives, requiring a proportionate determination of eligible/ineligible taxable income.”
The UAE model on qualifying income – and subsequent free zone incentives – would be based on best-of-breed regulations from other jurisdictions on how they treat income generated by such entities.
“Free zones were conceptualized as international trading/manufacturing hubs,” said Bansal. “The income from exports (goods and services), and trading within free zones, is likely to be treated as QI. “The fenced areas of free zones (connected to ports) are treated as outside UAE for VAT/custom purposes. Import of goods from such areas to the mainland may also be categorized as QI, i.e., at par with non-resident suppliers’ income from goods imported into mainland UAE.
“Certain passive incomes may also qualify as QI. Any other income may be taxed at 9 per cent resulting in proportionate taxation principles. The concept of ‘disqualifying income’, if introduced, could, however, have ramifications on business operations.”
Read more from our Taxation Services.
Source: “UAE’s free zone businesses await 0% ‘qualifying income’ ’” by Manoj Nair, Business Editor, Business Section, Gulf News newspaper, 9 May 2023 and online article here.
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