Stimulus Package for Dubai Free Zones

Jay Krishnan, Partner

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    Companies based in Dubai free zones need not worry about paying rent for the next 6 months. The Dubai Free Zones Council has come up with a major relief package, to help companies recover from the challenges caused by Covid-19.
    Postponement of rent is not the core initiative included in the package; it includes various other schemes as well, mainly;

    • Facilitating payments through easy installments
    • Refunding insurance amounts, security deposits and guarantees
    • Cancelling fines on companies and individuals
    • Temporary contracts to enable free movement of labor between different firms in the free zones

    Dubai Silicon Oasis Authority, the Dubai Airport Free Zone Authority, Jebel Ali Free Zone, the Dubai World Trade Centre, the Dubai International Financial Centre, the Dubai Development Authority, Dubai South, Meydan City Corporation and the Dubai Multi Commodities Centre are the entities that have contributed to the package, in coordination with the Dubai Free Zones Council.

    The initiatives will ensure business continuity at a time when the world is witnessing a crisis like never before. It will provide support and relief to companies that are struggling, via a package of discounts and various other facilities.

    Companies functioning in Jebel Ali Free Zone, National Industries Park and Dubai Cars and Automotive Zone need not pay fine on expired trade licenses and new firms will be exempted from paying license fees for the first year.
    DIFC plans to implement the following initiatives;

    Waiving annual license fees for new companies and 10 per cent discount on renewal fees for existing licenses, during the next three months

    Postpone the payment plans for all commercial properties owned by DIFC Investments for six months

    For property sales that happen within the three-month period, there will be a reduction in the ownership transfer fees. For this, the ownership transfers should be registered at the centre within 30 days following the end of the three-month period.

    Companies that operate in Dubai Development Authority (DDA) and TECOM Group can postpone payments, and in the case of new firms, the lease period can be postponed and the registration fees can be cancelled for a period of six months. The fines on expired licences and other financial and administrative fees can be cancelled.

    “We have also offered large exemptions on a wide range of fees for the 17,000 registered companies, by reducing registration fees by 50 per cent for new companies joining the centre, while current companies now have 30 per cent discounts on renewal and amendment fees. In addition, we have launched many flexible payment options for various sectors. We will continue supporting their needs and announce additional details in due course,” said Ahmed bin Sulayem, CEO and executive chairman of Dubai Multi Commodities Centre.

    Jebel Ali Free Zone had earlier announced 50-70 per cent reduction in business-related fees for registration, licensing and administrative related charges.

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    Thinking of Working from Home?

    Raghunath.T, Director

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      In today’s business environment, having employees to work from home is something that organizations need to consider as a new reality. Many organizations have started to embrace the culture; but there still exists a cluster who are skeptical about it.

      Working from home has its own advantages, but the process needs to be implemented and monitored correctly. If you need assistance in reviewing your existing policy or drafting and implementing a new one, HLB HAMT can help you.

      Our services include;

      • Identifying and prioritizing the positions in your organizations that are most suited to working from home.
      • Understanding the business impact of remote working.
      • Recommending suitable performance monitoring and reporting systems in the WFH context.
      • Identifying IT requirements, risks and recommend solutions that are best suited to your organization.

      Our team of HR and IT consultants will also see to it that these policies and measures are prepared in quick time so that you can get the changes going as soon as you need them.

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      Automatic renewal of visas in UAE

      Lavin Nalinababu, Business Consultancy

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        The entire world has come to a halt because of the corona virus pandemic. People are placed under home quarantine and there are many who are unable to go to their work destinations.

        Renewing your visa which is about to expire, at this time, may not be possible. UAE has made it easier for laborers and domestic workers. In case their residency visas and labor permits have expired, they will be exempted from medical fitness tests and their visas will be renewed automatically.

        The move was announced by the Ministry of Human resources and Emiratisation (MOHRE), Ministry of Health and Prevention (MOHAP,) and the Federal Authority for Identity and Citizenship (FAIC) and it will be applicable for only those working for establishments as well as domestic service workers. Payment must be made via an authorized channel to renew the visa.

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        The Importance of Business Valuation in UAE

        Raghunath.T, Director

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          Business is as unpredictable as life. Today you might be a successful businessperson, having built an impressive empire, but tomorrow you might be placed in a challenging position, with mounting bills to pay or investments to make.

          Many people give business valuation a thought only when a crisis occurs and they are forced to sell the company. Knowing the actual worth of your company beforehand will help you handle crises in a much better way. Valuation helps in determining the economic value of a business, asset or company.

          Why should I value my business?
          Business valuation is conducted for a variety of reasons and selling the company is just one among them.

          Capitalizing on Opportunities
          Business owners might be in positions where they spot sudden new opportunities that need investment but are unable to raise funds on their own quickly enough to capitalize on them. At this time, a valuation will be useful in raising capital – whether through investors or lenders.

          For Mergers, Acquisition and Sales
          When you know the actual worth of your company, it becomes easier to negotiate and the result is a much better price for your company. One must be able to convince the company planning to acquire or merge with your firm, about the value of your business, what the asset holdings are, how the company has evolved over the years and how it will continue to do so.

          As a seller, if you feel that the other company is offering a price way below what you deserve, you can easily cancel the deal and look for another, because you know how valuable your company is.

          Valuation for financing
          Banks will validate their investment in your business prior to providing capital and hence business appraisal of your assets is a must.

          Valuation for estate and gifting
          It is always advisable to conduct valuation if the business is part of your estate and this is often done prior to estate planning, gifting of interests, or following the demise of the owner.

          Ways to determine the value of your company

          Income Approach

          An income-based approach helps in determining the amount of money the company will generate in the future. It helps in assessing risk as well.
          The capitalization of earnings (or cash flow) methodology and the discounted cash flow methodology are the two primary income-based approaches used to value a business. 

          Under the Earnings Capitalization Method, the value of the business is arrived at by capitalizing its future maintainable profits. The future maintainable profits are calculated based on the past or the projected working results of Company, usually for a period of 5-7 years, after adjusting for non-recurring, unusual and extraordinary items of income and expenditures. 

          The Discounted Cash Flow (DCF) method helps in estimating the value of business based on its future cash flows. This technique is one of the most rigorous approaches to valuation of a business.  In this method, the projected free cash flows from business operations are discounted at the weighted average cost of capital and the sum of such discounted free cash flows is the value of the business. 

          The DCF analysis involves determining the following:

          • Estimating future free cash flows
          • The time frame of the cash flows
          • Appropriate discount rate to be applied to cash flows
          • The continuing value or terminal value i.e. the cumulative value of the free cash flows beyond the explicit forecast period
          • Value of debt

          Market Approach

          In Market-Based valuation approach, the value of your business is determined by reviewing actual transactions and comparing the selling price of similar businesses. For reliable data on such transactions, comparable publicly listed company information on precedent transactions are used to arrive at comparable enterprise values .

          Asset- based approach
          In this form of valuation, the value of a company’s assets or the fair market value of its total assets after deducting liabilities is taken into consideration. This method has inherent technical complexities and often involves accredited industry expert valuers, hence it requires a certain degree of specialized sector knowledge.

          Business valuation is fundamental in not just knowing the value of your business; it also helps in strategic growth planning, in accomplishing your professional goals and at times, even in planning your retirement!

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          Liquidating your company on UAE Mainland

          Lavin Nalinababu, Business Consultancy

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            Liquidating your business in the UAE might seem like an easy process when compared to starting one. But this is just a misconception as liquidation process is quite complicated and the process usually takes 1-3 months depending on the jurisdiction and the activity. The process requires you to comply with numerous legal procedures. The government authorities concerned in the UAE should be notified about the liquidation of your firm and licenses must be cancelled.

            Here we will discuss in detail on the steps involved in the liquidation of your company on UAE mainland.

            Cancelling your business license
            This is one of the primary steps when it comes to liquidating a company in UAE, as it will inform government entities that you are no longer in business. Hence, unnecessary fines and penalties won’t be incurred on the license, which is usually the case if license is not renewed on time.

            In the case of a shareholding company, discharging the liabilities towards creditors and partners is mandatory.

            Formalities for cancelling your business license
            The procedure for cancelling a license is different for sole proprietorship (single shareholder companies), and companies with multiple shareholders. In the case of the former, cancellation must be applied via licensing authority and required clearances must be obtained from  various departments depending on the activity;

            • Ministry of Human Resources and Emiratisation
            • Directorate of Residency and Foreigners Affairs
            • The relevant water and electricity authority
            • The leasing entity
            • Customs
            • Federal tax authority

            Whereas, companies with shares need to liquidate their shares, collect the debts and pay creditors, prior to finalising with LICENSING AUTHORITY .Any company in UAE need to appoint a liquidator to carry out the liquidation process

            Steps to dissolve all kinds of companies 

            The process begins with preparing notarised minutes of the general assembly that confirms the company liquidation and the appointment of a liquidator. The next step requires you to arrange an official letter by a registered liquidator accepting his responsibilities.

            A form must be filled via licensing authority LICENSING AUTHORITY or other approved channels to apply for cancellation, following which a liquidation certificate will be issued by the licensing authority. You will have to publish the notice of liquidation in two local newspapers, which gives the debtors a grace period of 45 days to submit their claims.

            The next stage involves the following steps;

            • Submitting a declaration letter from the liquidator and the partners to LICENSING AUTHORITY . This is to ensure there isn’t any sort of objection from any parties during the grace period.
            • Getting necessary approvals from certain government departments and cancelling the firm establishment card at Ministry of Human Resources and Emiratisation. The visas of foreign partners sponsored by the company must also be cancelled at the respective General Directorate of Residency & Foreigners Affairs.
            • All the documents should be submitted to get approval for cancellation and for this, a fee stipulated by LICENSING AUTHORITY must be paid.

            One will be granted with the certificate of deregistration upon payment of fees.

            Another option, other than terminating your license, is to freeze the same. But this is applicable only if you plan to close your business for a short period of time and not permanently. Freezing of trade license is allowed for a period of three years and one need to pay certain amount of fee for this.

            In the case of civil works company, the notary public must authenticate a partnership cancellation. For sole proprietorship companies, a no objection letter must be obtained from the Ministry of Human Resources and Emiratisation, in addition to a residence cancellation proof for non-Gulf nationals.

            There are many who don’t bother to follow the procedures while planning to liquidate their company in UAE. This might not just get you into legal trouble, but will also affect any future plans to setup a company in the country.

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            UAE VAT Errors and ways to Rectify them

            Harish Elimban, Manager

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            HLB HAMT - Accounting Firm in UAE
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              When a person fails to charge and account for the correct amount of output VAT or does not recover the correct amount of input tax, it is considered as an error. This is applicable even if the taxpayer has overpaid or under-paid the amount to FTA.

              How to correct an error in tax invoice and treatment in tax return?

              If the tax amount on the invoice exceeds the correct amount, then the supplier must include the tax amount stated on the invoice within its tax return. If the error has been corrected by issuing a credit note, this is not applicable.
              Cases wherein the amount on the invoice is on the lower side, the supplier should account for the correct amount of tax on its tax return.

              Even if the tax originally charged was high or low, the error must be corrected by the supplier. If the tax charged is high, then a credit note must be issued and if the tax charged is lesser than the correct amount, a tax invoice with the correction must be issued.

              For example, if a supplier charges VAT on a zero-rated supply, then a credit note for the VAT the customer has paid must be issued to him. If VAT has not been charged on a standard rated supply by mistake, the tax-invoice with the correct VAT amount must be issued.

              What should a recipient of tax invoice with error do?

              The recipient must contact the supplier and request a credit note or an invoice, with the correct amount of tax stated in it. For a recipient to recover input tax, a valid tax invoice for the supply, showing the correct amount of tax charged is mandatory.

              What is the recourse that should be adopted if there is an error in FTA assessment?

              If the assessment issued by the FTA contains an error, it is considered as a tax error and should be corrected in the same manner as an error made by the taxable person. It is the value of the error that determines the way of correction.

              The error should either be corrected in the tax return for the period in which it was discovered, or a voluntary disclosure should be submitted.

              When is Voluntary disclosure required?

              1. If the error is discovered at a time when it cannot be corrected in the tax return, then a voluntary disclosure should be submitted to FTA (for example if the taxable person is no longer registered) or
              2. If the tax value of the error is more than AED 10,000, a voluntary disclosure is mandatory.

              When the taxable person notices an error, he/ she should submit the disclosure within 20 business days.

              What is the time limit the FTA has for assessments or by when can a taxable person disclose errors to FTA?

              Errors can be corrected within a time period of 5 years. The FTA can raise an assessment for, or a taxable person can report any error that occurred within 5 years from the end of the tax period in which the error occurred, to the FTA.

              This is not applicable in the case of tax evasion or non-registration. In these cases, the FTA can conduct a tax assessment up to 15 years from the end of the tax period in which the tax evasion occurred or from the date on which the taxable person should have been registered.

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              Refund of VAT Paid on Goods and Services Connected with Dubai Expo 2020

              Harish Elimban, Manager

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              HLB HAMT - Accounting Firm in UAE
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                Expo 2020 is a platform that promises creativity, innovation, and cultural diversity. With just months to go for the most awaited event, there is an air of uncertainty with regards to the VAT paid on goods and services associated with the expo, and its refund. The Federal Tax Authority has recently released the Cabinet Decision No. (1) of 2019 on the Refund of Value Added Tax Paid on Goods and Services connected with Expo 2020 Dubai.

                1. Should official participants of Expo 2020 pay VAT on goods and services and if yes, can they recover the VAT amount paid?Official Participants of Expo 2020 will have to pay VAT on Goods and Services connected to the expo as per normal UAE VAT rules. In certain situations, the offices of the Official Participants can recover VAT on certain Goods and Services which were imported or acquired. In the case of an official participant who has not registered for UAE VAT, a special refund application can be submitted to the bureau. If the official participant has registered for VAT, it can be reclaimed via UAE VAT return.
                2. What is the mandatory threshold limit for an official participant to register for VAT?An Official Participant can register for VAT only if the value of their taxable supplies or imports (for commercial or non-official purposes) in the UAE exceeds, or is anticipated to exceed, the mandatory registration threshold of AED 375,000.
                3. Can an official participant claim for refund if the VAT incurred on goods and services does not relate to taxable supplies?Under general principles, a person can recover VAT only if the goods and services are used or intended to be used for making taxable supplies. One cannot claim for refund if the VAT incurred on the goods and services does not relate to any taxable supplies.However, offices of the official participants can reclaim VAT for certain categories of goods and services, even if they are not used for taxable supplies.
                4. Who are official Participants?Countries and intergovernmental organisations which have received and accepted the official invitation from the State to participate in the Expo 2020 Dubai engaged in a non-commercial capacity as an exhibitor.
                5. Which are the categories of goods and services for which VAT can be reclaimed by the offices of the official participants?When it comes to the Offices of the Official Participants, VAT incurred on the import and acquisition of the following five categories of Goods or Services can be reclaimed, even if they are not used for making taxable supplies;
                  1. VAT incurred by the Official Participant on Goods and Services in direct connection with the construction, installation, alteration, decoration and dismantlement of their exhibition space;
                  2. VAT incurred by the Official Participant on Goods and Services in direct connection with the works and activities of organizing and operating the Official Participant’s exhibition space and any presentations and events within the Expo 2020 site;
                  3. VAT incurred by the Official Participant on Goods and Services relating to the actual operations of the Official Participant, provided that the value of each Good or Service for which the Office of the Official Participant makes a claim is not less than AED 200;
                  4. VAT incurred by the Official Participant in connection with all operations, services and activities provided for the purpose of participation in Expo 2020 Dubai, whether located within or outside the boundaries of the Expo 2020 Dubai site; and
                  5. VAT incurred on import of Goods for personal use of the Official Participant’s Section Commissioner-General, Section Staff and the Beneficiaries.

                  In addition to the above categories of expenses, where the office of the Official Participant is registered for VAT in the UAE, it may be able to recover VAT on other types of expenses under the general VAT rules.

                6. Is there any certificate required from EXPO 2020 Bureau for claiming the refund of VAT paid?In order to be eligible to reclaim VAT on expenses under categories A and/or B (or expenses which relate to multiple categories including A or B) in question 5 above, the Official Participant must be in possession of a Certificate of Entitlement issued by the Bureau. Where expenses do not relate to categories A and B, and are covered by categories C, D or E, then a Certificate of Entitlement is not required to apply for a refund.
                7. What is certificate of Entitlement?An Official Participant (whether its Office is registered or not registered for VAT) must apply for a Certificate of Entitlement before attempting to reclaim VAT on Goods and Services under categories A and B described in question 5 above. A certificate reference number will be provided to the Official Participant and must be referenced in all special refund applications concerning Goods and Services that fall under categories A and B.
                8. Can the goods imported for EXPO 2020, for which VAT refund has been claimed, be sold for consideration or transferred free?Where a refund has been granted to the Office of the Official Participant in respect of any import of Goods, the Goods cannot be sold for consideration or transferred free of charge without the prior consent in accordance with the procedures agreed upon between the FTA and the Bureau, and without payment of the Tax.
                9. Is there any provision to import goods without paying import VAT for EXPO 2020?In respect of imports made by Official Participants, it should be noted that they may use the special TRN (Tax Registration Number) allocated to the Bureau, in coordination with the Bureau, where the goods fall under categories A and B in question 5 above, and they hold a Certificate of Entitlement. Where the special TRN is used, no import VAT will be imposed in respect of the goods, and such goods should not be included in any refund application.

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                The CEO of next Decade

                Sumesh Krishna, Partner

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                  There are many things that CEO’s need to prepare or to be ready to accept in the next decade – and it won’t be as easy as the previous one. There are many things to adapt to, like AI, IoT, blockchain, big data, EQ and MQ of employees, amongst others. Managing people and processes will also be challenging – if CEOs don’t adapt to this fast-changing world, the consequences will impact all aspects of the business in any company, including their business model. In fact, business velocity has never been this fast, and CEOs need to take care of some essential aspects in order to succeed in the next decade.

                  Culture of Innovation

                  A McKinsey report revealed that culture is the number one obstacle to the digital effectiveness of any company. The older the company is, the more likely it is to be stuck with policies, procedures, layers of management, and risk averseness – the so-called “corporate cholesterol”.In light of this, CEOs need to bring more diverse thinking and team collaborations across the organisation. They have to create an environment that encourages creativity and innovation – IT engineers are now involved in different parts of the business, and the boundaries of professions are now fading to allow for a culture of innovation, which is penetrating the core of every business.

                  Transformation of productivity and smart machines

                   Typically, digital advancements will result in a productivity increase of ten to 30 percent, and this is expected to continue in a more structured way going forward, with productivity growth of two to three percent annually. It is also proven that combining emerging technologies with existing ones leads to significant productivity boost and reduced cost.

                  To make the most of this, CEOs need to keenly identify the business areas and scenarios that need a productivity boost – once identified it will be easier to decide the solutions or technologies to use to increase such productivity.Recent studies indicate that smart machines are getting smarter and more universal, not only for completing tasks previously reserved for humans, but also to complete what was thought to be impossible even for machines.

                  By the end of the next decade, companies will start to increase the functions of smart machines, software, apps. Employees will be able to develop personal toolkits of virtual twins with the help of artificial intelligence (AI), as well as software and devices that are more accessible to their personal or team-based activities. This will require CEOs to carefully balance their business between people and technology.

                  The world of data

                  At present, there is an increased clatter on data analytics, data management and data governance in the business world. Currently only 15 to 25 percent of the organisations are using data properly for their decision making or business understanding purposes. Data has become the business rather than a by-product of the business – it has crossed all the borders of both small business and big corporations.

                  An organisation’s data is available from each part of the business, from the reception desk, to accounting and finance, as well as CRM, IT Helpdesk, logistics, social media. Organisations need to combine all their data to have full visualisation and understand all key matters of the business – this will enable them to make logical and timely decisions.

                  Every business line, function and touchpoint in an organisation can be enabled for data collection with the help of AI,in order to quickly and intelligently process it in a meaningful form. Another aspect CEOs need to consider when handling data is privacy and ownership of data.

                  Organisations need to respect the local regulatory controls and law applicable to their company. When approaching the organisation’s data and planning to implement some tools, CEOs need to consider the following aspects as a minimum: visibility, flexibility, adaptability, and scaling.

                  HLB HAMT have extensive global expertise in data analytics and automation and employ many data scientists and solution experts to assist our vast clientele.

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                  Due Diligence in UAE, A Vital Element in Mergers and Acquisitions

                  Raghunath.T, Director

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                  HLB HAMT - Accounting Firm in UAE
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                    HP’s $11.1 billion acquisition of Autonomy was one of the biggest tech acquisitions in history. What actually stole the headlines is not the news of acquisition or the money involved, but HP’s decision a year later to write down $9 billion of its $11.1 billion acquisition. One might wonder the reason behind such a crucial decision.

                    Well, as alarming as it may sound, HP alleged that Autonomy forged its financial statements. The company accused “some former members of Autonomy’s management team” of using “accounting improprieties, misrepresentations and disclosure failures to inflate the underlying financial metrics of the company.”

                    What went wrong and where; a question that pondered every individual in the investment and technology arena. Inadequate due diligence is the reason behind such a crisis. Due diligence is the key to a successful acquisition, that gives you complete information about the company you plan to acquire.

                    Due diligence is of utmost importance in any Mergers & Acquisition process, regardless of the size or structure of the company. A mere glance at the financial sheets or company records, won’t do justice to the due diligence process. Developing and implementing a vigorous due diligence process involves wide-ranging activities.

                    The case of HP is not a rare one; there are numerous other companies that have become the scapegoats of incomplete or wrong due diligence process. A thorough examination is all that it takes to avoid any nasty surprise once you have signed the agreement.

                    While majority of the companies approach due diligence teams, in search for ‘red flags’, the process shouldn’t be limited to the same. Your checklist must include a detailed analysis of the financial, cultural, legal, and administrative background of the target company. This will help the management in predicting the success or failure of an acquisition before they proceed further.

                    Types of Due Diligence

                    Financial DD
                    Focuses on verifying the financial information provided and to assess the underlying performance of the business in terms of earnings, assets, liabilities, cash flow, debt, management etc.

                    Commercial DD
                    Aims at understanding the market through review of market conditions, sector specific legislation, competitor analysis, product or service assessment or any other commercial aspects the user wishes to investigate.

                    Tax DD
                    Assessment of tax impact arising from ‘change in control’, assessment of historical tax exposures, identifying tax saving opportunities, assessment of current tax position, assessment of various modes of tax neutral deal structuring

                    Human Resources DD
                    Focuses on the impact of human capital by identifying the qualifications, technical ability and working initiative of the target firm’s senior management personnel and key staff.

                    Operational DD
                    Consideration of non-financial (operational) matters of an investment decision, which may include assessment of systems and processes, review of the incumbent management team, staffing levels and other HR activities, or insurance arrangements and risk assessment.

                    Legal DD
                    Investigation of any legal risk associated with the rights and obligations of the investment decision. Issues may typically involve property ownership, intellectual property and employment disputes.

                    Environmental DD
                    Typically concerns compliance issues with environmental legislation, but recent trends for ethical and responsible business dealings have lead to a sharper focus on ‘green’ issues.

                    Administrative DD
                    Involves verifying admin-related items such as facilities, occupancy rate, number of workstations, etc. The idea is to verify the various facilities owned or occupied and determine whether all operational costs are captured in the financials.

                    Asset DD
                    Includes a detailed schedule of fixed assets and their locations, all lease agreements for equipment, a schedule of sales and purchases of major capital equipment during the last three to five years, real estate deeds, mortgages, title policies, and use permits.

                    Intellectual Property DD
                    Schedule of patents and patent applications, schedule of copyrights, trademarks and brand names, pending patents clearance documents, any pending claims case by or against the company in regard to violation of intellectual property.

                    Customer DD
                    Examination and analysis of the top customers, service agreements and corresponding insurance coverage, current credit policies, customer satisfaction score and related reports from the past three years.

                    An experienced due diligence team will help you recognize possible risks and potential opportunities and also ensures that not a single factor has been overlooked.

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