Valuing Employee Share Schemes in the UAE and DIFC

By Bill Anderson, FCCA, Chief Executive Officer, Assetica — 2026-06-27

Direct Answer: Every employee share scheme needs a defensible valuation of the underlying shares at each grant date. It sets the exercise price for options, fixes the benefit being given, supports the accounting charge under IFRS 2, and evidences arm's length value for UAE corporate tax where the company, founders and employees are connected parties. Most UAE and DIFC companies commission a valuation at launch and refresh it annually or at each funding round.

Share schemes have moved from a Silicon Valley import to a mainstream UAE retention tool, particularly for startups and DIFC firms competing for senior talent. What has not caught up is valuation discipline. Options granted at arbitrary prices create accounting, tax and shareholder problems that surface years later, almost always at the worst moment: in due diligence for a sale or a funding round.

Team reviewing a share scheme document in a meeting room

Why every grant needs a valuation

An option or a share award is a transfer of value from the company to an employee. Without a supportable valuation at the grant date you cannot set a rational exercise price, cannot compute the share-based payment charge your auditor will ask for, and cannot show that awards between connected parties reflected market value.

There is a commercial reason too. A buyer's due diligence team will re-price historic grants. Undocumented ones become a negotiating discount, or worse, an indemnity. The cost of a valuation at grant is trivial against the cost of defending the absence of one three years later.

What the valuation is actually setting

Use	What depends on the number
Exercise price	Whether the option is priced at, above or below current value, and therefore how much benefit is being transferred
Accounting charge	The IFRS 2 expense recognised over the vesting period, which reduces reported profit
Tax position	Evidence that a connected-party award reflected arm's length value
Employee communication	What the grant is actually worth, which determines whether it retains anyone
Cap table integrity	Dilution modelling that survives a funding round or a sale process

Valuing private company shares for a scheme

The starting point is an enterprise valuation using the standard approaches: discounted cash flow, market multiples and, where relevant, an asset cross-check. Our guide to enterprise value versus equity value explains the bridge from one to the other, which matters here because employees receive equity, not enterprise value.

From that equity value, a scheme valuation then applies adjustments the headline number does not. This is where most do-it-yourself attempts go wrong: they take a funding-round headline valuation, divide by the share count, and call it the ordinary share price. That is almost never right.

Minority and marketability discounts

An employee receiving a fraction of one per cent of a private company has no control over anything and no way to sell. Both facts reduce what the stake is worth relative to a pro rata share of the whole.

A minority discount reflects the absence of control: no ability to force a dividend, appoint a director, or influence an exit. A discount for lack of marketability reflects the absence of a market: no buyer on demand, and often transfer restrictions in the articles that make a sale practically impossible before an exit event. The size of each depends on the specific rights in the documents, which is why the articles and the shareholders agreement are the first things to read.

The preference stack problem

In funded companies the ordinary shares that employees receive sit beneath the preference shares that investors hold. If investors have a liquidation preference, they are paid first on an exit, and only what remains flows to the ordinary shares.

The practical consequence is stark. A company that raised at a headline valuation of AED 100 million with AED 30 million of preference ahead of the ordinary shares does not have ordinary shares worth a pro rata slice of AED 100 million. In a modest exit they may be worth very little, and in a strong one they participate fully. Valuing the ordinary share properly means modelling the outcomes across a range of exit values and weighting them, rather than dividing a headline by a share count. Our DIFC startup and venture capital valuation guide covers how these structures are read.

An illustrative option grant

Round numbers, illustrative only. A DIFC technology company has an equity value of AED 40 million on a fully diluted basis and 10 million shares in issue. A naive calculation gives AED 4.00 a share.

The company has raised AED 12 million with a one times liquidation preference sitting ahead of the ordinary shares. Modelling exit outcomes across a range, rather than at a single point, reduces the value attributable to each ordinary share. A senior hire receiving options over 50,000 shares is then granted at an exercise price reflecting that adjusted figure, with the minority and marketability discounts applied on top, and the report states each adjustment and its basis.

The point of the example is not the arithmetic. It is that three separate adjustments sit between the headline number and the number that belongs on the option certificate, and each one has to be evidenced.

DIFC and ADGM schemes

DIFC and ADGM companies operate under their own common law frameworks, with statutory share registers and English-language courts. For share schemes this matters in a practical way: the register makes the ownership position unambiguous, and the enforceability of the scheme rules is more predictable, which is part of why the structures are popular with internationally mobile senior hires.

The registration and corporate requirements are set out by the DIFC and by ADGM respectively, and the specifics of what a scheme has to do should be confirmed with counsel for your entity type. What does not change is the valuation requirement: a common law wrapper does not make an unsupported exercise price defensible. Our note on the jurisdiction premium explains how registration affects value more broadly.

UAE corporate tax and connected parties

Where a company, its founders and its employees are connected, awards between them attract the arm's length principle under the UAE corporate tax regime. The Federal Tax Authority corporate tax pages set out the regime, which applies at 9 per cent on taxable income above AED 375,000 and 0 per cent below, with Qualifying Free Zone Persons at 0 per cent on qualifying income.

The exposure is not usually the grant itself. It is the absence of contemporaneous evidence that the grant was priced sensibly, which leaves the position to be reconstructed years later against a standard nobody agreed at the time. See our guide to valuation under UAE corporate tax, and confirm your own position with your tax adviser, because how the rules apply depends on your structure.

IFRS 2 and the accounting charge

Share-based payments are an expense. IFRS 2 requires the fair value of the award at grant date to be recognised over the vesting period, whether or not any cash moves. Auditors will ask for the model, the inputs and the basis for each.

For options this usually means an option pricing model, which needs a volatility assumption, an expected life and a risk-free rate alongside the underlying share value. For private companies volatility has to be derived from comparable listed businesses and explained. The share value itself is the input that drives everything else, which is why the scheme valuation and the accounting charge should come from the same piece of work rather than two unrelated exercises.

What actually goes wrong without one

The failures follow a pattern, and none of them appear at the time of the grant. They appear when somebody outside the company reads the cap table for the first time.

The exercise price cannot be explained. A round number chosen because it seemed fair. In diligence the buyer asks how it was derived, and there is no answer on file.
The accounting charge was never taken. The auditor raises it in a later year, and the correction lands in a comparative period that has already been reported.
Employees hold a different belief from the documents. People told they hold shares worth a headline multiple discover a preference stack ahead of them at the exit, which damages trust exactly when retention matters most.
The tax position is reconstructed under pressure. Evidence assembled years later, against a standard nobody agreed at the time, is weaker than a short report written at the grant date.
The cap table does not reconcile. Grants recorded in a spreadsheet, options promised in offer letters but never issued, and a scheme pool that does not tie to the articles.

What a buyer's diligence team will ask

If a sale is anywhere in the plan, it is worth knowing the questions in advance, because they are consistent. Who approved each grant and under what authority. How was the exercise price determined on each occasion, and by whom. Does the scheme pool in the articles match the grants actually made. What happens to unvested awards on a change of control, and does the wording do what management thinks it does.

Every one of those is answerable in a sentence if the valuation and the paperwork were done at the time, and expensive to answer if they were not. Our guide to shareholder buyout valuation covers the related question of pricing a leaver's stake, which the same documents usually govern.

A practical cadence for refreshing the valuation

At scheme launch. Before the first grant, so the rules and the first exercise price rest on the same analysis.
Annually. A refresh before the grant cycle, so awards made through the year sit on a current figure rather than a stale one.
At each funding round. A round changes both the equity value and the preference stack, and the ordinary share value moves with both.
Before a sale process. So historic grants can be explained in diligence rather than defended.
On any material change. A large contract won or lost, a new jurisdiction, a change in the articles that affects transfer rights.

Getting a scheme valuation done

If you are launching a scheme, granting into an existing one, or preparing for a round or a sale with historic grants on the cap table, the valuation is the document that makes the rest defensible.

Assetica prepares share scheme valuations to the International Valuation Standards, from Office 304, Icon Tower, Barsha Heights, for mainland, DIFC and ADGM companies. We do not audit and we do not broker deals, so we have no stake in the number. A standard report takes five to seven business days from complete documents, two to three expedited. Use the valuation calculator for an indicative range first if it helps, read about our business valuation service, or book a scoping call through our contact page.

Granting options this year?

Set the exercise price on evidence rather than a headline, and keep the IFRS 2 charge and the tax position on the same piece of work. Five to seven business days from complete documents.

Book a scoping call

Frequently Asked Questions

Do we need a valuation before granting employee options?

Yes. The valuation sets the exercise price, supports the IFRS 2 accounting charge your auditor will ask for, and evidences that an award between connected parties reflected market value. Grants made without one are commonly re-priced by a buyer in due diligence, where they become a negotiating discount or an indemnity.

Can we just use our last funding round valuation?

Not directly. A round sets a price for preference shares with rights employees do not receive. The ordinary shares sit beneath any liquidation preference, and an employee stake also carries minority and marketability discounts. Each of those adjustments has to be modelled and evidenced separately rather than assumed away.

How often should the scheme valuation be refreshed?

At launch, then annually before the grant cycle, and again at each funding round because a round changes both the equity value and the preference stack. A refresh is also sensible before a sale process, and after any material change such as a large contract won or lost or a change to transfer rights.

Are DIFC share schemes valued differently?

The valuation methodology is the same. What differs is the surrounding framework: DIFC and ADGM operate common law systems with statutory share registers and English-language courts, which makes ownership unambiguous and scheme rules more predictably enforceable. It does not reduce the need for a supportable exercise price.

What does UAE corporate tax mean for share awards?

Where the company, its founders and its employees are connected, the arm\u2019s length principle applies to awards between them. Corporate tax runs at 9 per cent on taxable income above AED 375,000 and 0 per cent below, with Qualifying Free Zone Persons at 0 per cent on qualifying income. Confirm your own position with your tax adviser.

What is the IFRS 2 charge and who calculates it?

IFRS 2 requires the fair value of a share-based award at grant date to be expensed over the vesting period, even though no cash moves. An option pricing model produces it, using the underlying share value together with volatility, expected life and a risk-free rate. The share value should come from the same valuation that set the exercise price.

Speak to Assetica about Tax, IFRS & Specialist Valuation

Assetica is an independent business valuation firm in Dubai. We do not audit and we do not broker deals, so the number carries no conflict. Read more about tax, ifrs & specialist valuation, or book a free scoping call. Standard reports are issued in five to seven business days.