General Anti-Abuse Rules GAAR Under UAE Corporate Tax Law

UAE Corporate Tax Law includes GAAR to challenge arrangements that mainly aim to get a tax benefit without strong business reasons. UAE Corporate Tax Law GAAR risk is usually lower when transactions match real operations and have clear documentation.

GAAR is not about routine tax planning or normal structuring. It is a test of intent and substance, based on facts, documents, and commercial behaviour.

What GAAR Means in Practical Terms

GAAR is a broad anti-abuse tool that tax authorities can apply when an arrangement looks artificial in practice. The focus is often on the main purpose and the realistic economic outcome, not only on legal form.

In simple terms, a structure can be questioned if it creates a tax outcome that seems out of line with the business reality. This can happen when documents say one thing but cash flow, staff actions, and decision making show something else.

GAAR reviews often look at timing. If steps happen just before a filing deadline and reverse soon after, that pattern can raise doubts. It can also look at circular cash flows, where money leaves and returns with no real commercial change.

Why GAAR Exists Under corporate tax law UAE

GAAR exists to protect the corporate tax base and discourage paper-only arrangements. Under corporate tax law UAE, the general expectation is that tax outcomes should follow real commercial outcomes, based on  current guidance and how the rules are applied in practice.

This does not mean every tax efficient decision is abusive. It means decisions should have a business driver that can be explained without relying on tax benefits as the main reason.

A common theme is proportionality. If an arrangement is complex but the business benefit is unclear, it can look like it was built mainly to shift profit, shift costs, or access a preferred tax position.

Common GAAR Triggers Tax Teams Notice Early

GAAR concerns often show up during bookkeeping reviews, not only during filing. A finance team can spot issues by looking at who does the work, who bears the risk, and who controls decisions.

Typical red flags include:

• Contracts that do not match actual operations and delivery steps
• Fees paid to related parties without work logs or measurable output
• Short-term transfers of assets followed by quick reversals
• Transactions routed through entities with no staff or real decision authority

A red flag is not proof. It is a signal to strengthen documentation and confirm the business purpose.

Business Examples With AED Values That Show the Risk

Example one service fee without real service

A UAE entity pays AED 600,000 per year to a group company for “management support.” The invoice exists, but there are no reports, meeting notes, or KPIs.

In practice, the UAE team runs operations on its own, and the fee looks like profit shifting. If the service cannot be shown, the fee can be challenged as not linked to genuine value.

A safer pattern is to keep a service scope document and keep evidence of delivery. Evidence can include monthly deliverables and internal approvals that show why the service was needed.

Example two IP charge that does not match market behaviour

A business moves a brand name to another group entity and then starts paying a royalty of 8 percent of revenue. Annual revenue is AED 10 million, so the charge becomes AED 800,000.

If the brand owner has no team managing the brand and no plan that supports the royalty rate, the transaction can look artificial. If the royalty was set without a method and has no comparable support, it can be hard to defend.

A more defensible approach is to document the valuation logicationale and keep notes that show how the rate was set, based on available benchmarks and commercial logic.

Example three step plan with no lasting change

An entity sells an asset to a related party for AED 2 million near year end. The asset returns to the original entity a few months later under a new arrangement.

If the asset never truly changed use, control, and risk, the step plan can look like form without substance. Timing and reversals can be key signals during a review.

A better approach is to avoid reversals that look pre-planned. If a reversal is unavoidable due to genuine events, the file should clearly explain the timeline and decision reasons.

Documentation That Lowers GAAR Risk in Practice

GAAR questions are usually handled with documents, not speeches. A strong file makes it easier to show that tax outcomes followed business needs.

Good documentation usually includes a short purpose note and supporting attachments. The purpose note should answer two points: what business issue the transaction solved and why this structure was chosen.

Supporting documents often include board minutes and approvals, but they need to match reality. If meetings did not happen, the file should not pretend they did. Authentic evidence is stronger than perfect looking packs.

Practical documents that help include signed agreements and internal emails that show decision timing. Work logs and deliverables can support service charges. Bank trails and invoice trails should line up with the contract terms.

How GAAR Connects to Substance And Operating Reality

Substance is a practical idea. It looks at where decisions are made, how work is performed, and who takes risks.

If an entity claims profit but has no staff and no control, the story becomes weak. If an entity claims a key role, but vendors and clients never interact with it, the claimed role can be questioned.

In UAE groups, substance support often involves real local management activity, documented authority, and clear operating roles. It also involves consistent accounting treatment that matches the contract and real events.

UAE Corporate Tax Law summary for Busy Finance Teams

UAE Corporate Tax Law summary for GAAR can be kept simple: if the main aim looks like tax benefit and the business benefit is thin, the position can be challenged based on facts and current guidance.

Following corporate tax legislation, most GAAR disputes can be reduced by improving two things: business purpose evidence and consistency between contracts and operations. If those are strong, the risk typically reduces.

Finance teams also benefit by reviewing related party payments each month. Early review helps avoid year-end reclassifications and rushed explanations.

How To calculate Corporate Tax in UAE Without Creating GAAR Issues

How to calculate Corporate tax in UAE starts with accounting profit and then applies adjustments based on current guidance and the entity’s facts. GAAR risk rises when adjustments rely on arrangements that cannot be supported with genuine commercial purpose.

A safer workflow is to keep a reconciliation note for each major adjustment and link it to evidence. If a deduction depends on services, keep proof of service delivery. If an income position depends on a structure, keep proof of substance.

A practical approach is to run a quarterly “purpose check” on large related party charges. If the purpose is unclear, resolve it early, or change the arrangement before year end.

Conclusion

 GAAR under UAE Corporate Tax Guide rewards firms that can show real business purpose, clear approvals, and proof that matches day-to-day actions. Arnifi helps build that defensible file early. 

It sets up ledgers, related party trackers, and evidence folders, then ties each adjustment to a short purpose note and supporting documents. With a monthly review, finance teams spot red flags before filing season, and reduce last minute rework and queries.

FAQs

What does GAAR usually target?

GAAR usually targets arrangements that look artificial and mainly tax-driven. Risk is lower when there is a clear business purpose and evidence that matches operations.

Can normal group recharges trigger GAAR?

Normal recharges can be acceptable if services are real and priced reasonably. Weak evidence, vague scopes, or no deliverables can increase challenge risk.

How should a business store GAAR evidence?

Store signed contracts and approval notes together with invoices and bank proof. Keep short purpose memos per transaction and keep work logs for service charges.

Does GAAR apply only to big groups?

GAAR can apply to any taxpayer if facts support it. Smaller firms can still face questions if transactions look circular or lack commercial logic.

What is a simple monthly control?

Review top related party invoices each month and confirm deliverables exist. Match contracts to actual delivery and confirm approvals are dated before the transaction starts.