The UAE has officially introduced a new Research and Development (R&D) tax credit regime to support innovation and strengthen its position as a global innovation hub.
The regime offers a tiered, non-refundable tax credit on certain eligible R&D expenditure, capped at AED 5 million per tax period or fiscal year, with rates linked to employee headcount. It also includes anti-abuse measures and requires prior approval of R&D projects by the Emirates Research and Development Council.
The Ministry of Finance has stated that this is Phase 1 of the wider R&D Tax Incentives Programme, with further developments expected in Phase 2.
Introduction
On 18 March 2026, the Minister of State for Financial Affairs issued Ministerial Decision No. 24 of 2026 on the Implementation of Certain Provisions of Cabinet Decision No. 215 of 2025 on R&D Tax Credit for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. This Decision fleshes out the practical rules for Phase 1 of the UAE’s R&D Tax Incentives Programme and must be read hand-in-hand with Cabinet Decision No. 215 of 2025.
The entire regime applies to all Tax Periods or Fiscal Years beginning on or after 1 January 2026. It is built on the foundation of Federal Decree-Law No. 47 of 2022 (the Corporate Tax Law), Federal Decree-Law No. 28 of 2022 on Tax Procedures, and the Top-up Tax rules contained in Cabinet Decision No. 142 of 2024 on the Imposition of Top-up Tax on Multinational Enterprises.
This Article is a Part of Our Taxation and Taxes in the UAE: A Comprehensive Overview.
Who Can Benefit from the R&D Tax Credit?
- The credit is available to Qualifying Entities that are subject to Corporate Tax and/or Top-up Tax and that carry out Qualifying R&D Activities.
- This includes UAE-incorporated companies (mainland and Free Zone) as well as foreign entities operating through a permanent establishment in the UAE.
- Free Zone Persons qualify only if they are paying the 9% Corporate Tax rate or are subject to Top-up Tax.
- Those enjoying the 0% rate as Qualifying Free Zone Persons (and not subject to Top-up Tax) are excluded.
- Entities that have elected small business relief or any other categories specified by the Minister are also ineligible.
- The Tiered Structure of the Non-Refundable R&D Tax Credit is as follows:
- 15% on the first AED 1 million of Qualifying R&D Expenditure, provided the average number of R&D Staff is at least 2
- 35% on the portion of expenditure exceeding AED 1 million up to AED 2 million, provided the average number of R&D Staff is at least 6
- 50% on the portion exceeding AED 2 million up to AED 5 million, provided the average number of R&D Staff is at least 14
- The maximum eligible expenditure is capped at AED 5 million per Qualifying Entity or Tax Group in each Tax Period or Fiscal Year.
- The credit is strictly non-refundable and can only be used to reduce the Corporate Tax and/or Top-up Tax liability of the Qualifying Entity, Tax Group, or Domestic Group.
- Any unused credit may be carried forward to future periods.
- When a Tax Group has more than one Qualifying Entity, the Qualifying R&D Expenditure and R&D Staff of all members are aggregated to test the thresholds.
- Special aggregation rules apply for Cost Contribution Arrangements.
- The average number of R&D Staff is calculated by adding the total R&D Staff count for each month (even if they worked only part of the month) and dividing by the number of months during which Qualifying R&D Activities were carried out.
- For subcontracted work, the staff of both the Qualifying Entity and the subcontractor are taken into account.
- In Cost Contribution Arrangements, staff engaged through the arrangement are counted collectively.
- To access a particular rate, both the expenditure threshold and the corresponding staff threshold must be satisfied.
- If either is missed, the credit automatically drops to the highest rate for which both conditions are met.
What Constitutes a Qualifying R&D Activity?
An activity carried out in the UAE as part of an R&D Project qualifies only if it meets all of the following five conditions:
- It is novel – it aims to produce new findings;
- It is creative – it involves original concepts or hypotheses;
- It is uncertain – the outcome or the way to achieve it is not known in advance;
- It is systematic – it follows a structured plan and budget;
- It is transferable or reproducible – the results can be applied or repeated in other contexts.
The assessment is made by reference to the Frascati Manual on Guidelines for Collecting and Reporting Data on Research and Experimental OECD Development. If part of the project is performed outside the UAE, only the UAE portion counts as a Qualifying R&D Activity. Activities in the fields of social sciences, humanities, and the arts are explicitly excluded.
Mandatory Pre-Approval and Ongoing Oversight
- Mandatory Pre-Approval and Ongoing Oversight is required.
- Pre-approval from the Emirates Research and Development Council (the Council) is compulsory for every R&D Project on which the credit is claimed.
- The application must follow the form, manner, and timeline set by the Council.
- The Council also has discretion to request periodic progress updates together with technical documentation.
- These updates are to confirm that the actual work and spending remain consistent with what was pre-approved.
Carry-Forward of Unused Credits
Unutilised credits may be carried forward and used in later periods only if one of two conditions is satisfied:
- The same person or persons have continuously held at least 50% ownership interest in the Qualifying Entity from the period the credit arose until the period it is utilised, or
- Where ownership has changed by more than 50%, the Qualifying Entity continues to carry on the same or a similar Business or Business Activity (determined by applying the factors listed in Clause (2) of Article 39 of the Corporate Tax Law.
These restrictions do not apply to Qualifying Entities whose shares are listed on a Recognised Stock Exchange. In qualifying business restructurings, the transferee must maintain the required continuity for the entire carry-forward period.
Transfer of Credits Within Groups
- A Qualifying Entity (transferor) may transfer unutilised credits to another juridical person subject to Corporate Tax and/or Top-up Tax.
- The transfer is permitted provided there is at least 75% direct or indirect common ownership that is maintained throughout the relevant periods.
- The transferee must use the transferred credit in the same Tax Period or Fiscal Year against its own tax liability (after using its own credits first).
- The transferred amount cannot be carried forward or further transferred by the transferee.
- The transferor must reduce its available credit accordingly.
Business Restructuring and Safeguards
- The transfer is allowed where the entire Business or an independent part of it is transferred.
- The transferee must continue the transferred Business, including the associated Qualifying R&D Activities, for at least two years from the date of transfer.
- If the Qualifying R&D Activities are discontinued within those two years, a claw-back is triggered.
Claw-back is an act of retrieving money already paid out, typically by taxation.
- Utilised credits must be repaid.
- Unutilised credits are forfeited.
- No other tax reliefs or losses may offset the claw-back liability.
- If a claw-back arises on the transferor after the transfer and the transferor has ceased to exist as a taxable person, the liability shifts to the transferee.
Detailed Rules on Qualifying R&D Expenditure
Staff Costs cover salaries and related expenses for R&D Staff (full-time employees or externally provided workers) who are directly and actively engaged in Qualifying R&D Activities in the UAE and work under the Qualifying Entity’s supervision, direction, and direct control. A 30% uplift is added to these costs to reflect reasonable overheads. Eligible items include salaries, wages, allowances, medical insurance, pension contributions, end-of-service gratuity, bonuses, benefits in kind, and other contractual employment expenses. Training costs related to the R&D Activities are also included. Employee stock option plans and intra-group recharges are excluded. Where an employee spends only part of their time on R&D, only the proportionate cost qualifies.
Consumable Costs include the costs of materials or items that are directly used up or transformed in Qualifying R&D Activities and cannot be reused in their original form (such as water, fuel, or power). Non-capital licence fees and payments to clinical trial participants are also covered. Only the portion directly attributable to the R&D qualifies. Costs of items bought from another Tax Group member or sold in the ordinary course of business do not qualify.
Subcontracting Fees are payments for contracting out Qualifying R&D Activities to a UAE-based person, provided the work is performed in the UAE, is not further subcontracted, and is not linked to a foreign permanent establishment. If the parties are related, the subcontractor must have audited financial statements, and the fees must follow the arm’s-length principle. Intra-group subcontracting within the same Tax Group is not eligible.
Cost Contribution Arrangements (CCA) allow participants to share costs and risks for joint R&D that benefits their businesses. Only the Qualifying Entity’s arm’s-length contribution that matches its expected share of benefits qualifies, and only to the extent it relates to Qualifying R&D Activities carried out in the UAE.
In addition, all expenditure must meet the following general conditions:
- Minimum threshold of AED 500,000 per R&D Project (excluding the 30% staff uplift)
- Incurred wholly and exclusively for Qualifying R&D Activities
- Deductible for Corporate Tax purposes
- Not funded by government grants
- Not benefiting from any other tax incentive
Record Keeping Requirements
A Qualifying Entity must maintain technical documentation sufficient to demonstrate that the activities undertaken constitute Qualifying R&D Activities and the associated expenses constitute Qualifying R&D Expenditure for the purposes of claiming the credit for a period of seven years following the end of the tax period or fiscal year to which they relate, and may be obliged to provide such documentation to the Council and/or the FTA upon request.
The technical documentation should include a comprehensive collection of written, visual, and electronic records detailing the objectives, processes, methodologies, experiments, and findings associated with the Qualifying R&D Activities.
Special Rules for Tax Groups
- Credits arising to a member of a Tax Group are utilised against the Group’s Corporate Tax liability.
- Pre-Grouping credits of a new member joining the Tax Group are used first.
- Corporate Tax utilisation takes priority over Top-up Tax, carry-forward, or transfer.
- On exit from a Tax Group, the Group retains its credits except for pre-Grouping credits of the exiting member.
- On cessation of the Tax Group, all remaining credits stay with the Parent Company (if it remains a taxable person) except for pre-Grouping credits.
- Claw-back liability is joint and several among all former members of the Tax Group.
- Penalties related to claw-back fall on the Parent Company.
The Parent Company is responsible for obtaining pre-approval and filing the claim on behalf of the Group.
Special Rules for Domestic Groups under Pillar Two
For Domestic Groups subject to Top-up Tax, credits are used to reduce the Group’s Top-up Tax liability after Corporate Tax utilisation. Joint and several liability applies for claw-backs, with penalties falling on the relevant Constituent Entities, Joint Ventures, JV Subsidiaries, or the Domestic Designated Filing Entity. Where the Qualifying Entity is not subject to Corporate Tax, the Domestic Designated Filing Entity handles pre-approval and filing.
Anti-Abuse Measures
- Any artificial separation of a Business or Business Activity intended to access higher credit thresholds is treated as an arrangement to obtain a Corporate Tax advantage. In such cases, the Authority may counteract the arrangement, claw back any utilised credits as Payable Tax or Due Tax, and forfeit unutilised credits.
- A general anti-abuse rule applies: if an arrangement is entered into mainly or partly to obtain or increase the R&D tax credit in a manner that lacks economic substance or is inconsistent with the genuine nature of the R&D Activity, the Authority may adjust the arrangement and trigger a claw-back.
- Additionally, if within five years from the end of the Tax Period in which a credit was last claimed, the Qualifying Entity ceases to be a Taxable Person, becomes a Qualifying Free Zone Person, elects small business relief, enters liquidation, or redomiciles outside the UAE, all utilised credits will be clawed back and any unutilised credits will be forfeited. This five-year rule does not apply to business restructurings that fully comply with the relevant restructuring provisions.
Final Thoughts for Businesses
Ministerial Decision No. 24 of 2026 creates a robust, substance-focused incentive with clear tiered benefits, mandatory pre-approval, detailed qualifying tests, and strong anti-abuse protections. While Phase 1 is deliberately non-refundable for administrative simplicity and predictable Pillar Two outcomes, the detailed rules on staff calculations, expenditure categories, group aggregation, carry-forward restrictions, and claw-back triggers demand careful planning.
Businesses intending to claim the credit should begin by mapping their R&D projects against the five qualifying conditions, ensuring they can meet the relevant staff thresholds, securing timely pre-approval from the Emirates Research and Development Council, and implementing watertight documentation and record-keeping systems that will stand up to scrutiny for seven years.
This article is provided for general information purposes only and does not constitute legal advice. Each situation is unique and professional advice tailored to your specific facts and the official texts of Ministerial Decision No. 24 of 2026, Cabinet Decision No. 215 of 2025, and the underlying laws should always be obtained.
