On 18 March 2026, the Ministry of Finance (MoF) introduced a new Research & Development (R&D) Tax Credit framework through Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026. This framework aligns with the UAE Corporate Tax Law and Pillar Two Top-up Tax rules, effective for financial years starting on or after 1 January 2026.

This initiative marks a major step toward positioning the UAE as a global hub for innovation, advanced industries, and emerging technologies.

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Overview of the R&D Tax Credit Framework

The R&D Tax Credit is currently launched as Phase 1, with expectations of future enhancements such as refundable credits and expanded qualifying expenditure in Phase 2.

• Applies to UAE juridical persons (including Free Zone entities)
• Includes foreign entities with a UAE Permanent Establishment
• Must be subject to Corporate Tax or Top-up Tax
• Entities under Small Business Relief are not eligible

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R&D Tax Credit Rates

The tax credit is calculated using a tiered structure based on expenditure and staffing levels:

Qualifying R&D Expenditure	Minimum R&D Staff	Tax Credit Rate
Up to AED 1 million	At least 2	15%
AED 1M – AED 2M	At least 6	35%
AED 2M – AED 5M	At least 14	50%

Note: The total R&D Tax Credit is capped at AED 2 million per tax period and can only offset Corporate Tax or Top-up Tax liabilities.

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Qualifying R&D Activities

To qualify, R&D activities must follow the OECD’s Frascati Manual and meet all of the following criteria:

• Novel: Introduces new knowledge or innovation
• Creative: Based on original concepts
• Uncertain: Outcome is not guaranteed
• Systematic: Conducted in a structured manner
• Transferable: Results can be reproduced or shared

Excluded: Activities related to social sciences, humanities, and the arts.

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Qualifying R&D Expenditure

Eligible costs include:

• Staff salaries and wages
• Consumables and materials
• Subcontracting expenses
• Cost-sharing arrangements (arm’s length)
• Capitalized costs for internally developed intangibles

Important Conditions

• Minimum AED 500,000 spend per R&D project
• Costs must be directly linked to R&D activities
• Expenses must be tax deductible
• No double benefits with other incentives
• Excludes grant-funded expenditures

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Pre-Approval & Compliance Process

1. Submit application to the Emirates Research and Development Council
2. Obtain approval for each R&D project
3. File tax return with supporting documentation
4. Provide audited financials and expenditure breakdown

The Council may also require additional reporting, including project progress updates.

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Utilization of Tax Credit

• First offset against Corporate Tax
• Then applied to Top-up Tax (if applicable)
• Unused credits can be carried forward
• Credits may be transferred under certain conditions

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Important Considerations

• Non-compliance may result in clawback of claimed credits
• Joint liability may apply under group structures
• Business transfers may trigger clawback if discontinued within 2 years
• Anti-abuse rules prevent artificial structuring

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Key Takeaways

• Phase 1 credits are non-refundable
• Future phases may introduce expanded benefits
• Early preparation is critical due to compliance requirements
• Coordination between tax, finance, legal, and R&D teams is essential
• Transfer pricing and cost-sharing structures should be reviewed

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Conclusion

The UAE’s R&D Tax Credit framework presents a valuable opportunity for businesses to reduce tax liabilities while driving innovation. However, the complexity of eligibility rules and compliance requirements means companies must act early, assess their R&D activities, and prepare proper documentation to fully benefit from this initiative.