The UAE Ministry of Finance has introduced a Research & Development (R&D) Tax Credit regime through Cabinet Decision No. 215 of 2025, supported by Ministerial Decision No. 24 of 2026, which sets out the detailed implementation rules.
The regime allows eligible businesses to claim a non-refundable tax credit on qualifying R&D expenditure, with tiered credit rates of 15%, 35%, and 50%, linked to both expenditure levels and R&D staffing thresholds.
The credit may be used to offset Corporate Tax and, where applicable, Top-up Tax liabilities, and may be carried forward or transferred within a qualifying group, subject to specific conditions.
Importantly, the regime introduces mandatory project-level pre-approval, a minimum expenditure threshold, and documentation requirements, making early planning and governance critical.
Background and Legislative Framework
The R&D tax credit forms part of the UAE’s Corporate Tax regime established under Federal Decree-Law No. 47 of 2022.
- Cabinet Decision No. 215 of 2025 establishes the framework, including eligibility, qualifying activities, and creation of a tax credit balance.
- Ministerial Decision No. 24 of 2026 provides the operational mechanics, including credit rates, qualifying expenditure, and compliance requirements.
Overview of the R&D Tax Credit Regime
The regime operates as an expenditure-based credit, allowing taxable persons to generate a credit balance from qualifying R&D costs. This balance is utilised against Corporate Tax and Top-up Tax liabilities.
- Eligibility: Applies to UAE Taxable Persons (including juridical persons and permanent establishments) undertaking qualifying R&D in the State.
- Exclusions: Entities applying Small Business Relief (Article 21) are ineligible. Free Zone Persons are subject to specific restrictions; generally, they must be subject to the 9% Corporate Tax rate or Top-up Tax to qualify.
- Minimum Threshold: A project must reach a minimum expenditure of AED 500,000 per tax period to qualify.
Key Design Features of the Regime
The UAE R&D tax credit differs from traditional regimes in several important respects:
- Dual threshold model: Credit rates depend on both R&D expenditure and staffing levels, making workforce planning critical;
- Staff cost uplift: A 30% uplift on qualifying staff costs significantly enhances the effective benefit of the regime;
- Non-refundable credit: The credit can be used against Corporate Tax and Top-up Tax liabilities but cannot currently be reclaimed as a cash refund;
- Project-level approval requirement: Eligibility is contingent on prior approval from the Emirates Research and Development Council, increasing the importance of early engagement.
These features mean that operating model, resourcing, and governance structures will directly impact the value derived from the regime.
Credit rates and thresholds
The R&D tax credit is calculated using tiered rates based on the portion of expenditure within certain thresholds, provided staffing requirements are met:
| Qualifying expenditure (AED) | Min. average R&D staff | Credit rate |
|---|---|---|
|
First 1 million
|
At least 2
|
15%
|
|
Portion >1m up to 2m
|
At least 6
|
35%
|
|
Portion >2m up to 5m
|
At least 14
|
50%
|
If a staffing threshold is not met, the credit rate is adjusted downward to the highest rate for which both criteria are satisfied.
Qualifying R&D activities
Qualifying activities must align with internationally recognised principles (OECD Frascati Manual), including being:
- Novel: Aimed at producing new findings.
- Creative: Based on original concepts or hypotheses.
- Uncertain: The final outcome or method is unknown in advance.
- Systematic: Following a documented plan and budget.
- Transferable/Reproducible: Results must be capable of being applied in other contexts.
Only the UAE-based portion of activities qualifies where work is undertaken partly outside the UAE.
Note: Activities in the fields of social sciences, humanities, and the arts are expressly excluded.
Qualifying expenditure
- This is the primary value driver. Qualifying staff costs include salaries, wages, benefits, allowances, and pensions for employees or seconded workers under the entity's direct control.
- Overhead uplift: To simplify overhead accounting, the legislation mandates a 30% uplift on qualifying staff costs.
- EPWs: Externally Provided Workers (contractors or staff-provider employees) also qualify if they are supervised by the taxpayer within the UAE.
- Excluded: Employee stock option plans.
Includes items directly used and transformed or consumed during R&D (e.g., fuel, power, water, or specific materials) such that they are no longer usable in their original form. Clinical trial payments to subjects and non-capital intangible license fees are also included.
Fees paid to third parties for R&D are eligible only if:
- The subcontractor is based in the UAE.
- The activities are performed in the UAE.
- The subcontractor does not further subcontract the work to another party.
Entities can share R&D risks and costs via a CCA. The credit is based on the entity’s arm’s length contribution corresponding to its expected benefit.
Approval and compliance requirements
The regime introduces strict compliance obligations, including mandatory pre-approval of R&D projects by the Emirates Research and Development Council. Given this requirement businesses should not assume that expenditure incurred prior to approval will qualify.
Compliance includes:
- Technical Documentation: Written and electronic records of objectives, methodologies, and findings.
- Record Retention: Documentation must be kept for at least 7 years.
- Claw-back: Credits must be repaid with penalties if a qualifying entity ceases to be a Taxable Person or becomes a Qualifying Free Zone Person within 5 years of the last claim.
- Anti-Abuse: The Authority may counteract artificial separation of businesses intended to bypass expenditure thresholds.
- Claims must be submitted via the Corporate Tax Return or Top-up Tax Return.
Utilisation, Carry Forward and Transfer of Credits
The R&D tax credit gives rise to a tax credit balance, which may be utilised in accordance with the UAE Corporate Tax regime and the relevant implementing decisions.
Utilisation of R&D tax credits
The R&D tax credit may be used to:
- Offset Corporate Tax liabilities in the relevant tax period; and
- Offset Top-up Tax liabilities, where applicable
The credit operates as a post-tax adjustment, reducing the tax payable rather than taxable income. Where the available R&D tax credit exceeds the tax liability for a given period, the excess may be carried forward to subsequent periods.
Carry-forward of R&D tax credits
Unutilised R&D tax credits may be carried forward to future tax periods, enabling taxpayers to utilise the credit where sufficient taxable income arises. However, the utilisation of carried-forward credits is subject to conditions designed to prevent misuse, including continuity of ownership and continuity of business. Failure to meet these conditions may result in the restriction or forfeiture of previously accumulated R&D tax credits.
Transfer of R&D tax credits within a group
Interaction with UAE Corporate Tax Framework
Corporate Tax treatment
The credit operates as a post-tax adjustment, reducing tax payable rather than taxable income.
Free Zone considerations
Free Zone entities should carefully assess eligibility. In particular the credit is generally only available where the relevant income is subject to 9% Corporate Tax, or the entity is subject to Top-up Tax.
Pillar Two implications
For multinational groups, the classification of the credit is critical as it may impact the Effective Tax Rate (ETR) and the calculation of Top-up Tax liabilities under Global Minimum Tax (Pillar Two) rules.
Practical considerations
The introduction of the R&D tax credit regime presents a significant opportunity for businesses undertaking innovation activities in the UAE; however, accessing and optimising the benefit of the regime will require careful planning, robust processes, and alignment with the legislative requirements.
From a practical perspective, businesses should first assess whether their activities meet the technical definition of qualifying R&D, including alignment with the OECD Frascati principles. This may require a detailed review of existing operations, particularly where activities are not formally documented as R&D but may still meet the qualifying criteria.
Beyond this, businesses should ensure that appropriate processes are in place to manage project-level approvals, track qualifying expenditure, and maintain the required supporting documentation. Consideration should also be given to how operating models, staffing levels, and group structures may impact the ability to generate and efficiently utilise R&D tax credits.
How we can help
We can support businesses by:
- Assessing eligibility of activities against legislative requirements such as Frascati principles.
- Identifying and quantifying qualifying R&D expenditure.
- Advising on structuring of R&D activities and group arrangements.
- Supporting with R&D project submissions and pre-approval processes.
