UAE R&D Tax Credit

The UAE has introduced Research and Development (R&D) Tax Credit to encourage businesses to invest in innovation. This incentive is set out in Cabinet Decision No. 215 of 2025, issued under the UAE Corporate Tax Law, and the detailed rules on how the tax credit works are provided in Ministerial Decision No. 24 of 2026. The decisions apply to Tax Periods or Fiscal Years beginning on or after 1 January 2026. This development aims to position the UAE as a global innovation hub.

The Ministry of Finance has indicated the current framework as Phase 1 with potential enhancements in Phase 2.

We have summarised the key features below:

Research and Development (R&D)

• R&D refers to creative and systematic activities undertaken to expand the existing stock of knowledge, including human, cultural, and societal knowledge.
• These activities are aimed at developing new or improved products, processes, or applications, thereby enabling innovation and practical use of existing knowledge.

Qualifying R&D Activities

Activity conducted in the State as part of an R&D Project shall be considered a Qualifying R&D Activity where it meets all the following conditions:

• It is novel, in that it aims to produce new findings
• It is creative, involving original concepts or hypotheses
• It is uncertain, in that the outcome or means of achieving it are not known in advance
• It is systematic, following a plan and budget
• It is transferable or reproducible, such that its results can be applied or replicated in other contexts.

The interpretation of Qualifying R&D Activities is expressly aligned with the OECD’s Frascati Manual, which serves as the primary reference framework for assessing whether activities meet the required criteria of novelty, creativity, uncertainty and systematic investigation.

Qualifying R&D Activities shall not include any R&D activity conducted in the fields of social sciences, humanities and the arts.

Entities Eligible for R&D Tax Credits

The following entities shall be eligible to claim R&D Tax Credits, subject to meeting the applicable conditions:

• A juridical person that is incorporated, established, or otherwise recognised under the applicable legislation of the State, including a Free Zone Person, provided that such entity is subject to Corporate Tax and/or Top-up Tax and carries on Qualifying R&D Activities.
• A juridical person that is incorporated, established, or otherwise recognised under the applicable legislation of a foreign jurisdiction, where such entity carries on Qualifying R&D Activities through a Permanent Establishment in the State and is subject to Corporate Tax and/or Top-up Tax on the income attributable to that Permanent Establishment.

Excluded Entities

• Entities not subject to Corporate Tax or Top-up Tax
• Entities that have elected to apply Small Business Relief
• Any other entities as may be specified under a Ministerial Decision

Qualifying R&D Expenditure Categories

The following categories of expenditure shall constitute Qualifying R&D Expenditure, provided that such expenditure is incurred by a Qualifying Entity in the relevant Tax Period or Fiscal Year and is attributable to Qualifying R&D Activities.

Important points to note regarding Qualifying R&D Expenditure

• The total qualifying R&D expenditure must be at least AED 500,000 per R&D project per year.
• The expenditure must be tax deductible and should not include any portion funded, directly or indirectly, through grants.
• Such expenditure must not benefit from any other incentives, credits, exemptions, or reliefs under the UAE Corporate Tax Law.

Conditions to Claim the R&D Tax Credit

Key Conditions

• Must meet minimum number of employees involved in qualifying R&D activities
• Pre-approval from the Emirates Research and Development Council is required
• The entity must bear the financial burden of R&D activities and benefit from its results
• The Qualifying Entity is beneficially entitled to a share of the returns derived from the exploitation of the intangibles or other results of the Qualifying R&D Activities, including through their transfer or use in commercial operations.
• The R&D Project is aimed at increasing knowledge or developing new applications of existing knowledge, and the Qualifying R&D Activities are undertaken directly to achieve that objective.

R&D Tax Credit Rates

The R&D Tax Credit rates and the conditions for their application in each Tax Period or Fiscal Year shall be as follows:

The expenditure threshold and minimum R&D staff requirement must be met simultaneously. If either is not met, the rate will be adjusted downward to the highest qualifying tier.

Approval From Council

A Qualifying Entity shall obtain pre-approval from the Council (The Emirates Research and Development Council) for any R&D Project for which the R&D Tax Credit is claimed in the form, manner and within the timeline specified by the Council.

To support an R&D Tax Credit claim, a Qualifying Entity must maintain comprehensive and robust documentation, including detailed descriptions of R&D projects, technical reports and supporting analyses demonstrating the nature and objectives of the qualifying activities, employee time-tracking records evidencing staff involvement in R&D, cost allocation schedules supported by relevant invoices, and agreements governing any outsourced or subcontracted R&D activities.

Documentation Requirements for R&D Tax Credit Claims

Entities applying for the R&D Tax Credit are required to maintain and submit adequate supporting documentation to substantiate their claim. This includes:

• Evidence of pre-approval from the Emirates Research and Development Council
• A signed declaration from senior management confirming the accuracy and completeness of the submitted information
• A detailed statement of qualifying R&D expenditure, prepared in accordance with the prescribed requirements
• Audited financial statements of the qualifying entity
• Any additional documentation may be required under a relevant Ministerial Decision

Maintaining proper documentation is essential to ensure compliance and support the validity of the claim under the UAE Corporate Tax framework.

Carry Forward of Unused R&D Credits

Unused R&D credits may be carried forward to subsequent tax periods, subject to the following conditions:

• At least 50% ownership continuity is maintained: or
• In cases where ownership changes by more than 50%, the entity continues to carry on the same or similar business

These conditions do not apply to Qualifying Entities listed on a Recognised Stock Exchange.

Transfer of R&D Tax Credits

R&D Tax Credits may be transferred within a group if there is at least 75% common ownership. The credit must be used immediately by the recipient, cannot exceed its tax liability, and cannot be carried forward or transferred again.

Interaction with UAE QDMTT

The UAE R&D Tax Credit may interact with the UAE’s Qualified Domestic Minimum Top-up Tax (QDMTT) regime, particularly for entities within the scope of Pillar Two rules.

• The R&D Tax Credit available to a Qualifying Entity that forms part of a Domestic Group (including Constituent Entities, Joint Ventures, or JV Subsidiaries) may be utilized against the Top-up Tax liability of the Domestic Group, subject to prescribed conditions.
• The credit must first be applied against the entity’s Corporate Tax liability (or that of its Tax Group or eligible transferee) before being used to offset any Top-up Tax liability.

Claw-back of R&D Tax Credits and Associated Penalties

Where a Qualifying Entity ceases to meet the required conditions in respect of an R&D Project, whether in whole or in part, any R&D Tax Credit that has been utilised must be repaid to the tax authority, and any unutilised portion of the credit will be forfeited and cannot be carried forward or refunded. In such cases, the credited amount may not be offset against Tax Losses or any other tax credits or reliefs, and administrative penalties will apply, with the clawed-back R&D Tax Credit treated as if it were unpaid or due tax.

Corporate Tax and Top-up Tax

In the context of Corporate Tax and Pillar Two, R&D Tax Credits may be applied to reduce the Domestic Top up Tax liability of a Domestic Group; however, utilisation against Corporate Tax takes priority before any offset against Top up Tax.

Refund

Cabinet Decision No. (215) of 2025 provides that the R&D Tax Credit may be utilised against the Corporate Tax and/or Top-up Tax liability of a Qualifying Entity and may also be refundable. However, Ministerial Decision No. (24) of 2026 does not include any specific provisions relating to a refund mechanism. Accordingly, further guidance from the authority is expected in this regard.

Conclusion

The UAE R&D Tax Credit introduces a valuable incentive for businesses undertaking genuine innovation activities in the UAE, offering attractive credit rates while aligning with both the Corporate Tax and Pillar Two frameworks. However, the regime is highly structured and compliance-driven, requiring careful planning, robust documentation and ongoing monitoring to manage eligibility and claw-back risks. Businesses should assess their R&D activities early to ensure readiness ahead of its application from 1 January 2026.