Executive summary

In Ministerial Decision No. 24 of 2026 (Ministerial Decision), issued on 18 March 2026, the United Arab Emirates (UAE) formally introduced a Research and Development (R&D) Tax Credit regime under the corporate tax framework. Decision 24/2026 supplements the 31 December 2025 issuance 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 (Cabinet Decision).

The regime provides a nonrefundable R&D Tax Credit calculated on a tiered basis, with a maximum credit up to 2,000,000 Emirati Dirham (AED2m) per eligible entity per Tax Period or Fiscal Year. The credit may be utilized against corporate tax and, where applicable, Top-up Tax (TuT) liabilities, applies to Tax Periods or Fiscal Years commencing on or after 1 January 2026 and is subject to detailed eligibility, documentation, governance and anti-abuse conditions.

The regime includes provisions governing carry forward of unused credits, transfer of credits within qualifying groups and treatment of credits in business restructuring scenarios, together with strict claw-back rules if qualifying conditions cease to be met.

Detailed discussion

Background

Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses did not previously include a specific R&D tax incentive. In December 2024, the UAE Ministry of Finance announced the introduction of substance-based tax incentives, including an R&D Tax Credit, as part of a broader policy package aimed at enhancing the UAE's competitiveness, supporting innovation-driven activities and aligning the UAE corporate tax regime with international best practices, including the Organisation for Economic Co-operation and Development (OECD) Pillar Two framework.

The Cabinet Decision establishes the legislative framework for the R&D Tax Credit regime, while the Ministerial Decision sets out the detailed operational rules governing eligibility, qualifying activities, qualifying expenditure, credit rates, compliance obligations, utilization mechanics and anti-abuse provisions.

Key provisions of the Cabinet Decision and the Ministerial Decision

Conditions to claim the R&D Tax Credit

A Qualifying Entity may claim the R&D Tax Credit provided it meets the prescribed minimum R&D staffing thresholds, obtains mandatory preapproval from the Emirates Research and Development Council, complies with ongoing requirements, bears the financial risk of the R&D Activities, and is beneficially entitled to the returns from exploiting the results of those activities.

The relevant R&D Project must pursue a defined objective to increase knowledge or develop new applications, and the entity must comply with all applicable legislative and administrative requirements. If the claimant is a Qualifying Free Zone Person, it must also be subject either to 9% corporate tax on income derived from the Qualifying R&D Activities or to TuT, in the relevant Tax Period or Fiscal Year. The Qualifying R&D Activities are treated as complete on the cessation of the activities or if the entity ceases to be a going concern or enters liquidation, whichever is earlier.

Qualifying Entities

The R&D Tax Credit is available to Qualifying Entities, including:

• Juridical persons incorporated or otherwise established or recognized under applicable UAE laws (including Free Zone Persons) subject to corporate tax and/or TuT and carrying on Qualifying R&D Activities
• Foreign juridical persons carrying on Qualifying R&D Activities in the UAE through a Permanent Establishment (PE) subject to corporate tax and/or TuT on income attributable to the PE

Entities that are not subject to corporate tax or TuT, or that have elected small business relief, or any other entity to be specified in a Ministerial Decision, are excluded.

Qualifying R&D Activities

To qualify for the R&D Tax Credit, activities must be novel, creative, involve uncertainty, systematic and be reproducible or transferable. The assessment framework should align with the OECD Frascati Manual on Guidelines for Collecting and Reporting Data on Research and Experimental Development, The Measurement of Scientific, Technological and Innovation Activities.

Only R&D activities physically performed in the UAE qualify for the credit. Activities performed outside the UAE do not qualify, even if they are funded or managed by a UAE entity. Activities related to social sciences, humanities and arts are expressly excluded.

Qualifying R&D Expenditure

A Qualifying R&D Expenditure includes the following, subject to certain conditions:

• Staff costs (with a 30% uplift for overheads)
• Consumable costs
• Subcontracting fees (if the Qualifying R&D Activities are contracted out to a Person in the UAE and the activities are undertaken in the UAE)
• Arm's-length contributions under cost contribution arrangements.
• Any other category of expenditure as may be specified in a decision issued by the Minister of Finance
• Any cost specified above, capitalized under the applicable accounting standards on internally generated intangibles resulting from Qualifying R&D Activities

The R&D Expenditure shall qualify for the R&D Tax Credit if it is incurred wholly and exclusively for the purposes of carrying on Qualifying R&D Activities and considered a Deductible Expenditure, with certain exceptions. A minimum expenditure threshold of AED500,000 per R&D Project applies.

Recharges on staff, consumable and subcontracting fees to a Qualifying Entity from another member of the Tax Group and expenditures funded by government grants (to the extent such expenditure is recorded in the financial statements) or benefiting from other UAE tax incentives are excluded.

R&D Tax Credit rates

The Ministerial Decision sets out a tiered R&D Tax Credit rate structure based on Qualifying Expenditure and average R&D Staff numbers per Qualifying Entity or Tax Group in each Tax Period or Fiscal Year, as follows:

• 15% on the first AED1m of Qualifying Expenditures with an average of at least two R&D Staff
• 35% on the portion exceeding AED1m up to AED2m with an average of at least six R&D Staff
• 50% on the portion exceeding AED2m up to AED5m with an average of at least 14 R&D Staff

The Qualifying Entity or Tax Group should meet both the Qualifying R&D Expenditure and average number of R&D Staff thresholds to access the relevant R&D Tax Credit rate. Aggregation rules apply to Tax Groups that have more than one Qualifying Entity.

Utilization, carry forward and transfer of R&D Tax Credit

The R&D Tax Credit is nonrefundable and must first be utilized against corporate tax and/or TuT liabilities. Unutilized credits may be carried forward indefinitely, subject to continuity of ownership or business activity conditions, unless the Qualifying Entity is a listed entity.

R&D Tax Credits can be transferred to another taxable juridical person subject to common ownership conditions. The credits to be transferred must not exceed the transferee's remaining UAE corporate tax and/or TuT liability, and may not be retransferred or carried forward by the transferee.

Specific rules apply to the transfer of credits resulting from business restructuring scenarios, including claw-back if Qualifying R&D Activities cease within two years of the transfer.

Interaction with Tax Groups and Pillar Two

R&D Tax Credits may be claimed at the Tax-Group level. Credits must first be applied against UAE corporate tax liabilities, with only residual credits potentially available to offset the TuT liabilities of a Qualifying Entity or Domestic Group subject to Pillar Two ordering rules. Claw-back provisions apply if the relevant conditions to qualify for R&D Tax Credit were not met.

Preapproval, compliance and claw-back

Claims for the R&D Tax Credit are subject to mandatory preapproval by the competent authority. Approved entities may be required to provide progress updates, technical documentation and supporting financial information. Taxpayers must retain full technical and financial records supporting the claim for a period of seven years.

R&D Tax Credits may be clawed back where conditions cease to be met, with penalties applying under the Tax Procedures Law, as amended.

Artificial separation and anti-abuse provisions

If the Federal Tax Authority (FTA) determines that a Business or Business Activity has been artificially separated or that arrangements have been entered into wholly or partly to obtain or increase an R&D Tax Credit, the FTA may counteract the arrangement, claw back any utilized credit and forfeit any unutilized credit. Claw-back may also apply if, within five years of the last claim, a Qualifying Entity ceases to be a Taxable Person, becomes a Qualifying Free Zone Person, applies small-business relief, enters liquidation or redomiciles outside the UAE, unless the change arises from a qualifying business restructuring.

Implications

The introduction of the R&D Tax Credit regime provides a material incentive for businesses undertaking R&D Activities in the UAE and may significantly reduce effective tax costs if conditions are met.

However, the regime is highly conditional, requiring advance approvals, detailed documentation and ongoing compliance. Groups should carefully assess eligibility, staffing and expenditure thresholds, and interaction with corporate tax, Free Zone regimes and Pillar Two rules. Failure to meet the requirements may result in claw-back and penalties.

Early planning and robust governance will be critical for businesses seeking to benefit from the incentive.