Research and Development (R&D) Tax Incentive: A UAE Ministry of Finance Initiative

March 25, 2026

In 2025, the UAE Ministry of Finance indicated that, to encourage Research and Development (R&D) activities, foster innovation, and support economic growth in the UAE, an R&D tax incentive was being considered, with effect proposed for tax periods commencing on or after 1 January 2026.

Pursuant to this policy signal, the UAE issued Cabinet Decision No. 215 of 2025 (CD 215 of 2025) on R&D Tax Credit on 31 December 2025. Thereafter, the Ministry of Finance announced the launch of Phase 1 of the UAE’s R&D Tax Incentives Programme on 18 March 2026, which has now been operationalised through Ministerial Decision No. 24 of 2026 (MD 24 of 2026).

Under Phase 1 a non-refundable R&D tax credit of up to 50% is available on qualifying R&D expenditure, subject to a cap of AED 5 million of qualifying spend per Qualifying Entity or Tax Group per Tax Period, resulting in a maximum potential credit of AED 2 million.

The settlement methodology for R&D tax credit lies in Federal Decree-Law No. 28 of 2025.

CD 215 of 2025 introduced the concept of R&D Tax Credit as a tax credit available to a Qualifying Entity in respect of Qualifying R&D Expenditure.

Applicability

CD 215 of 2025 and MD 24 of 2026 apply to tax period commencing on or after 1 January 2026.

Qualifying entity

CD 215 of 2025 provides, that for an entity to be considered a qualifying entity, the requirements are:

It should be a juridical person, which is either a UAE juridical person, including a Free Zone Person,that is subject to CT and/or top-up tax and carries on Qualifying R&D Activities, or foreign juridical persons undertaking such activities through a UAE permanent establishment.
It should carry on R&D activities
It should be subject to CT and/ or Top-up Tax.

For a Qualifying Free Zone Person (QFZP) to be considered a qualifying entity, CD 215 of 2025 imposes additional condition i.e. QFZP shall be subject to 9% CT on the relevant taxable income derived from qualifying R&D activities or it shall be subject to top-up tax in the relevant fiscal year.

The following entities shall not be considered as qualifying entities:

An entity that is neither subject to CT nor Top-up Tax
An entity that has opted for Small Business Relief

Qualifying R&D expenditure

CD 215 of 2025 categories Qualifying R&D Expenditure as below:

Staff costs
Consumable costs
Subcontracting fee
Arm’s length share of contributions under cost contribution arrangements,
Any other category of expenditure that may be specified by the Minister.
Certain capitalised costs relating to internally generated intangibles arising from qualifying R&D activities may fall within the scope of qualifying expenditure

Further, MD 24 of 2026, defines the above categories and provides specific conditions for inclusions and exclusions. For example, in staff cost a 30% upliftment is to be applied, it shall not include employee stock option plans, it shall not include intra-group recharges etc.

CD 215 of 2025 also lay down baseline conditions for such expenditure to qualify. In particular:

the expenditure must be incurred wholly and exclusively for qualifying R&D activities;
must amount to at least AED 500,000 (excluding upliftment) per R&D project in the relevant tax period or fiscal year;
must constitute deductible expenditure under CT law;
must not be funded by a government grant, to the extent recorded in financial statement; and
must not already benefit from any other incentive, credit, exemption or relief under the CT Law or any other legislation in the UAE.

Qualifying R&D Activities

The R&D tax credit is available in respect of Qualifying R&D Activities carried out by a Qualifying Entity. For this purpose, an activity will be regarded as a Qualifying R&D Activity only where it is undertaken in the UAE as part of an R&D Project and satisfies all the below mentioned five prescribed conditions:

Novel – aims to produce new findings
Creative – involves original concepts or hypotheses
Uncertain – the outcome or means of achieving it are not known in advance
Systematic – follows a plan and budget
Transferable or reproducible – results can be applied or replicated in other contexts

MD 24 of 2026 expressly states that this assessment should be made with reference to the OECD Frascati Manual. Activities in the fields of social sciences, humanities and the arts are excluded.

Conditions to Claim the R&D Tax Credit

A Qualifying Entity may claim the R&D tax credit for Qualifying R&D Expenditure only where it satisfies the following conditions:

The Qualifying Entity meets the minimum number of employees engaged in Qualifying R&D Activities
The Qualifying Entity obtains the necessary pre-approvals from the Council and complies with ongoing compliance requirements
The Qualifying Entity bears the financial burden of carrying out the Qualifying R&D Activities
The Qualifying Entity is beneficially entitled to a share in the returns derived from exploiting the intangibles or other results of the Qualifying R&D Activities
The relevant R&D Project has a specified objective to increase the stock of knowledge or devise new applications of available knowledge, and the Qualifying R&D Activities are directly undertaken with the purpose of addressing such objective

R&D Tax Credit

MD 24 of 2026, prescribes a progressive tax credit structure for the R&D tax credit, wherein the tax credit rates are as follows:

Maximum Qualifying R&D Expenditure (AED)	Average number of R&D Staff	Tax Credit Rate
First 1 million	At least 2	15%
> 1 million < 2 million	At least 6	35%
> 2 million < 5 million	At least 14	50%

MD 24 of 2026 clarifies:

That the credit is non-refundable.
The credit is calculated by applying the relevant rate to the portion of expenditure falling within each corresponding band.
To qualify for a specific rate, a Qualifying Entity or Tax Group must satisfy both the relevant expenditure threshold and the minimum average R&D staff threshold. If either threshold is not met, the credit rate is adjusted downward to the highest rate for which both thresholds are satisfied.
For Tax Groups with more than one Qualifying Entity, both the Qualifying R&D Expenditure and R&D Staff are aggregated for threshold purposes.

Carry-forward, transfer and claw-back

MD 24 of 2026 also sets out that unutilized R&D tax credits can be carried forward, transferred within a qualifying group, or passed in certain business restructuring cases, subject to continuity and anti-abuse conditions. Carry-forward is generally allowed only where there is at least 50% continuity of ownership, or where the entity continues to carry on the same or similar business despite a major ownership change. An exception applies to entities listed on a Recognised Stock Exchange.

Unused R&D tax credits may also be transferred to another juridical person, provided both the entities are at least 75% commonly owned (directly or indirectly), or one owns the other by that percentage, and the ownership condition is maintained from the period in which the credit arose until the period in which it is utilised. However, the transferee may use the transferred credit only against its current CT and/or Top-up Tax liability, and the transferred credit cannot itself be carried forward or re-transferred.

In the case of business restructuring, unused R&D tax credits may move to the transferee, provided the transferred business, including the associated qualifying R&D activities, continues for at least two years and the relevant restructuring conditions are satisfied. If the qualifying R&D activities are discontinued within two years, the regime provides for a claw-back, under which utilised credits must be repaid, unused credits are forfeited, and penalties may apply.

Key points to note:

No time limit has been prescribed for carry-forward
Current Tax Period credit must be utilized before any surplus is carried forward

Claim process

CD 215 of 2025 provides that a claim for the R&D tax credit must be submitted as part of the Tax Return or top-up tax Return and must be accompanied by specified supporting documents. These include proof of pre-approval from the Emirates Research and Development Council, a signed declaration by senior management confirming the accuracy of the information provided, a breakdown of qualifying R&D expenditure, audited financial statements, and any other documents that may be specified by the Minister.

Claims submitted after the due date for filing the Tax Return or Top-up Tax Return will not be considered unless accepted by the Authority in exceptional circumstances.

Record Keeping

MD 24 of 2026 provides that the qualifying entity shall maintain technical documentation for a period of 7 years following the end of the tax period to which they relate. Further, technical documentation includes -written, visual, and electronic records detailing the objectives, processes, methodologies, experiments, and findings associated with the qualifying R&D activities.

Anti-Abuse and Artificial Separation

If the Authority determines that one or more persons have artificially split their business or business activities to access or enhance the R&D tax credit, and the combined qualifying R&D expenditure across the wider business exceeds the relevant threshold, such arrangement may be treated as a tax advantage arrangement under Article 50 of the CT Law. In such cases, the Authority may counteract the arrangement, claw back any utilised R&D tax credit, and forfeit any unutilised credit.

Where any arrangement, contract or procedure is entered into mainly or partly to obtain or increase an R&D tax credit in a manner inconsistent with the economic substance or the genuine nature of the qualifying R&D activity, the Authority may adjust or disregard it, claw back any utilised credit, and forfeit any unused credit.

If, within five years from the end of the Tax Period or Fiscal Year in which the R&D tax 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, any utilised credit may be clawed back and any unused credit forfeited.

Key take-away

In summary, the UAE has now moved from policy intent to implementation of a structured R&D tax credit regime. CD 215 of 2025 of 2025 lays down the legal and conceptual framework for the credit, while MD 24 of 2026 operationalises Phase 1 by prescribing the applicable rates, staffing thresholds, qualifying activity criteria, and rules for utilisation, carry-forward, transfer and claw-back. The regime offers a potentially meaningful incentive for businesses undertaking genuine UAE based R&D activities, however, the access to benefit is subject to strict eligibility, pre-approval, documentation and continuity conditions.