Hadef Newsflash : UAE Research & Development Tax Credits: Introducing a new R&D Tax Incentive regime in the UAE

Ministerial Decision No. 24 of 2026 (the MD) has recently been issued to supplement Cabinet Decision No. 215 of 2025 (the CD), establishing a Research and Development (R&D) Tax Credit framework in the context of the UAE Corporate Tax (CT) and UAE Domestic Minimum Top-up Tax (DMTT)(R&D Tax Incentive regime).

The establishment of the R&D Tax Incentive regime marks a milestone in the UAE’s ambition to be a global hub for future industries by introducing a significant incentive for businesses to conduct R&D activities in the UAE (and subsequently retaining the associated IP in the UAE through several IP initiatives).

In this newsflash we will provide an overview of the R&D Tax Incentive regime and its practical implications for UAE taxable persons in the context of the CT and DMTT.

Highlights

Who is eligible?

• All UAE tax resident juridical persons (including Free Zone entities) carrying on ‘Qualifying R&D Activities’ which are subject to CT or DMTT (subject to continuously meeting the eligibility criteria).
• Foreign entities with a UAE Permanent Establishment (PE) which are subject to CT or DMTT and carrying on ‘Qualifying R&D Activities’.
• Entities not in-scope of CT or DMTT; entities that have elected to apply Small Business Relief; and certain other entities specified by a Ministerial Decision cannot qualify for the R&D Tax Credit.

When does it apply?

• From tax periods or fiscal years starting on or after 1 January 2026.

What is the maximum amount of R&D Tax Credits allowed?

• A maximum credit of AED 2m is allowed per tax period or fiscal year per Qualifying Entity (or Tax Group).

How does it apply?

• The R&D Tax Credit is calculated with reference to ‘Qualifying R&D Expenditure’ incurred as part of carrying out ‘Qualifying R&D Activities’.
• Broadly, the amount of tax credit is determined by applying a tiered tax credit mechanism (with tiered rates of 15% / 35% / 50%) to the amount of Qualifying R&D Expenditure.
• The credit is non-refundable but can be used to offset any CT or DMTT liability. Although the credit can be carried forward and/or transferred, certain restrictions and anti-abuse provisions apply.
• To benefit from the R&D Tax Credit, certain other pre-approval and compliance processes apply. These include obtaining pre-approval from the Emirates Research and Development Council (ERDC) for each R&D Project and complying with additional filing and documentation obligations in respect of the relevant CT return.

Detailed overview

Eligibility

As a starting point, for an entity to qualify for the R&D Tax Credit, it needs to meet the definition of ‘Qualifying Entity’. As defined in the CD, a ‘Qualifying Entity’ means either:

1. A juridical person that is incorporated / established / recognised in the UAE (including a Qualifying Free Zone Person) that is subject to CT and/or DMTT and carries on Qualifying R&D Activities.
2. A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that carries on Qualifying R&D Activities through a PE and is subject to CT and/or DMTT on the income attributable to the PE.

Note that a Qualifying Free Zone Person needs to either (i) be subject to UAE CT at 9% on its Taxable Income derived from Qualifying R&D Activities during the Tax Period in which the Qualifying R&D Expenditure is incurred; or (ii) be subject to DMTT in that Tax Period.

Qualification criteria

A Qualifying Entity must further meet all the following key conditions (amongst others) to qualify for the R&D Tax Credit (eligibility criteria):

• Minimum number of employees (see table below) engaged in Qualifying R&D Activities.
• Minimum amount of Qualifying R&D Expenditure (see table below).
• The Qualifying Entity must bear the financial burden of R&D activities and benefit from its results.
• The R&D Project (and the associated Qualifying R&D Activities) has a specific objective to increase the stock of knowledge or innovate new applications for available knowledge.
• Pre-approval from ERDC.

Tax credit calculation

The amount of R&D Tax Credits available in respect of Qualifying R&D Expenditure is calculated in reference to a tiered tax credit allocation mechanism, calculated per Table 1 below.

Table 1: R&D Tax Credit tiered rates – up to AED 2m

* Expenditure must be wholly and exclusively incurred in respect of ‘Qualifying R&D Activities’. Where incurred for multiple purposes, apportionment is required.
** R&D Tax Credits are available only for Projects with a minimum R&D Expenditure of AED 500,000.
*** Qualifying R&D Expenditure and R&D Staff are aggregated across Tax Group members to determine the applicable rate tier. The Parent Company is responsible for pre-approval and filing.

The applicable rate-tier is further subject to the claimant meeting both eligibility criteria on Qualifying R&D expenditure and R&D staff. Failure to meet both eligibility criteria in the table will result in a downward rate adjustment to the highest tier where both criteria are satisfied.

Meaning of Qualifying R&D Activity

The CD defines a Qualifying R&D Activity as any activity conducted in the UAE as part of an R&D Project that satisfies all of the below requirements (having regard to the OECD’s Frascati Manual):

• Novel - aims to produce new findings;
• Creative - involving original concepts or hypotheses;
• Uncertain - outcome or means of achieving it are not known in advance;
• Systematic - following a plan and budget; and
• Transferable or reproducible - results can be applied or replicated in other contexts.

The MD specifically excludes activity conducted in the fields of social sciences, humanities, and arts. 

Meaning of Qualifying R&D Expenditure

The CD prescribes several allowed categories of expenditure that can be considered Qualifying R&D Expenditure, when incurred by a Qualifying Entity in a relevant Tax period in respect of Qualifying R&D Activities. Please see Table 2 below for a list of the R&D Expenditure categories, as well as the associated rules and conditions.

Table 2: Key rules and conditions in respect of each expenditure category 

* Staff must be UAE-based and under the Qualifying Entity’s control. A further 30% overhead uplift on staff costs is also applicable.  
** ‘Chain subcontracting’ is excluded, and related-party subcontractors must maintain audited financials.

In order for the categories of expenditure listed above to be eligible, all of the below requirements must also be met:

• A minimum Qualifying R&D Expenditure of AED 500,000 per Tax Period applies per R&D Project (excluding staff cost uplift).
• R&D Expenditure must be wholly and exclusively incurred for Qualifying R&D Activities. If incurred for multiple purposes, only the portion attributable to Qualifying R&D Activities must be considered.
• R&D Expenditure must be deductible, unless it qualifies as Capitalised R&D costs (see table above).
• R&D Expenditure excludes the portion that is directly or indirectly funded by a Grant.
• R&D Expenditure is not subject to any other incentive, credit, exemption, or relief in the UAE.

Credit cap

The total R&D Tax Credit is capped at AED 2m per tax period or fiscal year.

Ordering

Similar to the use of tax losses, the MD prescribes a particular utilisation sequence for the R&D Credits:

1. Current-year credit must first be used against the relevant period’s CT and/or Top-up Tax liability (if any) before any amount is carried forward or transferred. For Tax Groups, the current-year credit of a group member is first used against the Corporate Tax liability of the Tax Group.
2. Where there are multiple years of R&D credits, credits from earlier Tax Periods / Fiscal Years should be used in priority. For Tax Groups, any pre-grouping R&D credits are used before the Tax Group’s own R&D credits.
3. For entities within a Domestic Group for Pillar Two purposes, the credit may be utilized against the Domestic Group’s Top-up Tax liability, but only after it has first been used against the relevant CT liability of the entity, Tax Group, or eligible transferee.

Carryforward

Similar to the loss carryforward rules, unused credits may be carried forward to subsequent tax periods provided:

• The same owners hold at least 50% ownership in the Qualifying Entity throughout; or
• In the event of an ownership change in excess of 50%, the entity continues the same or similar business.

The carryforward mechanism does not apply to Qualifying Entities whose shares are listed on a Recognised Stock Exchange.

Transfer

Unutilised R&D tax credits may also be transferred to another juridical person (provided such person is subject to CT or DMTT) where both of them are at least 75% commonly owned or either one owns the other by that percentage, directly or indirectly, and such ownership is maintained throughout the applicable period. The Unutilised R&D tax credits transferred cannot exceed the transferee’s CT or DMTT liability for the relevant Tax Period (after using its own R&D Tax Credits).

Under a business restructuring, the R&D Credits can also be transferred to a transferee, provided the transferee continues the business and associated R&D activities for at least 2 years.

Anti-abuse provisions and clawback

The R&D Tax Incentive regime includes several ‘clawback’ mechanisms, which require the repayment of previously utilised R&D Tax Credits and/or the forfeiture of unutilised R&D Tax Credits under certain circumstances.

The clawback mechanisms can be triggered under several scenarios:

• Anti-Abuse: Any arrangement lacking economic substance or genuine R&D character adopted to obtain or inflate a credit.
• Artificial Business Separation: Splitting a business across multiple entities to remain within the R&D Expenditure thresholds while collectively exceeding the allowed threshold.
• Business restructuring: Where R&D credits are transferred to a successor business and it (i.e., successor business) does not continue the business and associated R&D activities for at least 2 years.
• Eligibility criteria: Where within 5 years from the end of a Tax Period in which an R&D Tax Credit was claimed, a Qualifying Entity no longer meets the eligibility criteria i.e., it either ceases to be a Taxable Person, becomes a Qualifying Free Zone Person, applies small business relief, enters liquidation, or redomiciles outside the UAE.

Compliance

To benefit from the R&D Tax Incentive regime, several compliance requirements need to be met:

• ERDC pre-approval: An application must be submitted to the ERDC in the prescribed form and manner to obtain pre-approval for each Qualifying R&D Project. Further guidance is still awaited on the form and manner of submitting the applications including timelines for granting approval.
• Tax return filing: The R&D Tax Credit claim must then be submitted as part of the CT Return or Top-up Tax Return.
• Supporting documentation: The R&D Tax Credit claim must be supported by the following documents: pre-approval from the ERDC, management declarations, audited financial statements, a breakdown of Qualifying R&D Expenditure, and any other additional documents to be specified by the Minister / ERDC.

Key takeaways

The R&D Tax Incentive Regime is a welcome addition to the UAE’s tax landscape that will serve to incentivise domestic R&D activity going forward. Taxpayers looking to apply the incentive should engage with tax counsel in advance to ensure that they meet the eligibility requirements discussed in this article prior to claiming the credit.

Taxpayers should also be mindful of the new incentive’s impact as it relates to other potential areas, such as M&A Activity (for example the potential to acquire R&D Tax Credits from a target, or the risk of triggering a claw-back), existing free zone relief (how does it compare/interact with the relief afforded in respect of qualifying intellectual property) and finally how the R&D Tax Incentive will be dealt with as part of the DMTT.

Our tax services

Hadef & Partners provide clients with specialist tax advice, planning and implementation support to achieve optimal tax outcomes for their business and personal interests in the UAE, including on whether clients meet the eligibility criteria for R&D Tax Credits, and its impact on their tax profile. Should you require support, please contact Theunis Claassen, our Head of Tax, or Nimrod Thien to arrange an initial consultation.

This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.