UAE R&D Tax Credit Reforms

On 18 March 2026, the UAE Ministry of Finance issued Ministerial Decision No. 24 of 2026, implementing the first phase of the UAE’s R&D Tax Incentives Programme (the “Programme”), originally introduced under Cabinet Decision No. 215 of 2025. The Programme is effective from 1 January 2026.

The Programme offers a non-refundable tax credit of up to 50% on qualifying R&D expenditure, capped at AED 5 million annually. The credit can offset corporate tax liability but does not generate refunds.

It operates alongside the OECD Pillar Two Rules, The OECD Pillar Two Rules, also known as the Global Anti-Base Erosion (GloBE) Model Rules, were introduced by the UAE Ministry of Finance in February 2025. Under these rules, multinational groups generating revenue over EUR 750 million are subject to a 15% minimum effective tax rate (“Top-up Tax”), which may affect a multinational group’s effective tax rate (ETR) and its Top-up Tax exposure.

Eligibility Framework

Eligibility is assessed across three levels, including the entity, activity, and project levels. Additionally, the qualifying entity must ensure minimum staffing and expenditure requirements.

Entity Level

This Programme is available to those entities that contribute to the tax base of the UAE, including UAE taxable persons that are subject to Corporate Tax and/or Top-up Tax, and excludes entities outside the tax net, Small Business Relief claimants, and certain Free Zone entities.

Activity Level

The tax credits offered under the Programme are limited to scientific or technological R&D meeting OECD criteria, which include novelty, creativity, technical uncertainty, and a systematic and reproducible approach. The activity must also be conducted in the UAE. Activities involving social sciences, humanities, arts, and any activity lacking technical uncertainty are excluded from the scope of the Programme. Consult a corporate law firm and lawyers to evaluate whether their R&D activities and structures align with these regulatory and eligibility requirements.

Project Level

The Programme requires project framework, with specified objectives, measurable outcomes, with pre-approval and a minimum annual expenditure threshold of AED 500,000. Only qualifying, deductible R&D expenditure, including employee costs, consumables, and UAE subcontracting, may be claimed under the Programme.

Additional Eligibility Requirements

Credit rates are linked to UAE-based R&D staffing and expenditure. A qualifying entity with at least two R&D personnel on average may claim a 15% tax credit on qualifying expenditure of up to AED 1,000,000. Where the entity has a minimum average of six R&D personnel, the credit increases to 35% for qualifying expenditure between AED 1,000,000 and AED 2,000,000.

Entities with at least fourteen R&D personnel on average are eligible for the highest credit rate of 50% on qualifying expenditure between AED 2,000,000 and AED 5,000,000. The average number of R&D staff is calculated by adding the total number of R&D Staff for each month during the relevant fiscal year and dividing that total by the number of months in which the qualifying entity carried out the R&D activities eligible for the tax credit in that fiscal year.

Utilisation and Structural Considerations

The Programme allows credits to be carried forward into the next fiscal year, and in limited cases, transferred within qualifying group structures, subject to continuity of ownership, business activity, and other prescribed conditions. Anti-abuse provisions have also been implemented to prevent inappropriate shifting or monetisation of credits, specifically in the context of group restructuring that lacks commercial substance.

Claims must be made while filing the corporate tax return, after which the authorities will review and adjust the claims. The credits may be clawed back by the authorities in case of non-compliance, artificial group restructuring, or failure to meet ongoing conditions.

Organizations operating in highly regulated and research-intensive industries frequently engage healthcare & Lifesciences lawyers to navigate the intersection of tax incentives, regulatory approvals, and compliance obligations.

Looking Ahead

The Programme is intended to increase private sector investment in innovation, while aligning with global tax standards. The use of non-refundable tax credits aligned with the OECD Pillar Two framework ensures tax predictability.

The UAE Ministry of Finance has said that a second phase of the Programme is under consideration. This could include a refundable credit mechanism, broader eligible expenditure categories, and possible targeting of priority sectors.