The UAE has taken a significant step toward fostering innovation and economic diversification with the introduction of Ministerial Decision No. 24 of 2026, which operationalizes the R&D Tax Credit regime under the Corporate Tax framework.
This decision provides detailed guidance on eligibility, calculation and compliance measures for Research & Development (R&D) tax incentives, aligning the UAE with global best practices while maintaining strict regulatory oversight.
R&D Tax Credit Rates & Structure
R&D Tax Credit Rates & Structure
The tax credit follows a tiered structure based on expenditure and staffing thresholds:
Key Points
- Applied progressively (slab-wise basis)
- Both expenditure and staff thresholds must be met, if either is not satisfied, the lower applicable rate is used.
- Can be used against Corporate Tax & Top-up Tax (Pillar Two)
- Credit is Non-refundable, however, excess credits can be carried forward
What Qualifies as R&D: Substance Over Labels
A key strength of the UAE framework is its alignment with OECD principles, particularly the Frascati Manual. For an activity to qualify, it must not merely be labelled as “R&D” but must demonstrate genuine innovation characteristics.
In essence, qualifying R&D must be:
- Novel and creative, contributing new knowledge or solutions
- Uncertain, where outcomes are not predetermined
- Systematic, conducted with planning and methodology
- Replicable or transferable, allowing broader application
Additionally, only activities physically carried out within the UAE qualify, even if they form part of a global project.
Fields such as social sciences, humanities, and arts are explicitly excluded.
Pre-Approval: The Gateway to Eligibility
One of the most critical aspects of this regime is the mandatory pre-approval requirement. Businesses must obtain approval from the council before claiming any R&D tax credit.
This is not a one-time formality. council may require:
- Periodic progress updates
- Detailed technical documentation
- Evidence linking activities to approved R&D objectives
This effectively shifts the regime from a self-assessment model to a monitored system, significantly increasing compliance expectations.
Understanding Qualifying Expenditure
The framework clearly defines it into three primary categories: staff costs, consumables, and subcontracting.
Staff Costs include salaries, bonuses, benefits, end-of-service gratuity, training, and other employment-related expenses for R&D Staff directly engaged in qualifying activities. A 30% uplift is allowed on staff costs to cover attributable overheads. Staff must be located within the UAE and under the direct supervision and control of the Qualifying Entity.
Consumable costs cover materials and items that are used and no longer retain their original form, such as fuel, power, and certain licenses. Similarly, payments related to clinical trials are also included.
Subcontracting costs are permitted, but only under strict conditions—primarily that the work must be conducted within the UAE and not further subcontracted.
Important note on Cost Contribution Arrangements (CCAs): Where a Qualifying Entity takes part in a CCA, only the arm’s-length share of its contribution that relates specifically to Qualifying R&D Activities performed in the UAE qualifies as eligible expenditure.
Across all categories, transactions within the same tax group are generally excluded to prevent artificial inflation of eligible expenditure.
Group Structures, Transfers, and Restructuring
The regime takes a holistic view of group structures, particularly for tax groups.
Where entities operate as a tax group:
- R&D expenditure and staff counts are aggregated
- Credits are applied at the group level
- Pre-grouping credits follow specific utilisation rules
Additionally, the law permits transfer of R&D tax credits between entities with at least 75% common ownership. However, such transfers are tightly controlled, credits must be used immediately and cannot be further transferred or carried forward.
In cases of business restructuring, tax credits can move to the transferee entity, provided the underlying R&D activity continues for at least two years. Failing this, clawback provisions apply, requiring repayment of utilised credits along with penalties.
Carry Forward and Ownership Continuity
Unutilised credits can be carried forward, but this is not unconditional. The regime imposes safeguards to prevent misuse through ownership changes.
Carry-forward is allowed only if:
- There is at least 50% continuity in ownership, or
- The business continues in the same or similar form
Interestingly, listed entities are exempt from these restrictions, acknowledging the dynamic nature of public shareholding.
Documentation: The Backbone of the Regime
Compliance under this framework is heavily documentation driven. Businesses must maintain detailed records for at least seven years, including:
- Project Objectives
- Methodology
- Experimentation
- Methodologies and Findings
This is not just a procedural requirement—it is essential for defending claims during audits or reviews.
Effective Date and Practical Impact
The provisions apply to tax periods starting on or after 1 January 2026, giving businesses a limited window to align their structures and processes.
From a practical standpoint, the regime presents a high-reward, high-compliance opportunity. Companies that invest in genuine R&D and maintain strong governance can significantly reduce their tax burden. However, those treating the incentive as a mere tax-saving tool without real substance risk denial of claims, claw-backs, penalties, and potential anti-abuse adjustments.
The Ministerial Decision strikes an excellent balance between generous incentives and rigorous oversight — rewarding real innovation while protecting the integrity of the UAE tax system.
