The UAE Ministry of Finance has introduced the first dedicated research and development tax incentive under the UAE Corporate Tax framework. Here is what businesses need to understand before the 2026 tax year gets underway.

Following a public consultation process conducted in April 2024 and a formal policy announcement in December 2024, the UAE Ministry of Finance published Cabinet Decision No. 215 of 2025 (“CD 215”) and Ministerial Decision No. 24 of 2026 (“MD 24”) on 18 March 2026. Together, these instruments establish a Research and Development (“R&D”) Tax Credit regime under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”). The regime takes effect for tax periods and fiscal years commencing on or after 1 January 2026.
CD 215 sets out the legislative architecture of the incentive, the definition of a qualifying entity, the conditions for claiming the credit, the categories of qualifying expenditure, and the framework for utilising, carrying forward, and transferring a tax credit balance. MD 24 then supplies the operational mechanics, prescribing applicable credit rates, staffing thresholds, activity criteria, record-keeping requirements, and anti-abuse provisions.

Background:  

Following a public consultation process conducted in April 2024 and a formal policy announcement in December 2024, the UAE Ministry of Finance published Cabinet Decision No. 215 of 2025 (“CD 215”) and Ministerial Decision No. 24 of 2026 (“MD 24”) on 18 March 2026. Together, these instruments establish a Research and Development (“R&D”) Tax Credit regime under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the “Corporate Tax Law”). The regime takes effect for tax periods and fiscal years commencing on or after 1 January 2026.
CD 215 sets out the legislative architecture of the incentive, the definition of a qualifying entity, the conditions for claiming the credit, the categories of qualifying expenditure, and the framework for utilising, carrying forward, and transferring a tax credit balance. MD 24 then supplies the operational mechanics, prescribing applicable credit rates, staffing thresholds, activity criteria, record-keeping requirements, and anti-abuse provisions.

The credit in brief:

The UAE R&D Tax Credit is a non-refundable, expenditure-based incentive. Eligible businesses generate a “tax credit balance” from qualifying R&D expenditure incurred in the UAE. That balance is applied against Corporate Tax and, where applicable, Top-up Tax (DMTT) liabilities. In its current Phase 1 form, the credit is worth up to 50% of qualifying expenditure, with qualifying expenditure capped at AED 5 million per entity or per Tax Group, yielding a maximum credit of AED 2 million per year. The Ministry has indicated that Phase 2 may consider refundability and a wider scope of qualifying expenditure.

Who Qualifies?

The regime applies to UAE-resident juridical persons, foreign entities with a UAE permanent establishment, and Free Zone persons, provided they are subject to the standard 9% Corporate Tax rate or to Top-up Tax. Two categories of taxpayer are expressly excluded: entities that have elected for Small Business Relief under Article 21 of the Corporate Tax Law, and any entity specified by a ministerial decision.

A minimum qualifying expenditure of AED 500,000 (excluding the 30% uplift on staff cost) per R&D project per tax period applies. Projects falling below this threshold do not give rise to a tax credit, regardless of how well they otherwise satisfy the eligibility criteria.

Free Zone persons operating under Qualifying Free Zone Person (“QFZP”) status should take particular care. The credit is generally available only in respect of income subject to the 9% Corporate Tax rate. This requires a careful analysis of whether the R&D activity in question falls within or outside the qualifying activity perimeter, and of how the QFZP’s income is attributed across its non-qualifying and qualifying segments.

Qualifying R&D activities

Qualifying activities must align with the internationally recognised principles of the OECD Frascati Manual. Concretely, activities must be: novel; creative; systematic; conducted under conditions of genuine uncertainty; and capable of producing results that are transferable or reproducible. Only the UAE-based portion of any cross-border activity qualifies. Activities in the fields of social sciences, humanities, and the arts are expressly excluded.

The Frascati alignment requirement is not merely formal: it will require businesses to document the scientific or technological basis of their work, the nature of the uncertainty being resolved, and the systematic process applied. Businesses that incur R&D expenditure without maintaining this documentation are unlikely to meet the evidentiary standard required by the Federal Tax Authority (“FTA”) on review.

Credit rates and staffing thresholds

The regime operates on a dual-threshold model. Credit rates depend on both the level of qualifying expenditure and the average number of R&D employees engaged during the tax period. Both thresholds must be satisfied simultaneously at each tier. Where the staffing threshold at a given tier is not met, the credit rate defaults to the highest tier for which both conditions are satisfied.

The practical consequence of the dual-threshold structure is significant. A business spending AED 2 million on qualifying R&D but employing an average of only four R&D staff during the period would be capped at the 15% rate on the first AED 1 million, with no credit available on the remaining AED 1 million. Workforce planning is therefore a direct lever on the credit value that can be realised.

Qualifying expenditure

Four categories of expenditure qualify, each subject to specific conditions.

Staff costs — with 30% overhead uplift. Staff costs are the primary value driver of the regime. Qualifying costs include salaries, wages, benefits, allowances, medical insurance, gratuity, bonuses, and R&D training costs for employees directly engaged in qualifying activities. A mandatory 30% overhead uplift is applied to qualifying staff costs, replacing the need for a detailed allocation of overhead expenses. Externally provided workers supervised by the taxpayer within the UAE also qualify. Employee stock option plans and intra-group tax recharges are excluded.

Within a recognised Tax Group under the Corporate Tax Law, qualifying expenditure is aggregated at the group level and the credit is recognised by the parent company. For domestic groups filing separate returns under common ownership of at least 75%, credits may be transferred to another UAE taxable person in the same tax period, though transferred credits cannot be carried forward or further transferred by the recipient. On a qualifying business reorganisation involving the transfer of an entire business or an independent part thereof, the transferee may carry forward and utilise credits as if it were the original entity, provided the business and R&D activities continue for at least two years following the transfer.

Interaction with Pillar Two

For multinational enterprise groups subject to the UAE’s Domestic Minimum Top-up Tax (“DMTT”), CD 215 expressly provides that the R&D Tax Credit may be deducted from the DMTT liability. As the credit is non-refundable in its current Phase 1 form, it cannot generate a cash repayment; its value is limited to the extent of the entity’s Corporate Tax and DMTT liabilities in the period, with any excess carried forward. The GloBE treatment of a non-refundable credit used to reduce a covered tax liability — and the consequent effect on the Effective Tax Rate computation — should be assessed carefully by groups within the scope of DMTT before claims are filed.

Practical Observation

The R&D Tax Credit represents a meaningful addition to the UAE’s Corporate Tax incentive landscape. The regime is, however, structurally demanding. The pre-approval requirement, dual expenditure and headcount thresholds, documentation obligations, and Free Zone eligibility restrictions mean that incurring R&D costs is not, of itself, sufficient to access the credit.

Businesses with a genuine R&D footprint in the UAE, particularly in technology, life sciences, advanced manufacturing, financial services innovation, and the energy transition, should assess, as a priority, whether their activities and operating models satisfy the Frascati criteria, and whether their staffing levels are structured to reach the relevant credit tiers. Early engagement with the Emirates R&D Council, before expenditure is committed, is essential.

Consideration should also be given to how group structures interact with the transfer and carry-forward rules, and to the impact of the credit on any Pillar Two position. For groups where the credit could affect the GloBE ETR computation, the timing and quantum of credit claims may warrant careful sequencing.

How Aurifer can help

Aurifer advises businesses across the UAE and GCC on Corporate Tax strategy, incentive regime eligibility, Free Zone tax structuring, and Pillar Two compliance. We are able to assist with assessing whether activities and operating models qualify for the R&D Tax Credit under CD 215 and MD 24; managing the pre-approval process with the Emirates Research and Development Council; quantifying qualifying expenditure and modelling credit value across tax periods; advising on group transfer and carry-forward mechanics; and evaluating the interaction of the credit with any GloBE Top-up Tax position.

For further information, please contact Thomas Vanhee, Managing Director, at Thomas@aurifer.tax.