Introduction
The introduction of Corporate Tax in the United Arab Emirates (“UAE”) marked a significant shift from a largely tax neutral environment to a structured fiscal regime aligned with international standards. As part of this evolution, the UAE has begun to incorporate targeted incentives intended to support innovation, economic diversification, and higher value activity within the State.
The legal framework for the UAE R&D tax credit is split across two instruments. Cabinet Decision No. 215 of 2025 establishes the statutory architecture of the incentive, including the concept of a Qualifying Entity, the conditions to claim the credit, the categories of qualifying expenditure, and the framework for utilisation, carry-forward and claw-back. Ministerial Decision No. 24 of 2026 then implements that framework by prescribing the applicable credit rates, staff thresholds, activity criteria, expenditure rules, transfer mechanics, record-keeping requirements, and anti-abuse provisions.
While the Cabinet Decision provides a flexible legislative framework, including the possibility of refundable credits, Phase 1 has been implemented through the Ministerial Decision and the Ministry of Finance announcement as a capped, non-refundable credit. This reflects a deliberate policy choice in the initial phase of the regime.
Insights from Phase 1 are expected to inform a potential Phase 2 of the programme. According to the Ministry of Finance, this later phase may involve enhancements to the incentive, including the possible introduction of refundable credits and the expansion of qualifying expenditure categories, either across the economy or within specific priority sectors.
Although the framework appears straightforward at policy level, the operative rules are materially more conditional once the Cabinet Decision and the Ministerial Decision are read together. The availability of the credit depends on a combination of project-level qualification, economic ownership, staffing thresholds, expenditure categorisation, and procedural compliance, including mandatory pre-approval.
This article considers the legal framework of the UAE research and development tax credit, examines several significant definitional and structural features, and highlights the practical and strategic issues that businesses should consider in advance of implementation.
For ease of reference, this article refers to Cabinet Decision No. 215 of 2025 as the “Cabinet Decision” and Ministerial Decision No. 24 of 2026 as the “Ministerial Decision”. The two instruments serve distinct functions within the legislative framework and are referred to accordingly throughout.
Legislative Framework
The R&D tax credit is introduced under Cabinet Decision No. 215 of 2025 for the purposes of the Corporate Tax Law. The Cabinet Decision does not operate in isolation but forms part of a broader legislative framework that includes the Corporate Tax Law, the Tax Procedures Law, and the minimum top-up tax framework. The Ministerial Decision then gives operational effect to that framework.
This is significant for two reasons. First, the credit is not a separate incentive regime existing independently of the Corporate Tax system. It is built into that system and must therefore be read alongside the rules governing deductible expenditure, taxable income, loss utilisation, compliance, and liability. Second, the express connection with the top-up tax framework suggests that the regime has been designed with broader international tax considerations in mind, particularly in the context of large multinational groups.
The structure adopted by the Cabinet Decision, read together with the Ministerial Decision, is therefore deliberate. It establishes the legislative architecture of the incentive, while Ministerial Decision No. 24 of 2026 provides the detailed operational rules governing the calculation, eligibility conditions, and utilisation of the credit.
Policy Intent and Structural Design
The Cabinet Decision reflects a clearly articulated policy objective: to incentivise research and development activity carried out within the UAE and to support knowledge creation and innovative commercial application. However, the manner in which the regime has been designed demonstrates that the objective is being pursued through a controlled statutory framework rather than through a broadly available relief.
Several features are particularly notable
First, the regime is activity based. Eligibility does not arise simply because a person is within the scope of Corporate Tax. The Qualifying Entity must carry out qualifying research and development activity within the UAE and satisfy the statutory conditions attached to the regime.
Second, the regime is substance driven. The legislative framework places emphasis on identifiable projects, staffing, expenditure directly connected to research and development, and ownership or rights over the outcomes of the relevant activity. This indicates that the credit is intended to reward genuine value creation rather than contractual, financing, or purely formal arrangements.
Third, the legislative framework adopts a two-stage legislative structure. Cabinet Decision No. 215 of 2025 sets out the legal basis and broad conditions of the credit, while Ministerial Decision No. 24 of 2026 establishes the detailed operational rules governing its application. This two-tier structure reflects a deliberate separation between legislative design and administrative implementation within the UAE Corporate Tax framework.
Scope and Qualifying Entities
One of the most important features of the legislative framework is the definition of the persons to whom the regime may apply.
A Qualifying Entity includes a juridical person incorporated, established, or otherwise recognised in the UAE, including in a Free Zone, that is subject to Corporate Tax and/or Top-up Tax and carries on Qualifying R&D Activities. It also includes a juridical person established in a foreign jurisdiction that carries on Qualifying R&D Activities through a Permanent Establishment and is subject to Corporate Tax and/or Top-up Tax on the income attributable to that Permanent Establishment.
The regime therefore applies to both Resident Persons and Non-Resident Persons with a Permanent Establishment. This is an important point. The credit is not confined to locally incorporated entities. A foreign person may also fall within scope, but only where there is a UAE Permanent Establishment and the relevant research and development activity is conducted in the UAE.
An entity treated as a UAE Resident Person solely by reference to place of effective management may be more difficult to reconcile with the territorial and activity-based focus of the regime, particularly where the underlying R&D functions are not carried out in substance within the State. The legislation does not address this point expressly, and any conclusion would need to be assessed based on the specific facts.
The position of a Qualifying Free Zone Person requires particular care. The Cabinet Decision does not extend the incentive to a Free Zone entity merely by virtue of its status. Rather, the entity must either be subject to Corporate Tax at 9% on Taxable Income derived from the Qualifying R&D Activities in the relevant Tax Period, or be subject to the Top-up Tax in the relevant Fiscal Year.
Definitions, Classification and Structural Nuances
The definitional provisions of the Cabinet Decision and the Ministerial Decision contain several points of legal interest.
The Ministerial Decision requires that the assessment of whether an activity constitutes a Qualifying R&D Activity be made having regard to the Frascati Manual. This imports an internationally recognised conceptual benchmark into the UAE regime while maintaining the legal test within the statutory framework.
There is also a notable degree of overlap between the concepts of ‘Research and Development Activity’ and ‘Research and Development Project’. The former is defined by reference to a project, while the latter refers to a set of activities aimed at achieving a specific purpose with defined outputs. As drafted, the two terms are closely connected and not entirely distinct. This suggests that the operational distinction between them may still require clarification when implemented. In practice, one would expect the project to represent the organised unit of work and the activities to represent the constituent actions undertaken within that project, but the text itself does not articulate that distinction with precision.
Another important point is the relationship between ‘Deductible Expenditure’ and ‘Qualifying R&D Expenditure’. This is not simply research and development expenditure in an ordinary accounting sense. It is expenditure that is deductible in determining taxable income or losses under the Corporate Tax Law and the relevant top-up tax framework. This is significant because the credit is layered on top of the ordinary tax deductibility rules. In broad terms, expenditure must first satisfy the relevant deductibility conditions before it can potentially attract the credit, subject to the specific extension for certain capitalised internally generated intangible costs arising from Qualifying R&D Activities.
The definition of Grant is also carefully framed. It captures assistance provided by the Federal Government or a Local Government in the form of transfers of resources linked to operating conditions, while excluding forms of assistance that cannot reasonably be valued and transactions that cannot be distinguished from the normal trading transactions of the Qualifying Entity. This helps prevent ordinary commercial receipts from being recharacterised as grant-funded research support.
Role of the Emirates Research and Development Council
A distinctive feature of the UAE regime is that access to the credit is not purely a matter of tax return self-assessment. A Qualifying Entity must obtain pre-approval from the Emirates Research and Development Council for each R&D Project, and the Council may also require ongoing project updates and supporting technical documentation.
Cabinet Decision No. 215 of 2025 requires a Qualifying Entity to obtain pre-approval from the Council for each R&D Project in respect of which the tax credit will be claimed. The Cabinet Decision also authorises the Council to impose additional compliance requirements and to issue decisions governing the procedures, timelines, and documentation necessary for project approval.
Ministerial Decision No. 24 of 2026 further confirms that the Council’s role extends beyond the initial approval stage. In particular, the Council may require periodic progress updates and technical documentation in order to verify that the activities undertaken remain consistent with the approved R&D Project.
The introduction of a specialised body responsible for the technical approval of research and development projects represents a distinctive feature of the UAE regime. In many jurisdictions, eligibility for R&D incentives is assessed primarily through the tax authority during the audit or review of a tax return. The UAE framework instead introduces a front-loaded approval process, in which a specialised council performs an initial technical assessment of whether the proposed activities qualify as research and development.
At this stage, however, the practical scope of the Council’s role remains to be seen. Several questions will likely become clearer as the regime is implemented in practice, including:
- the level of technical detail required at the pre-approval stage;
- the extent to which the Council will actively monitor projects throughout their lifecycle; and
- the degree of coordination between the Council and the Federal Tax Authority in assessing claims.
The manner in which the Council exercises these functions may ultimately become a central practical feature of the regime.
Key Exclusions and Boundary Conditions
The regime is not drafted as a broad-based innovation subsidy. Both the Cabinet Decision and the Ministerial Decision impose meaningful boundary conditions. At framework level, expenditure must be wholly and exclusively incurred for Qualifying R&D Activities, must not be directly or indirectly funded by a Grant to the relevant extent, and must not be subject to any other incentive, credit, exemption or relief.
In addition, the Ministerial Decision excludes R&D activity in the fields of social sciences, humanities and the arts, restricts relief to activities carried out within the State, and disallows certain intra-group charges, including recharged staff costs, intra-group consumable costs, and intra-group subcontracting expenditure.
These limitations indicate that the regime is directed at genuine scientific, technological and experimental development activity undertaken within the UAE, rather than broader innovation or commercial activity.
Eligibility Conditions and Substance Requirements
The Qualifying Entity must satisfy a number of substantive conditions. These include satisfaction of the staffing thresholds, obtaining the necessary pre-approvals, bearing the financial burden of the activities, retaining beneficial entitlement to the returns from exploiting the results, and ensuring that the relevant project is directed at increasing knowledge or devising new applications of existing knowledge.
The ownership requirement is particularly significant. It indicates that the regime is directed at persons that bear meaningful economic and legal connection to the outputs of the research and development work. This has clear consequences for contract research arrangements. Where a UAE entity performs development functions, but the resulting intellectual property is owned outside the UAE or the economic rights are vested in another group company, the ability of the UAE entity to access the credit may be materially constrained.
This approach aligns with broader international tax principles that link fiscal incentives to demonstrable economic substance and value creation. It links the incentive to value creation and economic rights rather than to the mere performance of tasks. It also supports the view that the regime has been designed with substance and integrity in mind, rather than as a broad cost-based subsidy.
The staffing condition is also important. Ministerial Decision No. 24 of 2026 confirms that the applicable credit rate is linked not only to the level of qualifying expenditure, but also to the average number of R&D staff engaged during the relevant tax period. This suggests that the quality and composition of the workforce may influence the level of incentive available and reinforces the local substance objective underpinning the regime.
The Cabinet Decision also requires that the Qualifying Entity bears the financial burden of carrying out the Qualifying R&D Activities and is beneficially entitled to a share in the returns derived from exploiting the results of those activities. This materially constrains the availability of the credit in contract R&D and service-provider models where economic ownership of the output is located outside the UAE.
Mechanics and Operational Process of the Credit
Before considering the detailed computational rules, it is helpful to understand the overall mechanism through which the R&D tax credit operates within the Corporate Tax framework.
In practical terms, the regime operates through a staged sequence. First, a project must be identified that is capable of meeting the statutory and Frascati-informed activity criteria. Second, pre-approval must be obtained from the Council. Third, the claimant must satisfy the relevant economic, ownership and staffing conditions. Fourth, Qualifying R&D Expenditure must be identified within the prescribed categories and limitations. Fifth, the credit is calculated in accordance with the rates and thresholds set out in the Ministerial Decision. Finally, the claim must be submitted as part of the relevant Tax Return or Top-up Tax Return together with the required supporting documentation.
Viewed in this way, the regime operates as an integrated component of the Corporate Tax system, combining project-level approval, expenditure qualification, and tax liability offset within a single statutory framework.
The credit is to be calculated as a percentage of qualifying research and development expenditure and applied against the Corporate Tax and/or Top-up Tax liability of the Qualifying Entity, or in certain cases, by a transferee, Tax Group, or Domestic Group in accordance with the specific rules of the regime. While Cabinet Decision No. 215 of 2025 establishes the legislative framework of the credit, Ministerial Decision No. 24 of 2026 provides the detailed operational rules governing its calculation and application.
Ministerial Decision No. 24 of 2026 confirms that Phase 1 of the programme operates through a capped, non-refundable R&D tax credit applied to Qualifying R&D Expenditure. The Ministerial Decision establishes a tiered credit structure linked to both the level of qualifying expenditure and the average number of R&D staff employed during the relevant tax period.
The Ministerial Decision establishes a tiered R&D tax credit structure:
- 15% on the first AED 1 million of Qualifying R&D expenditure where at least two R&D staff are employed.
- 35% on the portion of Qualifying R&D expenditure between AED 1 million and AED 2 million where at least six R&D staff are employed.
- 50% on the portion of Qualifying R&D expenditure between AED 2 million and AED 5 million where at least fourteen R&D staff are employed.
Importantly, access to each rate requires both the relevant expenditure threshold and the corresponding minimum average number of R&D Staff to be satisfied. Where either condition is not met, the applicable rate is reduced to the highest rate for which both conditions are satisfied. The Ministerial Decision also prescribes a monthly averaging methodology for R&D Staff, which means that workforce allocation and timing may materially affect the level of credit available.
The use of a capped, non-refundable credit reflects the government’s policy objective of providing meaningful support to businesses undertaking genuine research and development activities while maintaining administrative simplicity during the early stages of the UAE Corporate Tax regime.
Qualifying Expenditure
The Cabinet Decision identifies the principal categories of Qualifying R&D Expenditure, including staff costs, consumable costs, subcontracting fees, and arm’s length shares under cost contribution arrangements. It also extends to certain capitalised costs relating to internally generated intangibles arising from Qualifying R&D Activities.
Rather than providing a general rule for overhead allocation, the Ministerial Decision introduces a specific mechanism through a 30% uplift on Staff Costs to reflect overheads reasonably attributable to Qualifying R&D Activities.
Importantly, Qualifying R&D Expenditure must amount to at least AED 500,000 for each R&D Project in the relevant Tax Period or Fiscal Year, excluding any uplift to staff costs. Financing costs and expenditure not directly connected to Qualifying R&D Activities are excluded.
This is broadly consistent with the policy logic of research and development incentives in other jurisdictions, but the UAE regime includes some important features that should not be overlooked.
First, as noted above, the expenditure must already be deductible under the Corporate Tax Law. That creates an important threshold issue and makes ordinary deductibility analysis an essential part of any future claim.
Second, the need to allocate costs between qualifying and non-qualifying activities means that cost attribution will be a significant practical issue. Many businesses do not perform research and development in a wholly segregated manner. Personnel, systems, premises, and operational support may serve both research and development and non-research activities. In such cases, allocation methodologies will need to be robust, consistent, and defensible.
Third, the use of contract costs as a qualifying category should not be read as eliminating the importance of the ownership requirement discussed below. Contracting expenditure may be qualifying expenditure, but the wider structure must still satisfy the statutory conditions of the regime.
Businesses should also note that the Ministerial Decision specifically excludes certain same-group charges from Qualifying R&D Expenditure, including recharged Staff Costs, intra-group Consumable Costs, and intra-group subcontracting expenditure.
Interaction with Corporate Tax and Top-Up Tax
The credit is integrated directly into the UAE Corporate Tax framework. It operates against tax liability and therefore interacts with ordinary tax computation, including deductions, taxable income, and carried forward losses.
The express inclusion of persons subject to the minimum top-up tax is particularly noteworthy and highlights the interaction between the R&D incentive and the emerging global minimum tax environment. For multinational groups, the final design of the credit may have consequences for effective tax rate calculations and for the extent to which the benefit of the incentive is preserved or diluted under global minimum tax rules.
The design of the R&D tax credit is also relevant in the context of the OECD Pillar Two global minimum tax framework. In particular, the distinction between refundable and non-refundable credits can influence the effective tax rate calculations applicable to multinational groups operating in the UAE.
In announcing Phase 1 of the programme, the Ministry of Finance indicated that the adoption of a non-refundable credit structure reflects consideration of these international tax developments. Within the current global minimum tax environment, a non-refundable credit may provide a more predictable effective tax rate outcome for companies operating in the UAE while preserving the policy objective of encouraging domestic research and development activity.
The interaction with the top-up tax framework also distinguishes this regime from a purely domestic relief. It suggests that the UAE is seeking to design an innovation incentive that operates credibly within both the domestic Corporate Tax system and the emerging international tax environment.
Transferability, Group Application and Restructuring
The Ministerial Decision significantly enhances the commercial relevance of the regime by allowing unutilised R&D Tax Credits to be transferred between entities that satisfy a 75% common ownership condition. However, the transferred credit must be utilised in the relevant period by the transferee, cannot exceed its remaining tax liability, and cannot be carried forward or further transferred.
In addition, carry-forward is subject to continuity conditions, including a 50% ownership continuity test or, where ownership changes by more than 50%, a requirement to continue the same or a similar business, subject to the listed company exception.
The Ministerial Decision also introduces specific rules for Tax Groups and Domestic Groups, including aggregation of expenditure and staff, allocation of credits, and ordering rules for utilisation. In addition, detailed provisions govern the treatment of credits in business restructuring scenarios, including continuity conditions and claw-back consequences where qualifying activities are discontinued within a specified period.
Anti-Abuse, Claw-Back and Exit Risk
The UAE R&D tax credit is accompanied by a robust control framework. At framework level, credits may be clawed back where the Qualifying Entity does not continuously meet the conditions of the regime. The Ministerial Decision expands this significantly through provisions addressing artificial separation of business, arrangements lacking economic substance, and inappropriate structuring designed to increase the credit.
Particularly notable are the claw-back rules that apply where, within five years from the end of the period in which the credit was last claimed, the entity ceases to be a Taxable Person, becomes a Qualifying Free Zone Person, applies Small Business Relief, enters liquidation, or redomiciles outside the State. In such cases, utilised credits may be recovered as payable tax and unutilised credits forfeited.
These provisions indicate that the regime is designed not only to incentivise R&D activity but also to ensure that the benefit remains aligned with genuine, ongoing economic activity within the UAE.
Areas Requiring Particular Care
Although the regime is potentially valuable, it should not be approached as an automatic entitlement.
The classification of an activity as research and development is inherently fact sensitive. Technical work, process improvement, software development, product refinement, or data driven innovation may or may not qualify depending on whether the activity satisfies the criteria now set out in Ministerial Decision No. 24 of 2026. The existence of technical or specialised work alone will not necessarily be sufficient.
The overlap in the defined terms also means that project identification and documentation will matter. Businesses should be able to demonstrate not only that expenditure was incurred, but that there was a defined project, identifiable activities, and outputs linked to the statutory concept of research and development.
The treatment of grants requires equal care. The drafting appears intended to ensure that commercial receipts cannot be recharacterised as government support. Businesses operating with mixed commercial and public funding streams should review the character of each receipt carefully.
Finally, the scope of Qualifying Entities should be considered closely in international structures. The mere presence of a UAE taxable person is not, by itself, enough. The design of the regime points strongly toward research and development activity genuinely carried out within the State and connected to a person within the defined statutory categories.
Practical Application Considerations
With the issuance of Ministerial Decision No. 24 of 2026, the operational parameters of the regime are now defined. Businesses can therefore begin assessing the potential availability of the credit and preparing the project-level documentation required to support a claim. Early preparation will be particularly important, given the procedural and documentation requirements introduced by the Ministerial Decision and the Cabinet Decision claim framework.
Businesses that expect to fall within the potential scope of the regime should begin by identifying projects that may constitute research and development, isolating the expenditure associated with those projects, reviewing the deductibility of that expenditure under the Corporate Tax Law, and assessing whether the relevant entity retains ownership or rights over the outcomes of the work.
This is particularly important for groups with cross border operating models, shared service arrangements, development centres, or centralised ownership of intellectual property. In such cases, the legal and functional profile of the UAE entity will need to be examined carefully.
It will also be important to maintain documentation at the project level. Once the regime becomes operational in full, businesses that already have organised records of project objectives, staffing, expenditure, cost allocations, and ownership arrangements will be materially better positioned than those attempting to reconstruct these matters retrospectively.
The compliance burden should also be considered carefully. Claims must be submitted with the relevant Tax Return or Top-up Tax Return and supported by prescribed documentation, including proof of pre-approval, a senior management declaration, a breakdown of qualifying expenditure, and audited financial statements. In addition, technical documentation must be retained for a period of seven years and be capable of demonstrating both the nature of the activities and the associated expenditure.
Strategic Considerations for Businesses
In practical terms, businesses that may seek to benefit from the research and development tax credit should consider the following immediate workstreams.
- First, they should identify and classify candidate projects that may fall within the statutory concept of research and development.
- Second, they should review expenditure mapping and cost allocation frameworks to ensure that potentially qualifying costs can be isolated and supported.
- Third, they should examine ownership arrangements for intellectual property and development outputs, particularly in group structures involving foreign principals or centralised asset holding.
- Fourth, they should review the detailed requirements set out in Ministerial Decision No. 24 of 2026, particularly the pre-approval process, staffing thresholds, and documentation requirements necessary to support a claim.
- Fifth, they should assess whether each candidate project is capable of satisfying the minimum AED 500,000 Qualifying R&D Expenditure threshold in the relevant Tax Period or Fiscal Year.
Conclusion
Cabinet Decision No. 215 of 2025 represents an important development in the UAE Corporate Tax landscape. It introduces a formal incentive for research and development activity and signals a broader policy intention to support innovation and knowledge-based economic activity through the tax system.
At the same time, the regime is carefully structured. It is not a blanket relief available to all taxable persons, nor is it detached from the ordinary mechanics of the Corporate Tax system. It is activity based, territorially anchored, and substantively linked to deductible expenditure, staffing, and ownership of outcomes.
Phase 1 operates through a capped, non-refundable tax credit of up to 50% on Qualifying R&D Expenditure, subject to a maximum expenditure band of AED 5 million. Ministerial Decision No. 24 of 2026 now provides the detailed operational framework governing the credit, including the applicable rates, eligibility conditions, and documentation requirements.
The issuance of the Ministerial Decision therefore marks the transition of the UAE R&D tax credit from a legislative concept to a fully operational incentive within the Corporate Tax framework.
The UAE has not introduced a passive or lightly administered R&D incentive. What has emerged is a tightly structured, pre-approved and substance-driven credit regime integrated into the wider Corporate Tax and Top-up Tax framework. The opportunity may be significant for businesses undertaking genuine UAE-based development activity, but the conditions are technical and the control architecture is deliberate. Businesses that address project identification, ownership of outcomes, staffing thresholds, expenditure mapping, documentation and compliance at an early stage will be materially better positioned to access the credit and sustain it if challenged.
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