The UAE R&D tax credit applies to tax periods or fiscal years starting on or after 1 January 2026. Under Phase 1, eligible businesses can claim a non-refundable tax credit of between 15% and 50% on qualifying R&D expenditure, subject to expenditure and staffing thresholds. Qualifying expenditure is capped at AED 5 million per qualifying entity or Tax Group per tax period or fiscal year.
At the highest level, this can produce a maximum credit of AED 2 million for a qualifying entity or Tax Group that meets the required conditions.
The rules are mainly set out in Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026. The Ministry of Finance formally launched Phase 1 of the programme on 18 March 2026.
For companies investing in software development, engineering, biotechnology, pharmaceuticals, advanced manufacturing, AI or other technical development work, the new credit can become an important part of tax planning.
What Is the UAE R&D Tax Credit 2026?
The R&D tax credit allows an eligible business to reduce its Corporate Tax liability and, where relevant, its Top-up Tax liability.
The current Phase 1 credit is non-refundable. This means a company cannot simply receive the unused amount as a cash refund when its credit is higher than its current tax liability. Unused credits may instead be carried forward or, in certain cases, transferred subject to the conditions in the legislation.
This is different from the earlier proposal announced before the final legislation. In 2024, the Ministry of Finance said it was considering a potentially refundable R&D incentive of between 30% and 50%. The final Phase 1 rules introduced a non-refundable credit with three bands: 15%, 35% and 50%. If you first need to understand how taxable profits and liabilities work, Nexture's UAE Corporate Tax guide covers the wider Corporate Tax framework.
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Who Can Claim the UAE R&D Tax Credit?
A qualifying entity can broadly include a UAE juridical person that is subject to Corporate Tax and/or Top-up Tax and carries out qualifying R&D activities. This includes a Free Zone Person where the relevant conditions are satisfied.
A foreign juridical person may also qualify where it performs qualifying R&D through a UAE permanent establishment and the attributable income is subject to Corporate Tax or Top-up Tax in the UAE.
To claim the credit, the company must satisfy several conditions. It must:
carry out qualifying R&D activities in the UAE
obtain the required pre-approval from the Emirates Research and Development Council
bear the financial cost of carrying out the qualifying R&D
be beneficially entitled to a share of the returns from the resulting intangible assets or other R&D results
meet the relevant R&D staffing requirements
conduct the work as part of a project intended to increase knowledge or develop new applications of existing knowledge.
An entity that is not subject to either Corporate Tax or Top-up Tax cannot qualify.
The Cabinet Decision also excludes entities that elect for the treatment under Article 21 of the Corporate Tax Law, which is the Small Business Relief provision.
What Counts as Qualifying R&D?
Calling a project "research" or assigning engineers to it does not automatically make it eligible. Ministerial Decision No. 24 of 2026 sets five tests that the activity must satisfy.
R&D Criterion | What It Means |
Novel | The work aims to produce new findings |
Creative | It involves original concepts or hypotheses |
Uncertain | The outcome or how to achieve it is not known in advance |
Systematic | The work follows a plan and budget |
Transferable or reproducible | The results can be applied or replicated elsewhere |
All five requirements must be met.
The UAE rules specifically refer to the OECD Frascati Manual when assessing whether an activity constitutes R&D. The Frascati framework also distinguishes experimental development from ordinary product development. Development may qualify when it generates new knowledge and meets the required R&D tests. Routine commercial development does not automatically qualify.
For example, a software company implementing a standard accounting feature using an established method is unlikely to qualify simply because programmers are involved.
A company attempting to solve a genuine technical problem where the solution is uncertain may have a stronger case. It would still need to satisfy every other condition.
This could be particularly relevant to companies in the technology sector. Nexture's AI and tech startup setup guide explains the licensing and business structures commonly considered by technology firms in the UAE.
Activities Must Be Carried Out in the UAE
Location is important. If an R&D project is partly carried out inside the UAE and partly overseas, only the activities conducted in the UAE can constitute qualifying R&D activities for this incentive. The Ministerial Decision also specifically excludes R&D conducted in:
social sciences
humanities
arts.
So, the programme is narrower than the everyday meaning of "research".
Minimum R&D Expenditure Per Project
There is also a minimum project threshold. Qualifying R&D expenditure must amount to at least AED 500,000 for each R&D project during the relevant tax period or fiscal year.
It is also important to note that the 30% uplift available for qualifying staff costs is not included when checking whether the project has reached this AED 500,000 minimum.
For example, assume a company incurs:
AED 400,000 in qualifying staff expenditure
AED 70,000 in qualifying materials
AED 20,000 in other qualifying costs.
Its underlying qualifying expenditure is AED 490,000. Even if a staff-cost uplift would increase the amount used later in the credit calculation, that uplift does not help the project meet the AED 500,000 entry threshold.
UAE R&D Tax Credit Rates
Phase 1 uses three expenditure bands. Higher credit rates also require a higher average number of qualifying R&D staff.
Qualifying R&D Expenditure Band | Minimum Average R&D Staff | Credit Rate |
First AED 1 million | At least 2 | 15% |
Amount above AED 1 million up to AED 2 million | At least 6 | 35% |
Amount above AED 2 million up to AED 5 million | At least 14 | 50% |
The rates apply to the portion of qualifying expenditure falling within each band. A company must satisfy both the expenditure threshold and the relevant staff threshold. If it fails either requirement, the applicable rate is adjusted downward to the highest band for which both requirements are met.
How Is the Average Number of R&D Staff Calculated?
The staffing requirement is based on an average rather than simply counting how many employees appear on payroll at year-end.
The rules require the business to add the number of qualifying R&D staff for each month in which qualifying R&D activities were undertaken and divide that figure by the number of relevant months.
R&D staff can include qualifying full-time or full-time equivalent employees and certain externally provided workers. The individual must be directly and actively engaged in qualifying R&D.
What Costs Qualify for the UAE R&D Tax Credit?
Cabinet Decision No. 215 identifies several main categories of qualifying expenditure.
1. Staff Costs
Qualifying staff expenditure can include:
salaries and wages
allowances
medical insurance
pension contributions
end-of-service gratuity
bonuses
benefits in kind
other employment expenses required under the employment contract
Employee stock option plans do not qualify as staff costs under these rules.
If an employee only spends part of their working time on qualifying R&D, only the reasonably attributable portion of their employment cost can qualify.
30% Staff Cost Uplift
Qualifying staff costs receive a 30% uplift when calculating qualifying R&D expenditure. The uplift is intended to account for overhead costs reasonably attributable to R&D activities.
Remember that the uplift does not count towards the AED 500,000 minimum project expenditure threshold.
- Consumable Costs
Qualifying consumables can include materials or items directly used and consumed or transformed during R&D.
The rules specifically mention items such as:
water
fuel
power
qualifying non-capital licence fees
payments to patients or subjects participating in qualifying clinical trials.If a resource is only partly used for R&D, only the portion reasonably attributable to qualifying activities can be included.
- Subcontracted R&D
Businesses may subcontract qualifying R&D, but the arrangement must meet strict conditions.
The R&D must be subcontracted to a person based in the UAE and the qualifying activity must itself be carried out in the UAE. The rules also prevent subcontracting chains. The subcontractor cannot simply subcontract the work onwards to another party.
Where the company and subcontractor are related parties, the subcontractor must maintain audited financial statements. R&D subcontracting between members of the same Tax Group does not qualify.
4. Cost Contribution Arrangements
A company participating in an R&D cost contribution arrangement may be able to include its qualifying contribution.
The amount must follow the arm's length principle and correspond to the company's expected share of the benefits generated by the arrangement. Where activities are partly performed outside the UAE, only the portion attributable to qualifying UAE R&D can be included.
- Certain Capitalised Costs
Certain expenditure that falls within the permitted categories but is capitalised under the applicable accounting standards in relation to internally generated intangible assets may also qualify.
What R&D Expenditure Does Not Qualify?
The rules are designed to prevent ordinary business costs from being moved into an R&D claim. Qualifying expenditure must generally be incurred wholly and exclusively for qualifying R&D. Where a cost has several purposes, only the identifiable R&D portion can qualify.
The following can also create problems:
expenditure funded directly or indirectly by a qualifying government grant
costs already benefiting from another tax incentive, exemption, credit or relief
costs relating to R&D carried out outside the UAE
non-qualifying commercial or routine development work
Businesses should therefore keep R&D expenses separate in their accounting systems rather than trying to reconstruct everything when the Corporate Tax return is due.
Pre-Approval Is Mandatory
You cannot simply complete an R&D project and assume the credit can be claimed later. A qualifying entity must obtain pre-approval from the Emirates Research and Development Council for each R&D project for which it intends to claim the credit.
The Council determines the applicable form, procedure and timeline. It may also require progress updates and technical documentation during the project. This makes early planning important.
We’ll model the requirements and send back a single-page breakdown within 24 hours.
What Documents Should a Business Keep?
The rules require businesses to keep sufficient technical evidence showing that the activities and expenses meet the R&D requirements. Records must generally be kept for seven years following the end of the relevant tax period or fiscal year.
Useful records may include:
project objectives
technical problems being investigated
research plans
project budgets
experimentation records
prototypes and test results
development logs
staff timesheets
payroll allocation records
subcontractor agreements
invoices and expense records
progress reports
findings and project outcomes.
The documentation must cover the objectives, processes, methodologies, experiments and findings associated with the qualifying R&D activities.
How Is the R&D Tax Credit Claimed?
The claim is submitted as part of the relevant Corporate Tax return or Top-up Tax return for the period in which the expenditure is incurred.
Cabinet Decision No. 215 states that the claim must be accompanied by:
evidence of pre-approval
a declaration signed by senior management confirming the accuracy of the information
a breakdown of qualifying R&D expenditure
audited financial statements
any additional information required by the relevant authority.
Claims submitted after the tax return deadline will generally not be considered unless the Federal Tax Authority accepts them in exceptional circumstances.
Can Unused R&D Tax Credits Be Carried Forward?
Yes. Unused R&D tax credits may be carried forward to later periods, but ownership conditions apply.
Broadly, at least 50% ownership must remain continuously with the same person or persons between the period in which the credit arose and the period in which it is used. If ownership changes by more than 50%, the company may still retain the credit where it continues the same or a similar business activity.
The restrictions do not apply in the same way to entities whose shares are listed on a recognised stock exchange.
What Could Change in Phase 2?
The current framework is specifically called Phase 1. The Ministry of Finance has said it intends to use the first phase to monitor uptake and gather information before designing Phase 2.
Possible future changes being considered include:
introducing a refundable credit
increasing the amount of qualifying expenditure eligible for relief
expanding incentives generally
None of these possible Phase 2 changes should be treated as confirmed until new legislation or official guidance is issued.
Conclusion
The UAE R&D tax credit 2026 creates a significant new tax incentive for companies carrying out genuine research and development in the country.
The highest 50% rate may attract the most attention, but a business does not automatically receive 50% of everything it spends on innovation.
The project must satisfy the UAE's five R&D criteria. Qualifying expenditure must reach at least AED 500,000 per project; the work must generally take place in the UAE and higher credit bands require higher average numbers of qualifying R&D staff.
Pre-approval is also mandatory. Businesses planning substantial R&D investment should therefore treat the credit as part of project planning, not something to investigate only when the annual tax return is due.
Frequently Asked Questions
Is the UAE R&D tax credit refundable in 2026?
No. Phase 1 of the UAE R&D tax credit is non-refundable. Unused credits can potentially be carried forward or transferred where the required conditions are met.
What is the maximum UAE R&D tax credit?
The maximum credit under the current Phase 1 bands is AED 2 million per qualifying entity or Tax Group for a tax period or fiscal year, assuming the business has AED 5 million of qualifying expenditure and satisfies the staff requirements for each band.
What is the minimum expenditure required for an R&D project?
Each R&D project must have at least AED 500,000 of qualifying expenditure in the relevant tax period or fiscal year. The 30% staff-cost uplift is excluded when testing this threshold.
Can a free zone business claim the R&D tax credit?
Yes, potentially. Free Zone Persons can be qualifying entities, but Qualifying Free Zone Persons are subject to additional conditions relating to Corporate Tax and Top-up Tax treatment.
Can software development qualify for the UAE R&D tax credit?
Yes, but only where the activity meets the qualifying R&D tests. Routine programming or standard product development does not automatically qualify. The work must be novel, creative, uncertain, systematic and transferable or reproducible.
How long should R&D records be kept?
Technical documentation supporting the claim must generally be retained for seven years after the end of the relevant tax period or fiscal year.
Does every R&D project require pre-approval?
Yes. A qualifying entity must obtain pre-approval from the Emirates Research and Development Council for each project for which the R&D tax credit is claimed.
