What’s new?
The UAE has introduced a dedicated Research and Development (R&D) Tax Credit regime through Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026.
Effective from 1 January 2026, the regime provides qualifying entities with tax credits on eligible R&D expenditure, subject to defined thresholds, workforce requirements, and compliance obligations.
The tiered credit rates reflect the government’s focus on promoting substantive, locally driven R&D activities.
Purpose
Designed to incentivize meaningful R&D investment and support local technological and process development.
Tax Benefit
Provides a non-refundable credit that directly reduces the company’s Corporate Tax liability.
Qualifying R&D Activities
An activity conducted in the State as part of an R&D Project shall be considered a Qualifying R&D Activity where it meets all of the conditions mentioned in Article 3 of Ministerial Decision No. 24 of 2026.
Qualifying Entity (QE)
1. Incorporated or otherwise established or recognized in the UAE (including Free
Zone entities) and carrying out Qualifying R&D Activities, subject to Corporate
Tax and/or Top-up Tax; or.
2. Incorporated or otherwise established or recognized abroad but conducting
Qualifying R&D Activities in the UAE through a Permanent Establishment, with
income from the PE subject to Corporate Tax and/or Top-up Tax.
What Qualifies as R&D?
- It is novel, aiming to produce new findings
- It is creative, involving original concepts or hypotheses
- It is uncertain, where outcomes are not known in advance
- It is systematic, following a structured plan and budget
- It is transferable or reproducible, such that its results can be applied or replicated in other contexts.
R&D Tax Credit: At a Glance
| Maximum Qualifying R&D Expenditure per Qualifying Entity or Tax Group in each Tax Period or Fiscal Year (AED) | Average number of R&D Staff per Qualifying Entity or Tax Group in each Tax Period or Fiscal Year | R&D Tax Credit Rate |
|---|---|---|
| First 1 million | At least 2 | 15% |
| The portion exceeding 1 million and up to 2 million | At least 6 | 35% |
| The portion exceeding 2 million and up to 5 million | At least 14 | 50% |
Note: The R&D Tax Credit shall be calculated by applying the applicable rate to the portion of Qualifying R&D Expenditure that falls within each corresponding threshold shown in the above table.
Tax Credit Use
The R&D Tax Credit can be applied against Corporate Tax and/or Top-up Tax for the Qualifying Entity, Tax Group, Domestic Group, or other relevant persons, and it is non-refundable
Aggregation for Tax Groups
If a Tax Group has multiple QE, the total R&D expenditure and R&D staff are combined to determine eligibility thresholds. For entities in a Cost Contribution Arrangement, the R&D staff count includes all employees (or equivalents) actively engaged in the joint R&D
Average R&D Staff Calculation
The average number of R&D staff per entity is calculated by summing staff for each month in the Tax Period or Fiscal Year (full or part months) and dividing by the number of months R&D activities were conducted.
Subcontracted R&D Activities:
For subcontracted R&D, the staff count includes both the entities and the subcontractor’s employees directly involved in the qualifying R&D.
Cost Contribution Arrangements:
R&D expenditure counts only the portion contributed by the entity. Staff count includes all employees (or equivalents) actively engaged in the joint R&D activities during the period.
Meeting Credit Thresholds:
To get a specific R&D Tax Credit rate, both the expenditure and average R&D staff thresholds must be met. If either threshold is not reached, the credit rate is adjusted down to the highest rate for which both thresholds are satisfied.
Qualifying Expenditure – Practical
Breakdown
Included:
- Staff costs – staff located in the state under the supervision, direction and direct control of the Qualifying Entity. (with 30% uplift)
- Consumables (fuel, materials, trial costs, etc.)
- Subcontracting (only within UAE)
- Arm’s length share of contributions under cost contribution arrangements
Important Restrictions:
- No intra-group recharges
- No double benefits
- Must be wholly and exclusively for R&D
Utilisation, Carry Forward of Tax Credit:
- Non-refundable credit
- Must be used first before carryforward
- Carry forward allowed with
conditions:
Ownership Continuity: The R&D Tax Credit can be utilised only if at least 50% ownership of the entity remains with the same person(s) from the time the credit arises until it is used.
Change in Ownership: If ownership changes by more than 50%, the credit can still be used only if the entity continues the same or a similar business activity.
Note: The change of ownership shall not apply to Qualifying Entities whose shares are listed on a Recognised Stock Exchange.
Transfer of R&D Tax Credit
- Transfer Eligibility: A Qualifying Entity (transferor) can transfer unused R&D Tax Credit to another entity (transferee) if there is at least 75% common ownership (or one owns the other), maintained throughout the relevant period.
- Utilisation by Transferee: The transferee must use the credit against its own Corporate Tax and/or Top-up Tax liability in the same Tax Period.
- Usage Limit: The transferred credit cannot exceed the transferee’s remaining tax liability after using its own R&D Tax Credit.
- No Carry Forward or Further Transfer: The transferee cannot carry forward or transfer the credit further.
- Adjustment by Transferor: The transferor must reduce its available R&D Tax Credit by the amount transferred.
Pre-Approval Requirement
Mandatory Pre-Approval: A Qualifying Entity must obtain approval from the Council before claiming the R&D Tax Credit for any R&D project, in the prescribed form and within the specified timeline.
Ongoing Compliance: The Council may require the entity to submit progress updates and supporting technical documentation to ensure the activities and expenses remain aligned with the approved R&D project.
Compliance & Documentation
- 7-year record keeping
- Detailed technical documentation associated with the Qualifying R&D Activities is required like ;
➢Objectives
➢Methodology
➢Experiments
➢Results
R&D Tax Credit to Tax Groups
Credit Use: R&D Tax Credit of a Qualifying Entity in a Tax Group is applied against the Corporate Tax liability of the Tax Group. Credits must be used against Corporate Tax before being applied to Top-up Tax, carried forward, or transferred.
Pre-Grouping Credits: Any unutilised R&D Tax Credit of a QE joining a Tax Group (“pre-Grouping R&D Tax Credits”) is used first to offset the Tax Group’s Corporate Tax liability.
Leaving the Tax Group: If a Qualifying Entity leaves, the Tax Group keeps the R&D Tax Credit, except for any unutilised pre-Grouping credits, which remain with the entity.
Claw-Back: If a member did not meet R&D conditions for a project, any credit used to reduce the Group’s Corporate Tax must be repaid to the Authority. Tax Group members are jointly and severally liable for clawed-back amounts, unless the Authority approves limiting liability to specific members.
Penalties: The Parent Company is responsible for any penalties related to clawed-back credits, treated as Due or Payable Tax. The Parent is responsible for pre-approval, submitting R&D Tax Credit claims with the Tax Return, and complying with all related obligations.
Cessation of Tax Group:
- If the Parent Company remains taxable, the Group’s R&D Tax Credits stay with the Parent, except unutilised pre-Grouping credits.
- If the Parent Company ceases to be taxable, Group credits are forfeited, except unutilised pre-Grouping credits.
Artificial Separation of Business & Anti-Abuse Rules
- If the Authority finds that one or more persons have split their business artificially to claim R&D Tax Credits, any utilised credit will be clawed back as Payable or Due Tax, and unutilised credit will be forfeited.
- The Authority considers whether the separation had a valid commercial purpose and whether the businesses are substantially the same, looking at financial, economic, and organisational links.
- Any arrangement primarily aimed at increasing R&D Tax Credits without genuine R&D substance can be counteracted, with utilised credits clawed back and unutilised credits forfeited.
Five-Year Claw-Back Rule:
Within five years of claiming an R&D Tax Credit, if a Qualifying Entity:
- Ceases to be taxable,
- Becomes a Qualifying Free Zone Person,
- Applies small business relief,
- Enters liquidation, or
- Redomiciles outside the UAE,
Then utilised credits must be clawed back, and unutilised credits are forfeited.
How BAM Advisors can assist your business:
- Our team helps businesses determine eligibility for the UAE R&D Tax Credit and assess R&D projects.
- Identify and quantify qualifying R&D expenditure, including staff costs, consumables, and subcontracting.
- Guide businesses through the mandatory pre-approval process with the Emirates Research and Development Council.
- Support preparation of technical documentation to substantiate R&D activities and associated expenses.
- Accurately calculate R&D Tax Credits and assist in filing claims with Corporate Tax or Top-up Tax returns.
- Advise on utilisation, transfer, carry-forward of credits, and manage compliance risks including claw-back and anti-abuse provisions.
