UAE Corporate Tax: Research and Development Tax Credit under UAE Corporate Tax

The UAE Cabinet has introduced a Research & Development (R&D) Tax Credit regime under UAE Corporate Tax (‘CT’) Law framework. This credit can be offset against Qualifying Entity’s CT liability and/or Top-up Tax liability.

Effective for tax periods commencing on or after 1 January 2026, the measure provides direct tax relief for businesses undertaking Qualifying R&D Activities in the UAE, thereby incentivising innovation and investment in research-driven operations.

1. Qualifying Entities and Qualifying Activities:

The Qualifying Entity being either:

• • a juridical person incorporated or otherwise established under the UAE legislation that carries Qualifying R&D Activities; or
  • a juridical person that is incorporated or otherwise established under the foreign legislation but carrying Qualifying R&D Activities in the UAE through a Permanent Establishment

is eligible to claim the R&D Tax Credit for Qualifying R&D expenditure. An activity conducted as part of R&D Project shall be considered Qualifying R&D Activity where it meets all the following conditions:

1. 1. It is novel, in that it aims to produce new findings.
   2. It is creative, involving original concepts or hypotheses.
   3. It is uncertain, in that the outcome or means of achieving it are not known in advance.
   4. It is systematic, following a plan and budget.
   5. It is transferable or reproducible, such that its results can be applied or replicated in other context.

However, any activities conducted in the fields of social sciences, humanities and the arts are not considered as Qualifying Activity. In addition, entities that is neither subject to CT nor Top-up Tax or that have elected for Small Business Relief shall not be considered as Qualifying Entities.

Furthermore, if, within five years from the end of the Tax Period in which an R&D Tax Credit was last claimed, a Qualifying Entity ceases to be a Taxable Person, becomes a Qualifying Free Zone Person, elects Small Business Relief, enters into liquidation, or redomiciles outside the UAE, any utilised R&D Tax Credit shall be clawed back as payable or due tax.

2. Qualifying R&D Expenditure:

The R&D Tax Credit is available on a tiered basis, with rates and eligibility conditions varying by the level of Qualifying R&D Expenditure and the average number of R&D staff employed during the relevant Tax Period or Fiscal Year, as follows:

1. 1. a 15% credit applies to the first AED 1 million of Qualifying R&D Expenditure, subject to a minimum of 2 R&D staff;
   2. a 35% credit applies to the portion of expenditure exceeding AED 1 million and up to AED 2 million, subject to a minimum of 6 R&D staff; and
   3. a 50% credit applies to the portion of expenditure exceeding AED 2 million and up to AED 5 million, subject to a minimum of 14 R&D staff.

The R&D Tax Credit is computed by applying the relevant rate to each corresponding band of Qualifying R&D Expenditure

The Qualifying R&D Expenditure includes:

1. 1. Staff costs (with 30% uplift)
   2. Consumable costs
   3. Subcontracting fees
   4. Arm’s length share of contributions under cost contribution arrangements.
   5. Any other category of expenditure as may be specified in a decision issued by the Minister.
   6. Any costs specified in paragraphs (a) to (e) that are capitalised under the applicable accounting standards in respect of internally generated intangibles resulting from Qualifying R&D Activities.

3. Further conditions to claim the R&D Tax Credit:

Qualifying Entity may claim the R&D Tax Credit, provided it satisfies all of the following conditions: –

• • Meets the minimum threshold for employees engaged in Qualifying R&D Activities, as specified in the Ministerial Decision.
  • Obtains the necessary pre-approvals from the Council and complies with ongoing compliance requirements.
  • Bears the financial burden of carrying out the Qualifying R&D Activities.
  • Is beneficially entitled to a share in the returns derived from exploiting the intangibles or other results of the Qualifying R&D Activities. This includes the transfer of the intangibles or other results of the Qualifying R&D Activities or rights in them or their use in commercial operations.
  • Undertakes R&D projects with a specified objective to increase the stock of knowledge or devising new applications of available knowledge.
  • Complies with all other requirements of the (Cabinet/ Ministerial) Decisions and Council.
  • Is beneficially entitled to the returns arising from the exploitation of the resulting intangibles or other R&D outputs, including through their transfer, licensing, or commercial use;

The R&D Credit shall be utilised against the CT and/or Top-up Tax liability of the Qualifying Entity, Tax Group, Domestic Group or any other Person and is non-refundable in nature. The R&D Tax Credit can be transferred, carried forward or used in case of Business Restructuring subject to conditions specified in the Ministerial Decision.

R&D Tax Credit claims shall be submitted as a part of CT return or Top-up Tax return along with supporting documents such as:-

1. 1. Proof of obtaining pre-approval from the Council
   2. Signed declaration by senior management confirming the accuracy of the information provided
   3. Breakdown of Qualifying R&D Expenditure according to the requirements as specified by the Authority
   4. Audited financial statements of the Qualifying Entity.