UAE R&D Tax Credit Offers Businesses Up to AED 2 Million Per Tax Period

Businesses undertaking qualifying research and development activities in the UAE may be eligible for a substantial tax credit under the UAE’s Research and Development Tax Incentives Programme. Phase 1 of the programme allows qualifying entities to claim a non-refundable R&D tax credit of up to AED 2 million per tax period or fiscal year, depending on the amount of qualifying expenditure and the number of employees involved in R&D activities. The rules apply to tax periods or fiscal years beginning on or after 1 January 2026.

The incentive forms part of the UAE’s wider strategy to encourage private-sector investment in innovation, advanced industries and emerging technologies.

The R&D Tax Credit uses a tiered structure. For the first AED 1 million of qualifying R&D expenditure, businesses may qualify for a 15% credit, provided they have at least two qualifying R&D staff. For the portion of expenditure exceeding AED 1 million and up to AED 2 million, the applicable rate increases to 35%, subject to an average of at least six R&D staff. For expenditure above AED 2 million and up to AED 5 million, the credit rate can reach 50%, provided the business has at least 14 qualifying R&D staff. Both the expenditure threshold and the minimum R&D staff requirement must be satisfied for the relevant rate to apply. Because the rates are applied progressively to each expenditure band, the maximum credit under Phase 1 is AED 2 million, rather than 50% of the full AED 5 million expenditure cap. 

Qualifying R&D activities must be carried out in the UAE and form part of an R&D project meeting defined criteria. Under the Ministerial Decision, qualifying activities must be:

• novel

• creative

• uncertain in outcome

• systematic

• transferable or reproducible

The assessment is aligned with the OECD’s Frascati Manual for research and experimental development. Activities carried out outside the UAE do not qualify for the UAE credit. Eligible expenditure can include certain staff costs, consumable costs, subcontracting fees and qualifying cost-contribution arrangements, subject to the conditions set out in the legislation.

Businesses cannot simply identify qualifying expenditure at the end of the tax period and claim the credit retrospectively without following the required process. A qualifying entity must obtain pre-approval from the Emirates Research and Development Council for each R&D project for which the credit is claimed. The Council may also require project updates and supporting technical documentation during the project.

Businesses are also required to retain appropriate technical documentation demonstrating both the nature of the R&D activities and the associated qualifying expenditure. The Ministerial Decision requires such records to be retained for seven years following the relevant tax period or fiscal year.

Under Phase 1, the R&D Tax Credit is non-refundable. It can be used against Corporate Tax and, where applicable, Top-up Tax liabilities. Subject to specified conditions, unused credits may also be carried forward to subsequent tax periods.

The Ministry of Finance has indicated that a future Phase 2 may consider enhancements such as refundable credits or higher qualifying expenditure limits, but those changes have not yet been introduced. 

NUR Advisory Note

The R&D Tax Credit may be relevant to a wider range of businesses than companies that formally describe themselves as research organisations.

Businesses developing new products, industrial processes, technologies, software, engineering solutions or other innovative applications should assess whether parts of their activities may satisfy the qualifying R&D criteria.

However, the incentive is highly structured. Eligibility depends not only on expenditure but also on the nature of the activity, the location of the R&D work, staff thresholds, pre-approval and detailed record-keeping.

Companies considering the incentive should therefore assess potential qualifying projects before significant R&D expenditure is incurred, rather than waiting until the Corporate Tax return is being prepared.