UAE adopts tax incentives to boost innovation
Tax Alert
23 March 2026
23 March 2026
The UAE has issued Ministerial Decision No. 24 of 2026 (“Decision No. 24”) for the implementation of certain provisions of Cabinet Decision No. 215 of 2025 (“Decision No. 215”) introducing tax incentives for companies conducting research and development (R&D) activities.
The incentives will be available in tax periods commencing on or after 1 January 2026.
Incentive description
Taxpayers involved in R&D activities related to creating and increasing the stock of knowledge of humankind, culture and society will be entitled to a tax credit utilized against the corporate tax or domestic minimum top-up tax (DMTT) liability and representing a specific percentage of qualifying R&D expenditure incurred.
Decision No. 24 establishes a differentiated approach to calculating the tax credit based on the R&D expenditure amount and the number of employees engaged in R&D activities:
The incentives will be available in tax periods commencing on or after 1 January 2026.
Incentive description
Taxpayers involved in R&D activities related to creating and increasing the stock of knowledge of humankind, culture and society will be entitled to a tax credit utilized against the corporate tax or domestic minimum top-up tax (DMTT) liability and representing a specific percentage of qualifying R&D expenditure incurred.
Decision No. 24 establishes a differentiated approach to calculating the tax credit based on the R&D expenditure amount and the number of employees engaged in R&D activities:
If at least one threshold is not met, the R&D tax credit rate is decreased to the highest rate for which both thresholds are satisfied.
Therefore, the R&D tax credit is calculated by applying the corresponding rate to the portion of qualifying R&D expenditure.
Therefore, the R&D tax credit is calculated by applying the corresponding rate to the portion of qualifying R&D expenditure.
Qualifying R&D activities
An activity is considered qualifying if it is conducted in the UAE and meets all of the following conditions:
The assessment of whether an activity constitutes a Qualifying R&D Activity shall be made having regard to the criteria set out in the Frascati Manual on Guidelines for Collecting and Reporting Data on Research and Experimental Development, The Measurement of Scientific, Technological and Innovation Activities issued and updated from time to time by the OECD. Qualifying R&D activities do not include any R&D activity in social sciences, humanities and the arts.
Eligible persons
The tax credit will be available to “qualifying entities” that mean:
Persons enjoying the small business relief and qualifying free zone persons (QFZP) applying a beneficial 0% rate are not eligible for the tax credit, with the following two exceptions: (1) a QFZP is subject to corporate tax at a rate of 9% in the tax period in which qualifying R&D expenditure is incurred and such taxable income is derived from R&D activities; or (2) a person is subject to DMTT in the fiscal year in which qualifying R&D expenditure is incurred.
Qualifying R&D expenditure
R&D expenditure qualifying for the tax credit includes:
Qualifying R&D expenditure is eligible for the tax credit only if all of the following conditions are met:
A qualifying entity must maintain technical documentation sufficient to demonstrate that the activities undertaken constitute qualifying R&D activities and the associated expenses constitute qualifying R&D expenditure for the purposes of claiming the R&D tax credit for a period of 7 years following the end of the tax period or fiscal year to which they relate, and must provide such documentation to the Emirates Research and Development Council (the “Council”) and/or the FTA upon request within the timeline specified by the Council or the FTA. The technical documentation must include a comprehensive collection of written, visual and electronic records detailing the objectives, processes, methodologies, experiments and findings associated with qualifying R&D activities.
Conditions to claim the tax credit
An entity that meets the definition of a qualifying entity may claim the R&D tax credit if all of the following conditions are satisfied:
Additional requirements may be established by subsequent decisions.
Carry-forward or transfer of the R&D tax credit
Any unutilized R&D tax credit may be carried forward and utilized against corporate tax and/or DMTT liabilities in subsequent tax periods or fiscal years, or transferred to other persons if the conditions set out in Decision No. 24 are met.
How BaOne can help
An activity is considered qualifying if it is conducted in the UAE and meets all of the following conditions:
- It is novel, in that it aims to produce new findings.
- It is creative, involving original concepts or hypotheses.
- It is uncertain, in that its outcome or means of achieving it are not known in advance.
- It is systematic, following a plan and budget.
- It is transferable or reproducible, such that its results can be applied or replicated in other contexts.
The assessment of whether an activity constitutes a Qualifying R&D Activity shall be made having regard to the criteria set out in the Frascati Manual on Guidelines for Collecting and Reporting Data on Research and Experimental Development, The Measurement of Scientific, Technological and Innovation Activities issued and updated from time to time by the OECD. Qualifying R&D activities do not include any R&D activity in social sciences, humanities and the arts.
Eligible persons
The tax credit will be available to “qualifying entities” that mean:
- A juridical person incorporated in the UAE (including free zones) that is subject to corporate tax and/or DMTT and conducts qualifying R&D activities in the UAE
- A foreign juridical person that conducts qualifying R&D activities through a permanent establishment in the UAE and is subject to corporate tax and/or DMTT on income attributable to the permanent establishment
Persons enjoying the small business relief and qualifying free zone persons (QFZP) applying a beneficial 0% rate are not eligible for the tax credit, with the following two exceptions: (1) a QFZP is subject to corporate tax at a rate of 9% in the tax period in which qualifying R&D expenditure is incurred and such taxable income is derived from R&D activities; or (2) a person is subject to DMTT in the fiscal year in which qualifying R&D expenditure is incurred.
Qualifying R&D expenditure
R&D expenditure qualifying for the tax credit includes:
- Costs in respect of staff located in the UAE (increased by 30%)
- Consumable costs
- Subcontracting fees
- Arm’s length share of contributions under cost contribution arrangements
- Any other category of expenditure as may be specified in a decision issued by the UAE Minister of Finance
- Any costs specified above that are capitalized under the applicable accounting standards in respect of internally generated intangibles resulting from qualifying R&D activities
Qualifying R&D expenditure is eligible for the tax credit only if all of the following conditions are met:
- It is incurred wholly and exclusively for the purposes of carrying out qualifying R&D activities by the qualifying entity.
- It amounts 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 as may be determined by a decision issued by the UAE Minister of Finance.
- It is a deductible expenditure under the Corporate Tax Law or the DMTT Law (including costs that are capitalized under the applicable accounting standards).
- It does not include any part or portion that has been directly or indirectly funded by a government grant to the extent that such expenditure is recorded in the financial statements of the qualifying entity.
- It is not subject to any other incentive, credit, exemption, or relief under the Corporate Tax Law or any other legislation in the UAE.
A qualifying entity must maintain technical documentation sufficient to demonstrate that the activities undertaken constitute qualifying R&D activities and the associated expenses constitute qualifying R&D expenditure for the purposes of claiming the R&D tax credit for a period of 7 years following the end of the tax period or fiscal year to which they relate, and must provide such documentation to the Emirates Research and Development Council (the “Council”) and/or the FTA upon request within the timeline specified by the Council or the FTA. The technical documentation must include a comprehensive collection of written, visual and electronic records detailing the objectives, processes, methodologies, experiments and findings associated with qualifying R&D activities.
Conditions to claim the tax credit
An entity that meets the definition of a qualifying entity may claim the R&D tax credit if all of the following conditions are satisfied:
- It meets the requirement for the minimum number of employees engaged in qualifying R&D activities.
- It obtains a pre-approval from the Council for each R&D project for which the credit is claimed in the manner specified by the Council.
- It bears the financial burden of carrying out qualifying R&D activities.
- It is entitled to a share in the returns derived from exploiting intangibles or other results of qualifying R&D activities. Exploitation includes the transfer of intangibles or other results of qualifying R&D activities or rights in them or their use in commercial operations.
- The relevant R&D project has a specified objective to increase the stock of knowledge or devise new applications of available knowledge, and qualifying R&D activities are directly undertaken for achieving such objective.
Additional requirements may be established by subsequent decisions.
Carry-forward or transfer of the R&D tax credit
Any unutilized R&D tax credit may be carried forward and utilized against corporate tax and/or DMTT liabilities in subsequent tax periods or fiscal years, or transferred to other persons if the conditions set out in Decision No. 24 are met.
How BaOne can help
- Analysis of the tax implications of utilizing the tax credit against corporate tax and DMTT liabilities, including an assessment of the impact on the effective tax rate
- Comprehensive assessment of the company’s operations and current projects for tax incentive eligibility
- Support in submitting tax returns and claims for the tax credit along with supporting documentation and assistance during the tax audit
- TP services: analysis of intragroup agreements
- Estimation of R&D expenditure
- Modification of accounting processes to track R&D expenditure
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