UAE R&D tax credit: what businesses must get right
The UAE’s R&D tax credit regime represents a meaningful opportunity for innovation driven businesses, but only where it is approached as a forward looking planning exercise
01 May, 2026
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The UAE’s research and development (R&D) tax credit regime, introduced under Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026, came into effect for tax periods starting 1 January 2026. Positioned within the corporate tax framework, it offers a credit against tax for qualifying R&D expenditure, but only where strict technical, financial and structural conditions are met.
This is not a broad-based incentive for innovation spend. Access depends on how R&D is carried out, evidenced and aligned with value creation in the UAE. In practice, substance determines eligibility an not intent.
How the credit works
The regime applies a tiered structure:
- 15 per cent on the first Dhs1m of qualifying spend, with at least two R&D staff
- 35 per cent on spend between Dhs1m and Dhs2m, with at least six staff
- 50 per cent on spend between Dhs2m and Dhs5m, with at least 14 staff
It is available to UAE entities, including free zone companies, and foreign entities with a UAE permanent establishment, provided they are subject to corporate tax or domestic minimum top-up tax (DMTT). Entities benefiting from the 0 per cent free zone rate or small business relief are excluded.
The credit offsets tax liabilities but is not refundable. Unused credits may be carried forward and, in some cases, transferred within a group. For multinational businesses, it also interacts with OECD Pillar Two rules.
Critically, the value of the credit depends on whether it can actually be utilized in making group structure and tax position key considerations.
Pre-approval is mandatory
One of the most significant features of the regime is the requirement for project pre-approval from the Emirates Research and Development Council. Without this, claims cannot proceed.
Claims are made through the corporate tax return and must be supported by detailed documentation, including project approval, financial records and a breakdown of qualifying costs. The burden of proof lies entirely with the taxpayer, and late or unsupported claims are likely to be rejected.
This makes early planning essential. R&D cannot be “packaged” for tax purposes after the fact without being fully supported by facts and documentation.
What qualifies as R&D
To be eligible, activities must address genuine technical uncertainty and aim to achieve an advance in science or technology. They must follow a structured, project-based methodology aligned with internationally recognised principles.
Routine development, product enhancement or engineering work will not qualify unless they clearly meet this threshold. This is particularly relevant for sectors such as software and product design, where the line between innovation and implementation is often blurred.
Only activities carried out in the UAE qualify where projects span multiple jurisdictions. Activities in the social sciences, humanities and arts are excluded.
In many cases, qualifying R&D overlaps with the creation of intellectual property (IP), including patents, industrial designs and know-how. This creates important implications for how projects are structured and how outputs are managed.
What costs qualify
Eligible expenditure includes staff costs, consumables, subcontracting fees, certain capitalised costs, and licence fees for IP used in R&D.
However, the conditions are strict. Costs must be wholly and exclusively linked to qualifying activities, deductible for corporate tax purposes, and not funded by grants or other incentives. A minimum threshold of Dhs500,000 per project applies.
The key test is whether a clear, defensible link can be demonstrated between the cost, the activity and the entity claiming the credit. This is where many claims are likely to fail.
Intra-group arrangements are a particular risk area. Where costs are incurred in one entity but economic benefits accrue elsewhere, eligibility may be challenged. Licence fees and shared development models further complicate this, especially where ownership of outputs is unclear.
Why structure matters
The regime places significant emphasis on who bears the cost of R&D and who benefits from the outcomes. To claim the credit, an entity must not only incur the expenditure but also be entitled to the economic returns from the resulting innovation.
This makes IP ownership and contractual arrangements central to eligibility. Businesses must clearly define ownership of both existing (background) and newly created (foreground) IP, particularly in employee, consultant and subcontractor relationships.
Misalignment between legal ownership, economic benefit and actual conduct is a key risk. For example, a UAE entity performing R&D may not qualify if another group entity retains rights to the resulting IP.
Substance will override contractual form. Authorities are likely to examine whether the claiming entity genuinely controls the R&D and bears associated risks.
Timing and documentation are critical
Eligibility is determined based on how activities are conducted during the tax period—not how they are described later. This means documentation must be contemporaneous.
Businesses need to record technical challenges, methodologies, iterations and outcomes in real time, alongside structured tracking of costs such as staff time and consumables.
Records must be retained for seven years.
Attempts to reconstruct claims retrospectively, or to restructure arrangements mid-project, are unlikely to succeed.
Where risks lie
Several areas are expected to attract scrutiny:
- classifying routine development as R&D without evidence of technical uncertainty
- including costs that cannot be directly linked to qualifying activities
- misalignment in intra-group or subcontracting arrangements
- lack of economic entitlement to R&D outcomes
- cross-border projects with unclear cost allocation
- inconsistencies between technical documentation and financial claims
These issues could result in claims being reduced, denied or subject to clawback.
A planning exercise, not a tax adjustment
The UAE’s R&D tax credit regime represents a meaningful opportunity for innovation-driven businesses—but only where it is approached as a forward-looking planning exercise.
This requires early identification of qualifying projects, alignment of IP ownership and contractual structures, and implementation of systems for real-time tracking and documentation. It also demands close coordination between technical, finance and legal teams.
Ultimately, the biggest risk is not the absence of R&D activity, but misalignment between what businesses do, how they record it, and how they structure ownership and returns.
Those that embed these requirements from the outset are far more likely to secure and sustain the benefit of the credit.
For more info, you may contact the authors below:
Ahmad Saleh – Partner, Head of Innovation, Patents & Industrial Property – [email protected]
