Construction companies in the UAE risk missing out on substantial tax savings under the country’s new research and development (R&D) incentive regime unless they move quickly to identify qualifying activities and put the required structures in place, according to tax advisory Dhruva, a Ryan Affiliate.
The framework, introduced under Ministerial Decision No 24 of 2026 and effective from January 1, offers tax credits of between 15 per cent and 50 per cent on eligible R&D spending.
Despite the potential upside, many firms in the construction sector — one of the UAE’s largest contributors to economic activity — have yet to classify or document innovation work in a way that would allow them to claim the benefit, Dhruva said.
“The construction sector innovates constantly, but much of this activity has never been labelled R&D,” said Nimish Goel, leader Middle East, Dhruva. “That is precisely where value is being left on the table.”
The advisory said the window to act is narrowing, as the regime requires upfront approval and detailed, contemporaneous documentation of qualifying work.
How the construction sector can leverage R&D tax credits
Under rules aligned with OECD standards, eligible R&D must involve technical uncertainty and systematic experimentation. In construction, this can include developing low-carbon materials, testing modular building techniques, or creating proprietary software for building information modelling, digital twins and AI-driven project management.
Sustainability-focused innovation, such as net-zero building systems and climate-adapted cooling technologies, as well as the use of robotics and drones in construction and inspection, may also qualify.
A key feature of the regime is its dual-threshold structure, which ties the level of tax credit not only to R&D spending but also to workforce size.
The first Dhs1m ($272,000) of qualifying expenditure attracts a 15 per cent credit with a minimum of two R&D staff, rising to 35 per cent for up to Dhs2m with six staff, and 50 per cent for up to Dhs5m with at least 14 staff. Companies that fail to meet headcount thresholds receive lower rates.
This structure effectively links tax benefits to hiring, making workforce planning a critical lever for maximising returns.
Specialist roles such as engineers, materials scientists and software developers can determine access to higher credit tiers, while staff costs receive a 30 per cent uplift in qualifying expenditure.
“This is not just a tax incentive; it represents a structural shift in how innovation is recognised within the construction sector,” Goel said.
The regime also requires companies to secure pre-approval and maintain detailed records of R&D objectives, methodologies and outcomes for seven years, raising the compliance bar for an industry not traditionally structured around formal R&D processes.
Advisers warn that companies attempting to retrospectively classify projects are unlikely to meet the standard, making early integration of R&D tracking into project workflows essential.
For large construction groups operating centralised engineering or shared technology platforms, structuring will also be critical, as intra-group transactions are excluded from qualifying expenditure.
With the UAE pushing to position itself as a knowledge-driven economy, the incentive brings the construction sector into line with technology and manufacturing in accessing R&D support.
“The question is not whether to engage,” Goel said. “It is how quickly companies can build the processes to do so effectively.”
Read: Abu Dhabi, Dubai top Multipolitan’s tax-friendly cities index