UAE Research and Development Tax Credit

In line with the vision to make the United Arab Emirates a strategic hub for innovation, the Ministry of Finance (‘the MoF’) has introduced a Research & Development (‘R&D’) Tax Credit Regime (‘the Regime’), effective from tax periods or fiscal years beginning on or after 1 January 2026.

The Regime, provides for a non‑refundable R&D Tax Credit (‘the Tax Credit’) which can be utilized against the taxpayer’s current and future Corporate Tax (‘CT’) and/or Top‑Up Tax liabilities.

The rate of Tax Credit under the Regime will be up to 50% of the Qualified R&D Expenditure incurred towards the Qualifying R&D Activities in a particular year, subject to prescribed thresholds in relation to quantum of the expenditure and R&D staff employed. The Tax Credit is not automatic. It is subject to mandatory pre‑approvals, annual claim submissions and strict anti‑abuse rules with penalty consequences for non-compliance.

The compliance framework under the Regime places strong emphasis on robust technical documentation with corroborated evidence to substantiate consistency with the specific pre-approvals obtained. In certain instances, the Regime may have deferred tax reporting obligations.

Overall, the Regime appears to be closely aligned with international standards and adheres to Transfer Pricing principles.

The introduction of the Regime is a welcome step, which is designed to encourage private sector investment in research and innovation in the UAE.

Detailed Analysis

The MoF has issued two major decisions: Cabinet Decision No. 215 of 2025 (‘CD 215 of 2025’) and Ministerial Decision No. 24 of 2026 (‘MD 24 of 2026’), which establish the UAE’s first R&D Tax Credit Regime. This follows the MoF’s earlier announcement in January 2026 and the public consultation conducted in April 2024.
The CD 215 of 2025 defines the conceptual framework, whereas MD 24 of 2026 provides the implementation framework of the Regime. Further guidance on the mandatory pre-approval, documentation, and compliance framework is expected in the near future.

We have summarized below the key provisions of the Regime, which apply from tax periods or fiscal years commencing on or after 1 January 2026:
 

Particulars	Legal Reference	Summary	BDO Comments
Qualifying Entity and Excluded Entity	Article (1) and (4) of CD 215 of 2025	The Regime applies to an entity which is: A UAE incorporated juridical person (including a Free Zone Person) carrying out Qualifying R&D Activities and subject to CT and/or Top‑up Tax Foreign incorporated juridical persons conducting Qualifying R&D Activities in the UAE through a Permanent Establishment (“PE”) and subject to CT and/or Top‑up Tax on the income attributable to the PE. The Regime excludes: An entity which is not subject to CT and Top‑up Tax An entity electing for Small Business Relief Any other entity as may be prescribed	The Regime does not apply to individual / sole establishments engaged in business in the UAE. Similarly, entities which would not pay any taxes in the UAE will be out of scope of the Regime.
Qualifying R&D Activity and R&D Projects	Article (1) of CD 215 of 2025 read with Article (3) of MD 24 of 2026	For an activity to be regarded as a ‘Qualifying R&D Activity’, it should be conducted in the UAE as part of a R&D Project and must meet all the five conditions as follows: Novel – It must aim to generate new findings Creative – It must involve original concepts or hypotheses Uncertain – The outcome or the means to achieve it are not known in advance Systematic – It must follow a structured plan, including defined steps and a budget Transferable or Reproducible – The results should be capable of being applied or replicated in other contexts. The assessment of whether an activity constitutes a Qualifying R&D Activity will be made having regard to the criteria set out in the Frascati Manual issued by the OECD. It should be noted that R&D activity conducted in the fields of social sciences, humanities and the arts will not be a Qualifying R&D Activity.	The Regime focuses on innovation and scopes out the routine development or enhancement of Intangibles. Linking the eligibility assessment to international standards ensures application of best practices from around the world and provides for a stable implementation.
Qualifying R&D Expenditure	Article (5) of CD 215 of 2025	Qualifying R&D Expenditure consists of (i) staff costs, (ii) consumable costs, (iii) subcontracting fees, (iv) an Arm’s length share of contributions under Cost Contribution Arrangements and (v) any other costs, as prescribed. For the expenditure to be qualifying expenditure, it must be: wholly and exclusively incurred for Qualifying R&D Activities amount to at least AED 500,000 per year, per R&D project deductible expenditure for tax purposes Not funded by grants, directly or indirectly Not benefiting from other incentives, credit, exemption, or reliefs under the UAE CT Law or any other legislation.	The Regime captures direct costs associated with the R&D activities. The provisions on unjust enrichment prevents duplication and tax base erosion.
Staff Cost	Article (8) of MD 24 of 2026	The staff cost is the cost incurred by the Qualifying Entity in respect of the R&D staff. This is defined as a full-time or full-time equivalent employee or full-time or full-time equivalent externally provided worker (including a person seconded to the Qualifying Entity) who is directly and actively engaged in the Qualifying R&D Activities. The following should be noted R&D staff should be located in the UAE under the supervision, direction and direct control of the Qualifying Entity. The staff costs generally include salaries or wages, allowances, medical insurance, pension contributions and end of service gratuity, bonuses, benefits in kind, training expenses etc. covered as part of an employment contract. Employee Stock Option Plan related expenses, as well as cost recharges from another entity within the same Tax Group are specifically excluded from the cost base. Eligible staff costs will be uplifted by 30% to cover overheads. Proportionate expenses will qualify if staff are not engaged full-time in Qualifying R&D Activities. Specific conditions should be fulfilled in respect of staff from an external provider.	The Regime recognizes the concept of full-time equivalent employees which provides flexibility to the taxpayers to employ an optimum level work force. Treating an externally provided worker at par with an employee, allows the acquisition of expertise without the need for long term employment contracts with additional costs. The requirement that staff should be located in the UAE ensures economic substance in the country. The Regime also allows the uplift to base staff cost which ensures reasonable cover to the overheads and removes the difficulties of attributing the overhead cost to particular Qualifying R&D Activity.
Consumables costs	Article (9) of MD 24 of 2026	The consumable cost is the cost incurred by the Qualifying Entity for consumable or transformable materials or items that: are used directly in performance of the Qualifying R&D Activity, and are no longer usable in their original form following the use. The following should be noted: Costs include consumables like water, fuel, power, licence and similar costs which are not capitalised, and payments to clinical trial participating patients or subjects. Proportionate expenses qualify if consumables or materials or items are partially used in Qualifying R&D Activities. Consumable or transformable materials or items that are disposed of in the ordinary course of business for consideration will be excluded from the cost base . Costs recharged from another entity within the same Tax Group are specifically excluded from the cost base.	The Regime allows the cost of consumables and materials to be included in the Qualifying Expenditure cost base. Excluding recharges within the same Tax Group assists anti avoidance objectives and reduces administrative complexity.
Subcontracting Fees	Article (10) of MD 24 of 2026	Subcontracting fees are the costs incurred by the Qualifying Entity in contracting out Qualifying R&D Activities provided:     Sub-contracting is done to UAE‑based parties and the work is carried out in the UAE. The activities themselves are not sub-contracted to the Qualifying Entity or to another person by the main sub-contractor. The costs incurred must not be attributable to the Qualifying Entity’s foreign PE. Related party sub-contractors must have audited financial statements. Costs recharged from another entity within the same Tax Group are excluded from the cost base. It should be noted that Qualifying R&D Expenditure is the amount paid by the Qualifying Entity to the subcontractor in accordance with the arm’s length principle.	No specific comments.
Cost Contribution Arrangements (“CCAs”)	Article (11) of MD 24 of 2026	A CCAs is defined as a contractual arrangement among persons to share the contributions and risks involved in joint R&D activities with the understanding that the activities are expected to create benefits for each individual business. Under CCAs, the portion of the Qualifying R&D Expenditure contributed by the Qualifying Entity will constitute Qualifying R&D Expenditure, provided that: the contribution meets the arm’s length principle the contribution corresponds to the Qualifying Entity’s expected share of the benefits arising from the arrangement Only the portion of the contribution attributable to the Qualifying R&D Activities carried out within the State will constitute Qualifying R&D Expenditure.	The requirement to align CCA arrangements with the arm’s length and benefit criteria is designed to ensure a fair result and prevent tax avoidance.
R&D Tax Credit	Article (2) and (3) of CD 215 of 2025 read with Article (2) of MD 24 of 2026	The R&D Tax Credit is calculated as a percentage of the Qualifying R&D Expenditure incurred by the Qualifying Entity in the relevant Tax Period or Fiscal Year as follows:   Qualifying R&D Expenditure (AED) each Tax Period Min. Avg. R&D Staff each Tax Period R&D Tax Credit Rate First 1 million ≥ 2 15% Next 1 million (1m-2m) or portion thereof ≥ 6 35% Next 3 million (2m-5m) or portion thereof ≥ 14 50% R&D Tax Credit = Sum of (Qualifying R&D Expenditure within each slab × Respective R&D Tax Credit Rate).Note: The R&D Tax Credit rate applies only when both the expenditure and staff thresholds are met; otherwise, it is reduced to the highest tier for which both conditions are satisfied. The R&D Tax Credit is utilized against the CT and/or Top-up Tax liability, and is non-refundable. Prescribed rules must be followed for the purpose of ascertaining the quantum of qualifying expenditure and average number of R&D Staff, especially in the case of (i) a Tax Group which has more than one Qualifying Entities, (ii) subcontracted Qualifying R&D Activities and (iii) CCAs. Conditions to Claim the R&D Tax Credit: The Qualifying Entity meets the minimum number of employees engaged in Qualifying R&D Activities The Qualifying Entity obtains the necessary pre-approvals from the Council and complies with ongoing compliance requirements The Qualifying Entity bears the financial burden of carrying out the Qualifying R&D Activities The Qualifying Entity is beneficially entitled to a share in the returns derived from exploiting the intangibles or other results of the Qualifying R&D Activities The relevant R&D Project has a specified objective to increase the stock of knowledge or devise new applications of available knowledge, and the Qualifying R&D Activities are directly undertaken with the purpose of addressing such objective Where the Qualifying Entity is a Qualifying Free Zone Person, it must meet any of the following conditions: It is subject to CT at a rate of 9% on Taxable Income for the Tax Period in which the Qualifying R&D Expenditure is incurred, and such Taxable Income is derived from the Qualifying R&D Activities It is subject to the Top-up Tax for the Fiscal Year in which the Qualifying R&D Expenditure is incurred	The Regime mandates pre-approval for Tax Credits. The Regime requires the Qualifying Entity to bear the financial burden of carrying out the Qualifying R&D Activities and also requires that the Qualifying Entity is beneficially entitled to a share in the returns derived from exploiting the intangibles or other results of the Qualifying R&D Activities. This ensures that only the entity bearing the capital risk received the R&D benefit. Further official guidance is expected.
Mandatory Pre‑Approval and Ongoing Compliance	Article (12) of CD 215 of 2025 Article (4) of MD 24 of 2026	The Qualifying Entity must secure pre‑approval from the Emirates Research & Development Council (‘the Council’) The Council, at its discretion, may also have additional reporting and technical documentation requirements. The Council may also issue separate decision(s) to implement the Regime.	The Regime relies heavily on technical documentation and pro-active document management will be the essential.
Submission of R&D Tax Credit Claims	Article (9) of CD 215 of 2025	A Qualifying Entity must submit a claim for the R&D Tax Credit as part of the Tax Return or Top-up Tax Return for the relevant Tax Period or Fiscal Year. Claims submitted after the due date will not be considered unless otherwise accepted by the Federal Tax Authority (“FTA”) in exceptional circumstances. Claim must be accompanied by the following documents: Proof of obtaining pre-approval from the Council A signed declaration by senior management confirming the accuracy of the information provided A breakdown of Qualifying R&D Expenditure according to the prescribed requirements Audited financial statements of the Qualifying Entity Any other information or documents as prescribed	The Regime requires the submission of the Tax Credit claim with the Tax Return. This is welcome as it allows taxpayers time to collate documents.
Record Keeping	Article (12) of MD 24 of 2026	Qualifying Entity must maintain sufficient technical documentation supporting their R&D activities and related expenditure for seven years from the end of the relevant Tax Period or Fiscal Year. The documentation includes written, visual, and electronic records covering project objectives, processes and methodologies, experiments conducted, findings and results and should be furnished to the Council or FTA upon request within the prescribed time.	The record retention period is in line with the CT law.
Claw-back of Undue R&D Tax Credit and Penalties	Article (8) and Article (11) of CD 215 of 2025	Claw-back provision apply in cases of non-compliance: utilized Tax Credit must be repaid to the FTA within the prescribed time the portion of the Tax Credit that remains unutilized will be forfeited and cannot be carried forward. Where the Tax Credit becomes subject to claw-back rules, no other Tax Credits, special reliefs, tax losses or Pillar Two losses may be directly or indirectly offset against the tax liability arising from the claw-back rule. If the Tax Credit is clawed back, penalties will apply. For penalty calculation, the clawed‑back Tax Credit will be treated as ‘Due Tax’ or ‘Payable Tax’.	No specific comments.
Business Restructuring		When a Qualifying Entity transfers its entire business or an independent part of it to another taxable entity, the transferee may claim, utilise, carry forward, or transfer any unutilized R&D Tax Credits, subject to prescribed conditions. To retain the R&D Tax Credit after transfer, all of the following conditions must be met: The transferee continues the transferred business including the related Qualifying R&D Activities for at least 2 years from the transfer date. Meets all the conditions of Business Restructuring Relief under the CT law with certain exceptions. The R&D Tax Credit was validly claimed by the transferor prior to the transfer. Non-compliance of any conditions will invoke the claw-back rules and attract penalties.
Other Administrative rules	Article (6) and (7) of CD 215 of 2025 Article (5), (7), (13) and (14) of MD 24 of 2026	The Regime also contains other administrative as below: Carry forward of unutilized R&D Tax Credit: this is permitted provided that, in the year in which the brought‑forward Tax Credit is utilized, either (i) a common ownership interest of at least 50% is maintained, or (ii) the same or a similar business continues to be carried on. These conditions (of common ownership interest or same / similar line of business) do not apply to a Qualifying Entity whose shares are listed on a Recognized Stock Exchange. Transfer of unutilized R&D Tax Credit: this is permitted subject to a direct or indirect ownership/common ownership rule of at least 75%. Further, the transferee should first utilize its own eligible Tax Credit before utilizing the Tax Credit transferred by the transferor. In any case, the transferee cannot carry forward or further transfer the credit.	NA.

The way forward

The introduction of the UAE’s R&D Tax Credit Regime is an important milestone in supporting the country’s move toward a more knowledge‑driven and innovation‑focused economy. The Regime applies to all sectors and could open avenues for supply chain restructuring to house R&D functions in the UAE.
In coming months, businesses should consider the following steps:

• Review ongoing and upcoming projects to identify which activities might meet the definition of Qualifying R&D Activity.
• Align financial and cost‑tracking systems to correctly capture and classify Qualifying R&D Expenditure.
• Put in place processes to track R&D staff time and project progress, ensuring information is accurate, consistent, and ready for audit or pre‑approval review.
• Strengthen technical documentation, ensuring that project objectives, methods, experiments, and findings are recorded clearly and in line with Frascati‑based expectations.
• Assess ownership and group structures, especially for continuity rules and future utilization or transfer of credits.
• Prepare early for the pre‑approval process, understanding submission requirements and ongoing reporting obligations set by the Council.

At BDO UAE, we are committed to support businesses as they navigate through this new regime. Our in-house capabilities are designed to help you understand the legislation, undertaken preliminary eligibility assessment, support step by step implementation procedures and meet compliance obligations.