On March 18, the UAE Ministry of Finance issued Ministerial Decision No. 24 of 2026, which puts into effect the first phase of the UAE’s Research and Development (R&D) Tax Incentives Programme (the “Programme”).
The Programme was originally introduced under Cabinet Decision No. 215 of 2025. It applies to tax periods starting on or after 1 January 2026 and sets out the detailed rules on eligibility, calculation, use, and compliance.
The Programme offers a non-refundable tax credit of up to 50% of qualifying R&D expenditure, capped at AED 5 million per year. Because the credit is non-refundable, it can reduce a taxpayer’s corporate tax liability, but it cannot result in a cash refund if the credit is higher than the tax due.
The amount of the credit depends on both qualifying expenditure thresholds and the intensity of R&D staffing, with higher rates available only where minimum levels of skilled R&D personnel are maintained in the UAE. This shows a policy focus on economic substance and domestic value creation, rather than only financial investment.
The regime is intended to operate alongside the UAE’s Top-up Tax framework under OECD Pillar Two. The OECD Pillar Two Rules, also known as the Global Anti-Base Erosion (GloBE) Model Rules, were introduced by the UAE Ministry of Finance in February 2025.
They provide that multinational enterprise groups with consolidated annual revenues of at least EUR 750 million are subject to a minimum effective tax rate of 15% (“Top-up Tax”). Because the credit is non-refundable, its treatment under the GloBE Rules may affect a multinational group’s effective tax rate (ETR) and its Top-up Tax exposure.
Who is Eligible?
Eligibility under the Programme is assessed across three cumulative dimensions: entity-level, activity-level, and project/expenditure-level.
Entity Level
At the entity level, the credit is available to UAE taxable persons, including UAE-incorporated entities and foreign entities operating through a UAE permanent establishment, provided they are subject to UAE Corporate Tax and/or Top-up Tax.
Entities outside the UAE tax net, those electing Small Business Relief, and certain Free Zone entities benefiting from a 0% tax rate without Top-up Tax exposure are excluded. This means the incentive is aimed at entities that contribute to the UAE tax base.
Activity Level
At the activity level, only R&D activities that are scientific or technological in nature qualify. The regime uses OECD-aligned criteria and requires that the activity be novel, creative, involve technical uncertainty, and be carried out in a systematic and reproducible way.
The activity must also be physically undertaken in the UAE, which reinforces the jurisdictional link. Activities in the social sciences, humanities, and arts, as well as routine or incremental improvements that lack technical uncertainty, are outside the scope of the incentive.
In practice, businesses often seek guidance from a corporate law firm and lawyers in UAE to assess whether their R&D activities meet these technical and regulatory thresholds.
Project Level
At the project level, R&D must be carried out within a clearly defined project framework, with specified objectives, measurable outcomes, and prior approval from the competent authority. A minimum annual expenditure threshold of AED 500,000 per project applies.
Only qualifying expenditure that is, expenditure incurred wholly and exclusively for R&D purposes and generally deductible under UAE Corporate Tax rules — may be claimed. Eligible costs include employee compensation (subject to prescribed uplifts), consumables, and certain UAE-based subcontracting expenses, while grant-funded costs and expenditures benefiting from other incentives are excluded.
Additional Eligibility Requirements
Claimants must also show adequate UAE substance, including maintaining a minimum threshold of R&D personnel physically located in the UAE and operating under the entity’s direction and control. The applicable tax credit rate depends on both qualifying expenditure and the level of R&D staffing maintained in the UAE.
A qualifying entity with at least two R&D personnel on average may claim a 15% tax credit on qualifying expenditure of up to AED 1,000,000. Where the entity has a minimum average of six R&D personnel, the credit increases to 35% for qualifying expenditure between AED 1,000,000 and AED 2,000,000.
Entities with at least fourteen R&D personnel on average are eligible for the highest credit rate of 50% on qualifying expenditure between AED 2,000,000 and AED 5,000,000. The average number of R&D staff is calculated by adding the total number of R&D Staff for each month during the relevant fiscal year and dividing that total by the number of months in which the qualifying entity carried out the R&D activities eligible for the tax credit in that fiscal year.
Strong compliance obligations apply, including mandatory pre-approval, detailed cost tracking, contemporaneous documentation, and record retention for the required periods. Claims must be made through the corporate tax return, and the authorities may review and adjust claims. Non-compliance, artificial structuring, or failure to meet ongoing conditions may lead to denial, reduction, or clawback of the credit.
Utilisation and Structural Considerations
The credit may be carried forward to future tax periods if it cannot be fully used, and in some cases may be transferred within qualifying group structures, subject to continuity of ownership, business activity, and other prescribed conditions.
Anti-abuse provisions apply to prevent inappropriate shifting or monetisation of credits, particularly in the context of group restructurings or intra-group arrangements that lack commercial substance.
From a structuring perspective, the regime requires alignment between legal ownership, functional control, and economic risk allocation. Businesses operating cross-border R&D models, especially those involving principal structures, cost-sharing arrangements, or outsourced development, will need to reassess whether their current operating models satisfy the UAE’s substance and control requirements.
Businesses in regulated sectors often rely on healthcare & Lifesciences lawyers in UAE to align their R&D initiatives with both tax incentives and sector-specific compliance obligations.
The Path Forward
The Programme is a strategic policy initiative designed to increase private sector investment in innovation and high-value activities, in line with the UAE’s broader economic diversification agenda. Its structure, especially the use of a non-refundable credit, appears designed to remain compatible with the OECD Pillar Two framework while preserving tax predictability.
Looking ahead, the UAE Ministry of Finance has said that a second phase of the Programme is under consideration. This could include a refundable credit mechanism, broader eligible expenditure categories, and possible targeting of priority sectors. How the regime develops will likely depend on early uptake, administrative experience, and broader economic impact assessments.
Authors: Shantanu Mukherjee, Shruti Gupta, Varun Alase
