UAE R&D tax credit regime: key considerations for advisers

The Emirates Research and Development Council (the Council) will act as the mandatory pre-approval body for claims, although its application portal has not yet launched. In the meantime, finance professionals advising UAE businesses should begin assessing eligibility, governance and documentation requirements now.

1. The credit uses a banded structure

The regime applies marginal rates of 15%, 35% and 50% across three bands of qualifying expenditure under MD 24/2026 Article 2(1):

• Band 1: 15% on the first AED 1m, with at least two average R&D staff
• Band 2: 35% on qualifying expenditure between AED 1m and AED 2m, with at least six average R&D staff
• Band 3: 50% on qualifying expenditure between AED 2m and AED 5m, with at least 14 average R&D staff

A claimant reaching the top band on AED 5m of qualifying expenditure with 14 or more average R&D staff would receive a total credit of AED 2m. AED 5m is the qualifying expenditure ceiling and AED 2m is the maximum available credit.

2. Staff and expenditure thresholds must both be met

The legislation requires businesses to satisfy both the expenditure threshold and the R&D staff threshold for each band.

Where either condition is not met, MD 24/2026 Article 2(7) requires the claim to fall back to the highest qualifying band where both conditions are satisfied.

For example, a business with AED 3m of qualifying expenditure but only five average R&D staff would not meet the Band 2 staff threshold. In that case, the claim would reduce to Band 1 treatment only, resulting in a credit of AED 150,000.

3. Qualifying expenditure falls into four categories

CD 215/2025 Article 5(1) defines four categories of qualifying expenditure:

• staff costs
• consumables
• subcontracting fees
• contributions to cost contribution arrangements (CCAs) 

Capital expenditure on equipment is currently outside the scope of the regime.

Where expenditure has been directly or indirectly funded by a UAE federal or local government grant, that portion is excluded from qualifying expenditure (to the extent recorded in the financial statements). Expenditure that is subject to any other incentive, credit, exemption or relief under UAE legislation is also excluded.

Importantly, costs capitalised as internally generated intangible assets under accounting standards such as IAS 38 may still qualify in the same way as if they had been expensed.

The legislation also provides a 30% uplift on qualifying staff costs to reflect overhead allocation. This uplift applies only to staff costs and not to consumables, subcontracting fees or CCA contributions.

In addition, each qualifying R&D project must meet a minimum qualifying expenditure threshold of AED 500,000 before applying the uplift.

4. The EPW definition affects access to the staff cost uplift

MD 24/2026 Article 8(9) defines an Externally Provided Worker (EPW) as an individual who is not a director or employee of the qualifying entity, provides services through a staff provider company or as an independent contractor, is personally obliged to provide the services under contract, and is not subcontracting R&D activities.

EPWs may qualify as staff costs and therefore benefit from the 30% uplift, provided the wider legislative conditions are satisfied. The individual must be physically located in the UAE while carrying out the qualifying R&D activities, and must work under the supervision, direction and direct control of the qualifying entity.

Subcontracting fees, however, do not benefit from the uplift. Businesses should therefore review contractor arrangements carefully to distinguish EPWs from subcontracted R&D activities.

5. Pre-approval is mandatory

Businesses must obtain pre-approval from the Council before claiming relief for a qualifying R&D project.

At the time of writing, the Council's operational portal has not yet launched and the legislation does not currently provide a retrospective approval mechanism. The qualifying activity test requires activities to be:

• novel
• creative
• uncertain in outcome
• systematic in approach
• transferable or reproducible

The legislation also references the OECD Frascati Manual as the interpretive framework for assessing qualifying activity.

In practice, businesses should begin documenting qualifying activities contemporaneously against both the legislative criteria and the Frascati framework rather than attempting retrospective reconstruction later.

6. Free zone status does not automatically prevent eligibility

The legislation provides potential pathways for certain free zone entities to access the regime.

This may apply where:

• a Qualifying Free Zone Person is subject to 9% Corporate Tax on qualifying R&D income; or
• the free zone entity forms part of a Domestic Group subject to Domestic Top-up Tax (DMTT)

A free zone entity operating fully at 0% Corporate Tax with no DMTT exposure would generally be unable to utilise the credit under Phase 1. However, advisers should assess the client's actual tax profile rather than excluding eligibility based solely on free zone status.

7. Phase 1 is non-refundable

The Phase 1 credit is non-refundable and may be used against Corporate Tax and/or DMTT liabilities.

Where Corporate Tax liability is fully offset, any remaining credit may then be applied against DMTT.

Unused credits may be carried forward, subject to a continuity-of-ownership test of 50% or more or, on a change of more than 50%, a same-business test.

The Ministry of Finance has signalled that a later Phase 2 may potentially introduce refundability, which would be particularly relevant for loss-making or pre-revenue businesses. However, no legislation has yet been issued on this point.

8. Claw-back exposure lasts five years

The regime includes claw-back provisions where certain events occur within five years of the end of the tax period in which the credit was last claimed.

These include:

• ceasing to be a Taxable Person
• becoming a Qualifying Free Zone Person
• applying Small Business Relief
• entering liquidation
• redomiciling outside the UAE

Where triggered, utilised credits become payable tax liabilities, while unused credits are forfeited.

The legislation also prevents losses or other tax credits from being offset against the clawed-back amount.

9. Audited financial statements and record retention are required

Claim submissions must include:

• proof of pre-approval
• a management declaration
• a breakdown of qualifying expenditure
• audited financial statements

Technical and financial records must be retained for seven years.

For many businesses this will align with existing audit requirements. However, entities not currently subject to audit may face an additional compliance obligation as part of the claim process.

The evidential standard also requires contemporaneous technical documentation supporting the qualifying R&D activities.

10. Beneficial entitlement to R&D returns is essential

To qualify, the UAE entity must be beneficially entitled to a share of the returns arising from the exploitation of the R&D outputs or related intellectual property.

This condition may create challenges for multinational structures where the UAE entity performs R&D activities but transfers all resulting IP ownership and economic returns to an overseas parent company.

Groups operating UAE R&D centres under intercompany arrangements should therefore review IP ownership, licensing and transfer pricing structures carefully.