On March 18, 2026, the UAE issued Ministerial Decision No. 24 of 2026, which provides detailed guidelines for implementing the R&D Tax Credit provisions outlined in Cabinet Decision No. 215 of 2025, which is part of the Federal Decree-Law No. 47 of 2022 on Corporate and Business Taxation.
This decision aims to incentivize research and development (R&D) activities within the UAE by offering tax credits to qualifying entities. It establishes eligibility criteria, defines qualifying activities and expenditures, and outlines compliance requirements and anti-abuse measures. The decision applies to tax periods or fiscal years starting on or after January 1, 2026.
Key Definitions
The decision adopts definitions from relevant federal laws and cabinet decisions, with additional terms specific to R&D Tax Credits:
- R&D Staff: Full-time or equivalent employees or externally provided workers directly engaged in qualifying R&D activities. These individuals must meet specific conditions outlined in Article 8.
- Qualifying R&D Activities: Activities conducted within the UAE that meet the following criteria:
- Novelty: Aimed at producing new findings.
- Creativity: Involving original concepts or hypotheses.
- Uncertainty: Outcomes or methods are not known in advance.
- Systematic: Conducted according to a structured plan and budget.
- Transferable or Reproducible: Results can be applied or replicated in other contexts. Activities in social sciences, humanities, and arts are explicitly excluded.
R&D Tax Credit Rates and Conditions
The R&D Tax Credit is calculated based on qualifying R&D expenditure and the average number of R&D staff employed during a tax period or fiscal year. The applicable rates are as follows:
|
Qualifying R&D Expenditure Threshold |
Minimum Average R&D Staff |
R&D Tax Credit Rate |
|
First AED 1 million |
At least 2 |
15% |
|
Exceeding AED 1 million up to AED 2 million |
At least 6 |
35% |
|
Exceeding AED 2 million up to AED 5 million |
At least 14 |
50% |
To qualify for a specific rate, both the expenditure and staff thresholds must be met. If either threshold is not satisfied, the rate will be adjusted downward to the highest rate for which both thresholds are met.
Utilization and Transfer of R&D Tax Credits
- Utilization: R&D Tax Credits can be applied to offset Corporate Tax and/or Top-up Tax liabilities of qualifying entities, tax groups, domestic groups, or other eligible persons. However, the credits are non-refundable.
- Carry-Forward: Unutilized R&D Tax Credits may be carried forward to subsequent tax periods or fiscal years if ownership conditions are met. Specifically:
- At least 50% ownership must remain unchanged during the carry-forward period.
- If ownership changes by more than 50%, the entity must continue conducting the same or similar business activities.
- Listed entities on recognized stock exchanges are exempt from these conditions.
- Transfer: Unutilized R&D Tax Credits can be transferred to another juridical person subject to Corporate Tax and/or Top-up Tax, provided there is at least 75% common ownership between the transferor and transferee. Transferred credits cannot be carried forward or further transferred.
Qualifying R&D Expenditure
R&D expenditure eligible for tax credits includes the following categories:
- Staff Costs:
- Salaries, wages, allowances, medical insurance, pension contributions, bonuses, and other employment-related expenses for R&D staff located in the UAE.
- Training costs related to R&D activities are included, but employee stock option plans are excluded.
- Staff costs are uplifted by 30% to account for overheads reasonably attributable to R&D activities.
- For part-time R&D staff, only the portion of costs attributable to R&D activities is considered.
- Consumable Costs:
- Costs for consumable or transformable materials directly used in R&D activities, such as water, fuel, power, and license fees.
- Payments to clinical trial participants are included.
- Costs for items disposed of in the ordinary course of business are excluded.
- Subcontracting Fees:
- Expenditure for R&D activities contracted to UAE-based entities, provided the activities are conducted within the UAE and meet specific conditions.
- Subcontracting fees between members of the same tax group are excluded.
- Cost Contribution Arrangements:
- Contributions to joint R&D activities shared among entities, provided they adhere to the arm’s length principle and are proportionate to the expected benefits.
- Only contributions attributable to R&D activities conducted within the UAE are eligible.
Compliance and Record-Keeping
Qualifying entities must obtain pre-approval from the Council for R&D projects and may be required to submit progress updates and technical documentation. Records must be maintained for seven years and include detailed information about the R&D activities and associated expenses.
Restrictions and Anti-Abuse Measures
The decision includes provisions to prevent abuse of the R&D Tax Credit system:
- Artificial Separation of Businesses: The Authority may counteract arrangements that artificially separate businesses to claim higher credits. Any utilized credits will be clawed back, and unutilized credits will be forfeited.
- Anti-Abuse Measures: Arrangements made to obtain or increase R&D Tax Credits without genuine economic substance may be counteracted. Credits may also be clawed back if a Qualifying Entity ceases to meet eligibility criteria, undergoes liquidation, or relocates outside the UAE within five years of claiming the credit.
Application to Tax Groups and Domestic Groups
- Tax Groups:
- Tax Groups can aggregate R&D expenditure and staff counts across qualifying entities to meet thresholds.
- Pre-grouping credits must be utilized before group credits.
- If a Qualifying Entity leaves a Tax Group, its pre-grouping credits remain with the entity, while group credits remain with the Tax Group.
- Domestic Groups:
- Domestic Groups can utilize R&D Tax Credits against Top-up Tax liabilities, provided the credits are first applied to Corporate Tax liabilities.
- Claw-back provisions apply if a Qualifying Entity fails to meet eligibility criteria, and penalties may be imposed.
Business Restructuring
In cases of business restructuring, unutilized R&D Tax Credits may be transferred to the transferee, provided the business and associated R&D activities continue for at least two years. If the activities are discontinued within this period, claw-back provisions apply, and penalties may be imposed.
Effective Date
The decision applies to tax periods or fiscal years starting on or after January 1, 2026.
Conclusion
Ministerial Decision No. 24 of 2026 establishes a comprehensive framework for incentivizing R&D activities in the UAE through tax credits. By providing greater clarity on eligibility, qualifying expenditure, and compliance requirements, the decision offers valuable support for businesses investing in innovation and development. Businesses engaged in R&D should review their activities and structures early to assess potential benefits and ensure they are prepared for the new rules applying from January 1, 2026.
Please do not hesitate to contact us for tailored guidance on assessing eligibility, meeting compliance requirements, and planning effectively under the new rules.
