UAE CT Update| Cabinet Decision and Ministerial Decision on R&D Tax Credit under UAE CT Law

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While the Federal Decree Law No. 47 of 2022 (‘the UAE CT Law’) did not initially provides a specific R&D incentive, except for reference to Article 28 (2) (d) which inter-alia provides that “Such other expenditure as may be specified in a decision issued by the Cabinet at the suggestion of Minister”, the Cabinet Decision no. 215 of 20205 and Ministerial Decision no. 24 of 2026 complements for R&D Tax credit for the tax periods beginning on or after 01.01.2026 (DD.MM.YYYY). Where the Cabinet Decision provides the legal framework for the R&D Tax credit, wherein the Eligible Juridical Person (both resident and non-resident), subject to compliance of certain conditions can claim the benefit of non-refundable R&D Tax Credit and the Ministerial Decision no. 24 of 2026 provides the mechanics for the calculation, credit, transfer and carry forward of R&D Tax credit from the tax periods starting on or after 01.01.2026.

1. 1. Qualifying R&D Activities:  An activity to be considered as a qualifying activity must meet the following five core criteria:
      • Novel: Aiming to produce new findings.
      • Creative: Involving original concepts or hypotheses.
      • Uncertain: The outcome or means of achieving it are not known in advance.
      • Systematic: Conducted according to a plan and budget.
      • Transferable/Reproducible: Results can be applied or replicated in other contexts.

      The assessment to evaluate whether an activity qualifies for qualifying R&D Activity shall meet the criteria set out in the international Frascati Manual.

      • Location: Activities must be conducted within the State.
      • Exclusions: R&D in social sciences, humanities, and the arts are specifically excluded.
   2. Qualifying Entity: Qualifying entity shall either be:
      • a juridical person incorporated, established or recognised under the UAE CT Law (including a Free Zone Person), or
      • a foreign company that has a Permanent Establishment in UAE.

      It is important to note that R&D Tax credit can be claimed if you are subject to 9% tax or is subject to Top-up Tax under the Domestic Minimum Top-up tax guidelines. Accordingly, an exempt person, a natural person, or a Foreign company not having a Permanent Establishment in UAE can’t claim the benefit of R&D Tax credit.

   3. Excluded Entities: Entities not subject to Corporate Tax or Top-up Tax, or those electing for small business relief under Article (21) of the Corporate Tax Law, cannot claim the credit.
   4. Costs to be considered as Qualifying R&D Expenditure:  The credit for R&D Tax is calculated based on specific categories of expenditure incurred “wholly and exclusively” for qualifying R&D activities during the relevant tax period:
      • Staff Costs: to include salaries, wages, allowances, medical insurance, pension contributions for R&D staff, end of service benefits, bonuses, benefits in kind and other related employment costs incurred. Staff costs does not include Employee Stock Option Plans (ESOP).
      • Uplift: Staff costs are uplifted by 30% to account for overheads.
      • Consumable Costs: Materials used directly and transformed/consumed during R&D activities (e.g., water, fuel, power, and clinical trial payments).
      • Subcontracting Fees: Costs for R&D contracted to persons based in the UAE, provided activities are not subcontracted to other party by the subcontractor and the expenditure is not attributable to a Foreign Permanent Establishment.
      • Arm’s length share of cost contribution arrangements with related parties;
      • Minimum Threshold: Expenditure must reach at least AED 500,000 per R&D Project in a given period to qualify, excluding the uplift to staff costs. The cost shall not include any portion of funds or grants received.
   5. Qualifying R&D Tax Credit Rates:
      

      Expenditure Threshold (AED)	Min. Average R&D Staff	R&D Tax Credit Rate
      First 1 Million	2 Staff	15%
      Above 1M to 2 Million	6 Staff	35%
      Above 2M to 5 Million	14 Staff	50%

      Important note:  To qualify for a specific credit rate, an entity must meet both the expenditure threshold and the minimum average R&D staff requirement. If the threshold for staff is not met, the R&D Tax credit rate will be adjusted downward to the highest tier where both criteria are satisfied.

   6. Conditions to claim the benefit of R&D Tax Credit:
      • To claim this benefit, the qualifying entity must navigate a “two-key” system where eligibility depends on both the amount spent and the number of specialized staff employed;
      • Based on Frascati Manual, the activity must meet all the five international standards;
      • Financial and operations conditions: To claim the benefit of R&D tax credit, the qualifying entity must ensure to meet all the following conditions:
      • Pre-Approval: obtain prior approval from the Emirates Research and Development Council.
      • Minimum Project Spend: Each individual R&D project must have a minimum expenditure of AED 500,000 (excluding certain staff uplifts) during the relevant tax period.
      • Location: The activities must be performed within the UAE.
      • Financial Burden: The entity claiming the credit must be the one bearing the financial risk and benefiting from the results.
      • Staff Delineation: Includes UAE-based employees and certain full-time equivalent contractors. Salaries, bonuses, and training costs count toward expenditure, often with a 30% overhead uplift.

Pre-approval and compliances

1. 1. • Pre-approval:
        • A Qualifying entity is mandatorily required to obtain pre-approval from the Council (The Emirates Research and Development Council) for any R&D Project for which the R&D Tax credit is claimed.
        • It is advisable that the applications are submitted in the same year in which the R&D activities are taking place.
        • The Council at its sole discretion may require the Qualifying entity to submit the R&D project progress in the form and manner prescribed together with technical documentation as an evidence.
      • Compliances:
        • Subsequent to obtaining the approval from the Council, the qualifying entity will be required to submit the R&D Tax credit as part of Annual Corporate Tax Return and will be required to submit:
        • Approval Certificate from Council;
        • Management Declaration;
        • Audited Financial Statements;
        • Detailed expenditure schedule providing the breakdown of cost;
        • Any other additional documents as FTA requires the Qualifying entity to submit.

Carry forward and Transfer of R&D Tax Credit

1. 1. • Carry forward:  Any unutilized portion of the credit (subsequent to offsetting with UAE CT Liability and Top-up tax liability) can be carried forward to subsequent tax periods, provided the Qualifying entity continues to maintain 50% ownership structure or continues the same business activity. The condition of 50% ownership shall not be applicable to Qualifying entities who are listed on Recognised Stock Exchange.
      • Transfer of R&D Tax Credit:  A Qualifying Entity (“transferor”) can transfer its unutilized R&D tax credit to another taxable person (“transferee”) if they are at least 75% commonly owned throughout the relevant tax period. The transferee must use the transferred credit against its own Corporate Tax or Top-up Tax liability for that relevant tax period and cannot carry forward the R&D Tax credit to subsequent tax period.
      • Claw-back:  If an entity (transferee or transferor) ceases to meet conditions, previously utilized credits must be repaid to the Tax Authority as “Due Tax”.

Special provisions for Tax Groups and Domestic Groups

1. 1. • Pre-grouping credits:  Subject to compliance of all the conditions prescribed in the captioned Ministerial Decision, where a company joins a Corporate Tax Group, its existing R&D credits must be used to offset the Corporate Tax Group’s Corporate Tax Liability before the Corporate Tax group’s own newly generated credits are applied.
      • Joint and Several Liability:  All members are liable for clawbacks.
      • Domestic Group Top-up Tax:  Credits offset group liability.

Claw-back and Anti-Abuse

1. • Ceases Compliance: Fails requirements
   • Changes in Status: Liquidation, relocation, etc.
   • Anti-Abuse: Artificial arrangements → disallowed

Key takeaways

The Decision mandates several operative aspects and considerations for R&D Tax credit availment together with certain computational aspects for Tax Groups, Domestic Groups, Business Restructuring and Anti-abuse for misuse of the provisions of captioned Cabinet Decision and Ministerial Decision.

The information contained in this document is for general information purposes only. We make no representation or warranties of any kind, express or implied…