UAE R&D Tax Credit 2026: qualifying expenses, rates and eligibility

How R&D expenses are deducted under UAE Corporate Tax

The starting point for UAE Corporate Tax is the accounting profit or loss shown in the financial statements. Research and development expenditure is generally deductible when it is incurred wholly and exclusively for the taxable business, is not connected with exempt income and is not restricted by another provision of the Corporate Tax Law.

Research costs expensed in the statement of profit or loss will ordinarily be deducted in that Tax Period. Development expenditure capitalised as an intangible asset generally affects taxable income through the accounting amortisation or impairment charge, subject to the Corporate Tax rules. The new incentive is a tax credit rather than a 150% or similar enhanced deduction.

What is a qualifying R&D activity?

A project must seek to increase knowledge or develop a new application and display the recognised R&D characteristics of novelty, creativity, uncertainty, a systematic process, and results capable of being reproduced or transferred.

• Experimental development of a genuinely new AI model, algorithm, process or technical capability may qualify.
• Work that resolves a documented scientific or technological uncertainty may qualify.
• Routine coding, ordinary SaaS configuration, bug fixing, maintenance, market research and cosmetic product changes will generally not qualify merely because they are described internally as innovation.
• The qualifying activities must be physically performed in the UAE. Overseas development activity does not qualify even if it is funded or managed by a UAE company.

Which R&D costs may qualify?

Costs funded by relevant government grants, costs already benefiting from another UAE tax incentive and specified intra-Tax Group recharges are excluded. Each R&D project must meet a minimum qualifying expenditure threshold of AED 500,000.

• Eligible R&D staff costs, together with the prescribed 30% staff-cost uplift for overheads.
• Consumables used for the qualifying R&D activities.
• Fees paid to a UAE subcontractor where the underlying R&D is undertaken in the UAE.
• Arm’s-length contributions under qualifying cost-contribution arrangements.
• Eligible costs capitalised under the applicable accounting standards as part of an internally generated intangible asset.

How the non-refundable credit works

The credit is first applied against UAE Corporate Tax and, where applicable, Domestic Minimum Top-up Tax. It does not create a cash refund when it exceeds the current liability. Subject to continuity and other conditions, an unused balance may be carried forward indefinitely and, in limited cases, transferred to a commonly owned taxable juridical person.

For example, an eligible company with AED 3 million of qualifying expenditure and at least 14 average R&D staff could generate a credit of AED 1 million: AED 150,000 on the first AED 1 million, AED 350,000 on the next AED 1 million and AED 500,000 on the third AED 1 million. If its Corporate Tax liability is AED 600,000, the liability could be reduced to nil and AED 400,000 carried forward, subject to all conditions.

Special consideration for Qualifying Free Zone Persons

A Qualifying Free Zone Person should not assume that the credit can be used against income taxed at 0%. Under the R&D credit conditions, the relevant R&D income generally needs to be subject to 9% Corporate Tax or UAE Top-up Tax. A Free Zone IP or R&D structure therefore requires modelling of both the qualifying-income rules and the practical usability of the credit.

Pre-approval and documentation

A claim requires approval from the competent authority and strong contemporaneous evidence. The claimant must bear the financial risk of the project and be beneficially entitled to the economic returns from its results.

• Approved project plan and technical objective.
• Evidence of novelty and the uncertainty being resolved.
• Names, roles, time records and UAE location of R&D personnel.
• Project-wise general-ledger mapping and supporting invoices.
• Subcontractor scope, location and arm’s-length support.
• Accounting treatment of expensed and capitalised development costs.
• Records supporting the claim retained for at least seven years.