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The UAE Ministry of Finance has issued Ministerial Decision No. 24 of 2026, setting out the detailed implementation rules for the country’s first Research and Development (R&D) Tax Credit regime under the Corporate Tax framework.

Effective for tax periods beginning on or after January 1, 2026, the regime introduces a tiered credit structure of 15 per cent, 35 per cent and 50 per cent, linked to both qualifying R&D expenditure and the number of R&D staff employed. The maximum qualifying expenditure is capped at Dh5 million per entity or Tax Group per year.

“The R&D Tax Credit is a landmark development, but it is not a simple year-end adjustment. The dual-threshold design means this is as much a workforce planning exercise as a tax planning one. Businesses need to understand that pre-approval from the Council is mandatory before any credit can be claimed — this is a precondition, not an administrative formality,” said Nimish Goel, Leader Middle East, Dhruva, a Ryan LLC Affiliate.

Khaleej Times spoke to the veteran tax expert to understand how the new regime works.

What are the key features of the UAE’s new tiered R&D Tax Credit structure introduced under Ministerial Decision No. 24 of 2026?

For the first time, the UAE has embedded a progressive R&D tax credit directly into its corporate tax framework. The structure is deliberately tiered and links the rate of credit to two variables simultaneously: the amount of qualifying R&D expenditure and the size of an entity’s R&D workforce.

Under the framework, the first Dh1 million of qualifying expenditure attracts a 15 per cent credit. Expenditure between Dh1 million and Dh2 million is credited at 35 per cent, while spending from Dh2 million up to the Dh5 million annual cap attracts the maximum rate of 50 per cent. Each tier, however, is conditional on meeting minimum R&D headcount thresholds — two employees for the first tier, six for the second, and fourteen for the third.

Qualifying expenditure falls into three categories: staff costs, consumables, and subcontracting fees paid to UAE-based contractors. Staff costs benefit from a 30 per cent overhead uplift, recognising indirect employment costs. Intra-group transactions are excluded entirely, meaning groups with centralised R&D structures will need to reassess cost allocation models.

The regime is anchored to international standards. Qualifying activities must meet all five criteria under the OECD Frascati Manual — novelty, creativity, uncertainty, systematic execution, and transferability or reproducibility. Only R&D conducted within the UAE qualifies, while activities in social sciences, humanities and the arts are excluded.

Why is mandatory pre-approval from the Council critical for businesses seeking to claim the credit?

Mandatory pre-approval is one of the most consequential features of the regime. Unlike self-assessment models used in many jurisdictions, pre-approval is a strict precondition. If approval is not obtained before filing, the credit cannot be claimed retrospectively, even if qualifying expenditure has been incurred.

This fundamentally shifts the compliance mindset. Businesses must assess eligibility and prepare documentation early, rather than treating the credit as a year-end tax optimisation. The approval process is supported by ongoing reporting obligations and a seven-year record-keeping requirement covering R&D objectives, methodologies, experiments and outcomes.

Businesses that view the credit as a one-off adjustment rather than a continuous operational process risk falling short.

For multinationals, the pre-approval requirement also interacts with the five-year clawback provision. If an entity’s status changes — for example, if it becomes a Qualifying Free Zone Person or relocates outside the UAE — previously claimed credits may be recovered.

Nimish Goel, Leader Middle East, Dhruva, a Ryan LLC Affiliate.

How does the dual-threshold system linking expenditure and R&D headcount affect workforce planning?

The dual-threshold design materially alters how businesses approach R&D planning. Access to higher credit tiers depends not just on spending, but on maintaining the required R&D headcount at the same time. This creates clear cliff-edge effects.

A business that exceeds the Dh2 million expenditure threshold but employs fewer than 14 R&D staff will not qualify for the 50 per cent tier and will fall back to the highest tier where both conditions are met. The difference in credit value can be significant.

As a result, workforce composition, hiring decisions and engagement models now carry tax implications. Whether R&D staff are directly employed or outsourced, how roles are defined, and how time is allocated across projects all become relevant.

There is also a definitional challenge. Headcount qualification is not simply a payroll issue but a functional one. Employees must be demonstrably engaged in qualifying R&D activities under the Frascati criteria. Clear role definitions, time tracking and project documentation will be essential to substantiate headcount at each tier.

What activities and costs qualify, and what exclusions should companies be aware of?

To qualify, R&D activities must satisfy all five Frascati criteria. The work must advance knowledge rather than replicate existing solutions, involve genuine technical uncertainty, follow a systematic methodology, and produce results that are transferable or reproducible.

Activities in social sciences, humanities and the arts are expressly excluded, as is R&D conducted outside the UAE. This territorial limitation is particularly relevant for multinational groups with cross-border R&D models.

On the cost side, qualifying expenditure includes staff costs (with the 30 per cent uplift), consumables used directly in R&D, and subcontracting fees paid to UAE-based third parties. Intra-group payments are excluded, a policy choice that has significant implications for groups operating centralised R&D hubs.

The Dh5 million annual cap per entity or Tax Group further limits the benefit and should be factored into financial modelling, especially where multiple group entities undertake R&D independently.

How does the non-refundable nature of the credit interact with Pillar Two and the UAE’s Domestic Minimum Top-up Tax?

This is one of the most technically complex aspects of the regime for multinational groups. Because the R&D tax credit is non-refundable, it is likely to be treated under the Global Anti-Base Erosion (GloBE) rules as a reduction in covered taxes rather than as income.

This distinction matters. A non-refundable credit reduces the jurisdictional Effective Tax Rate, which can increase Top-up Tax exposure under the UAE’s Domestic Minimum Top-up Tax for groups operating near the 15 per cent minimum rate. In some cases, the corporate tax saving from the credit may be partially or fully offset by higher Top-up Tax.

The Ministerial Decision does provide partial mitigation. Unutilised credits may be applied directly against Top-up Tax through the Domestic Group, reducing the net impact. However, this does not eliminate the ETR compression risk.

For groups using cost contribution arrangements, only the arm’s length share attributable to UAE-based R&D qualifies, adding a transfer pricing dimension to the analysis.

The clear takeaway for multinationals is that the credit should not be evaluated in isolation. Integrated modelling across Corporate Tax, transfer pricing and Pillar Two is essential to determine the true net benefit before making a claim.