Ravishanker Vengathattil
Partner, Taxation
UAE updates R&D tax credit for the 21st century
April 28, 2026
On 18 March 2026, the UAE Ministry of Finance formally launched Phase 1 of its Research & Development (R&D) Tax Incentives Programme through Ministerial Decision No. 24 of 2026, to be read alongside Cabinet Decision No. 215 of 2025 issued in December 2025. Together, these instruments establish a progressive, expenditure-based R&D tax credit.
“The Ministry has described the incentive as a cornerstone of the UAE’s strategy to encourage private- sector investment in research and innovation, consistent with the broader objectives of the country’s ambition to transition to a knowledge-based, innovation-driven economy,” said Ravishanker Vengathattil, Partner of Taxation at Kreston Menon.
How the UAE’s new R&D tax credit regime works
Following a public consultation conducted in April 2024, the Ministry developed a framework designed to complement the UAE’s wider tax architecture including the 0% Qualifying Free Zone Person (QFZP) regime and the Domestic Minimum Top-Up Tax (DMTT) applicable to large multinational groups.
Eligibility, compliance, and key considerations for businesses
Eligible entities include:
- UAE-resident juridical persons, both mainland and free zone entities (subject to specific conditions)
- Foreign persons with a UAE Permanent Establishment (PE), to the extent that UAE tax applies to the PEs income
Free zone companies qualifying as QFZPs may access the credit but must ensure sufficient nexus between the qualifying R&D activity and the Corporate Tax or DMTT liability against which the credit is to be applied.
The scope of qualifying R&D is aligned with the OECD Frascati Manual, which defines R&D as a creative and systematic work undertaken to increase the stock of knowledge and to devise new applications of available knowledge. A domestic nexus requirement is central to the regime: activities must be physically performed within the UAE. Expenditure on overseas R&D, even when incurred by a UAE-resident entity, does not qualify.
R&D tax credit rates, calculations, and next steps for 2027
The credit is calculated as a percentage of total Qualifying R&D Expenditure (QRE). The applicable rate is determined by two variables in combination: the total value of QRE and the average number of R&D staff. The available credit ranges from 15% to 50% of qualifying expenditure, based on specified rate bands. Cost uplift for certain categories of cost and minimum project-level thresholds warrant closer scrutiny and due attention.
“The regime is not without complexity,” said Ravishanker. “Finance and tax teams should move promptly to assess the eligibility of their R&D activities, initiate the R&D Council approval process, and establish the documentation framework necessary to support a defensible claim. The 2027 filing season will arrive quickly, and the groundwork for a successful credit claim must begin now.”
