UAE Introduces R&D Tax Credit Regime – An Incentive for Innovation

Jump to section:

• Introduction
• R&D Tax Credit Structure & Rates
• Qualifying R&D Activities
• Qualifying R&D Expenditure
• Claiming the Credit & Compliance
• Record Keeping Requirements
• Anti-Abuse, Non-Compliance & Clawbacks
• Application to Tax Groups
• Pillar Two Considerations
• Impact on Effective Tax Rate (“ETR”) for Pillar Two Purposes
• Corporate Structuring Considerations
• Innovation, IP and R&D Structuring Considerations
• Conclusion
• How Al Tamimi & Company Can Help

The UAE has formally launched a research and development (“R&D”) tax credit regime. This represents a milestone in the region’s innovation policy and aims to position the UAE as a global innovation hub.

The R&D tax credit is currently designed as a tiered, non-refundable credit on certain expenditure incurred on R&D activities capped at AED 5 million in a tax period or fiscal year with rates tied to headcount thresholds. The regime includes various anti-abuse provisions and requires pre-approval of R&D projects by the Emirates Research and Development Council.

The Ministry of Finance has indicated that the newly launched regime is Phase 1 of its R&D Tax Incentives Programme with potential for further enhancements as part of Phase 2.

We have summarised some of the key features of the regime below.

Introduction

On 18 March 2026, the Ministry of Finance (“MoF”) introduced a comprehensive R&D tax credit regime pursuant to Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026 (the “Decisions”). The regime applies to Tax Periods or Fiscal Years beginning on or after 1 January 2026.

The Decisions outline the key mechanics of the R&D tax credit framework, including the eligibility criteria, the scope of qualifying R&D activities, and the manner in which eligible taxpayers may claim and utilise the credit.

The credit applies to:

• UAE incorporated entities, including Free Zone Persons; and
• certain foreign entities operating through a permanent establishment in the UAE

where those entities are subject to UAE corporate tax under Federal Decree-Law No. 47 of 2022 (the “Corporate Tax Law”) and/or the top-up tax under Cabinet Decision No. 142 of 2024 and are carrying on Qualifying R&D Activities (a “Qualifying Entity”).

A Free Zone Person may only qualify for the credit where it is paying corporate tax at 9% and/or the top-up tax. As such, entities that benefit from the 0% rate which applies to Qualifying Free Zone Persons and which are not subject to the top-up tax will not qualify for the credit.

The following entities may not benefit from the regime:

• Entities that are not subject to corporate tax and/or top-up tax,
• Entities that have elected to claim the small business relief; and
• Any other entity as may be specified by the Minister.

R&D Tax Credit Structure and Rates 

A non‑refundable R&D tax credit is available on Qualifying R&D Expenditure. The credit rate will vary depending on the level of Qualifying R&D Expenditure and number of R&D staff per Qualifying Entity or Tax Group in each tax year or fiscal period.

The rates are as follows:

• 15% on the first AED 1 million of Qualifying R&D Expenditure, where there is an average of at least 2 R&D Staff.
• 35% on Qualifying R&D Expenditure above AED 1 million up to AED 2 million, where there is an average of at least 6 R&D Staff.
• 50% on Qualifying R&D Expenditure above AED 2 million up to AED 5 million, where there is an average of at least 14 R&D Staff.

At present, the credit is non-refundable and may be utilised against UAE corporate tax and/or top-up tax liabilities of the Qualifying Entity, Tax Group or Domestic Group.

Unutilised credits may be carried forward to future years with credits arising in earlier years to be used in priority to those arising in later years. Where there is both a 51% change of ownership of the Qualifying Entity and a change in the nature of its business, carried forward credits may be lost. This does not apply to Qualifying Entities listed on a recognised stock exchange.

Credits may be transferred to another entity that is subject to corporate tax and/or the top-up tax where either:

• There is a 75% direct or indirect relationship between the two entities which is maintained from the beginning of the period in which the credit arose to the end of the period in which the credit was utilised. The amount of the credit transferred cannot exceed the transferee’s corporate tax and/or top-up tax liability for the relevant period after it uses its own credit and it cannot carry forward or transfer the credit it receives; or
• There is a transfer of an entire business (or an independent part of a business) as part of a transaction that qualifies for the Business Restructuring Relief under Article 27 of the Corporate Tax Law, provided the transferee continues to carry on the transferred business, including associated Qualifying R&D Activities, for at least 2 years. If the activities are discontinued, certain clawback and forfeiture provisions may apply (see below for further details).

Qualifying R&D Activities

R&D is specifically defined as “Creative and systematic work undertaken in order to increase the stock of knowledge, including knowledge of humankind, culture, and society, and to devise new applications of available knowledge”.

A Qualifying R&D Activity is any activity conducted in the UAE as part of an R&D Project that is organised and managed for a specific purpose.

In order to be considered a Qualifying R&D Activity, the activity must meet all of the following conditions:

• It is novel, in that it aims to produce new findings.
• It is creative, involving original concepts or hypotheses.
• It is uncertain, in that the outcome or means of achieving it are not known in advance.
• It is systematic, following a plan and budget.
• It is transferable or reproducible, such that its results can be applied or replicated in other contexts.

The assessment as to whether an activity meets these conditions will be made based on the guidelines set out in the OECD Manual. Where certain activities are carried on outside the UAE, only the activities carried on in the UAE will be considered Qualifying Activities.

Qualifying R&D Activities shall not include any R&D activity conducted in the fields of social sciences, humanities and the arts.

Qualifying R&D Expenditure

Qualifying R&D Expenditure is expenditure incurred in a tax period or fiscal year in respect of Qualifying R&D Activities on the following:

A. Staff Costs

Available in respect of amounts incurred on R&D Staff, meaning full-time or full-time equivalent employees or externally provided workers directly and actively engaged in Qualifying R&D Activities within the UAE who are under the supervision, direction and direct control of the Qualifying Entity.

Staff Costs include amounts incurred under a legal or contractual obligation in respect of items such as salaries, allowances, medical insurance, pension contributions, end-of-service gratuities, bonuses, benefits in kind and any other employment-related expenses borne by the entity pursuant to the terms of the employment contract.

It does not include costs associated with employee stock option plans. The costs of training R&D Staff in relation to Qualifying R&D Activities may be included.

A 30% uplift applies to qualifying Staff Costs to reflect overheads reasonably attributable to undertaking Qualifying R&D Activities.

Where Staff Costs are recharged to the Qualifying Entity from another member of the same Tax Group, they will not be considered Qualifying Expenditure.

B. Consumables Costs

Consumable or transformable material used directly in the performance of Qualifying R&D Activities, including:

• Costs of consumable or transformable materials, such as water, fuel, and power.
• License fees, and other similar costs related to intangible assets that are not capital in nature.
• Payments made to patients or subjects participating in a clinical trial that forms part of a Qualifying R&D Activity.

Consumable Costs incurred by a Qualifying Entity in respect of materials or items, or licenses, acquired from another member of the same Tax Group will not be considered Qualifying R&D Expenditure.

C. Subcontracting Fees

Expenditure incurred in subcontracting out Qualifying R&D Activities where:

• The activities are contracted out to a person based in the UAE.
• The activities are undertaken within the UAE.
• The activities are not themselves subcontracted to the Qualifying Entity by another party.
• The activities are not subcontracted to another party by the subcontractor.
• The expenditure is not attributable to a foreign permanent establishment.
• The subcontractor maintains audited financial statements (relevant where the Qualifying Entity and subcontractor are Related Parties).

The amount of Qualifying R&D Expenditure will be calculated in accordance with the arm’s length principle.

Subcontracting Fees paid to a member of the same Tax Group will not be considered Qualifying R&D Expenditure.

D. Arm’s length share of contributions under a Cost Contribution Arrangement (“CCA”)

A CCA is a contractual arrangement to share the contributions and risks involved in the joint conduct of R&D activities with the understanding that such R&D activities are expected to create benefits for the individual businesses of each of the parties to the CCA.

Where a Qualifying Entity is party to a CCA for the conduct of Qualifying R&D Activities, the portion of the Qualifying R&D Expenditure contributed by the Qualifying Entity will constitute Qualifying R&D Expenditure, provided:

• The contribution is determined in accordance with the arm’s length principle.
• The contribution corresponds to the entity’s expected share of the benefits arising from the CCA.

Only the portion of the contribution attributable to the Qualifying R&D Activities carried out within the UAE will constitute Qualifying R&D Expenditure.

 E. Other Costs

The Decisions indicate that other categories of expenditure may be specified in future.

F. Capitalised costs

Any costs specified in (A) to (E) above which are capitalized under applicable accounting standards in respect of internally generated intangibles resulting from Qualifying R&D Activities may be considered Qualifying R&D Expenditure.

Qualifying R&D Expenditure on the categories set out above shall only qualify for the credit if all of the following conditions are met:

• It is incurred wholly and exclusively for the purposes of carrying on Qualifying R&D Activities by the Qualifying Entity. If the expenditure is incurred for more than one purpose, only the identifiable part or a proportion incurred wholly and exclusively for the purposes of carrying on Qualifying R&D Activities shall be considered Qualifying R&D Expenditure.
• It amounts to at least AED 500,000 for each R&D Project in the relevant tax period or fiscal year (excluding any uplift to Staff Costs).
• It is deductible expenditure for the purposes of determining taxable income or Pillar Two income or loss, with the exception of the capitalised costs referred to at (F) above.
• It does not include any amount that has been directly or indirectly funded by a grant provided by the Federal Government or Local Government to the extent that such expenditure is recorded in the financial statements of the Qualifying Entity.
• It is not subject to any other incentive, credit, exemption, or relief under the Corporate Tax Law or any other legislation in the UAE.

Claiming the R&D Tax Credit and Ongoing Compliance

A Qualifying Entity may claim the credit for Qualifying R&D Expenditure if all of the following conditions are met:

1. The Qualifying Entity has the minimum number of employees engaged in Qualifying R&D Activities.
2. The Qualifying Entity obtains the necessary pre-approvals from the Emirates Research and Development Council (the “Council”) and complies with ongoing compliance requirements specified in a decision issued by the Minister or any additional requirements specified by the Council.
3. The Qualifying Entity bears the financial burden of carrying out the Qualifying R&D Activities.
4. The Qualifying Entity is beneficially entitled to a share in the returns derived from exploiting the intangibles or other results of the Qualifying R&D Activities. Exploitation shall include the transfer of the intangibles or other results of the Qualifying R&D Activities or rights in them or their use in commercial operations.
5. The relevant R&D Project has a specified objective to increase the stock of knowledge or devise new applications of available knowledge, and the Qualifying R&D Activities are directly undertaken with the purpose of addressing such objective.
6. The Qualifying Entity complies with all the requirements of the Decisions and any other decisions issued by the Minister, Council or Federal Tax Authority (“FTA”) in implementation of the Decisions.

In order to claim the credit, a Qualifying Entity shall submit a claim accompanied by the following documents:

• Proof of obtaining pre-approval from the Council.
• A signed declaration by senior management confirming the accuracy of the information provided.
• A breakdown of Qualifying R&D Expenditure according to the requirements as specified by the FTA.
• Audited financial statements of the Qualifying Entity.
• Any other information or documents specified in a decision issued by the Minister.

A claim for the credit shall be submitted as part of the tax return or top-up tax return, as applicable, for the relevant tax period or fiscal year in which the Qualifying R&D Expenditure is incurred.

Claims submitted after the due date for the submission of the relevant return shall not be considered unless otherwise accepted by the FTA in exceptional circumstances.

The Council may, at its discretion, require any Qualifying Entity to submit an R&D Project progress update in the form and manner prescribed by the Council, together with the technical documentation, as evidence that the activities undertaken are consistent with the Qualifying R&D Activities and Qualifying R&D Expenditure approved under the pre-approval process.

Record keeping requirements

A Qualifying Entity must maintain technical documentation sufficient to demonstrate that the activities undertaken constitute Qualifying R&D Activities and the associated expenses constitute Qualifying R&D Expenditure for the purposes of claiming the credit for a period of seven years following the end of the tax period or fiscal year to which they relate, and may be obliged to provide such documentation to the Council and/or the FTA upon request.

The technical documentation should include a comprehensive collection of written, visual, and electronic records detailing the objectives, processes, methodologies, experiments, and findings associated with the Qualifying R&D Activities.

Anti-abuse, Non-compliance and Claw-backs

The Decisions include several provisions designed to address instances of abuse and non-compliance, including:

Claw-back of credit unduly received

A claw-back may arise where it is determined that a Qualifying Entity did not continuously meet the conditions required to qualify for the credit in respect of a particular R&D Project.

In that case, any amount of the credit in respect of that R&D Project that has been refunded or utilised to reduce the corporate tax and/or top-up tax liability of the Qualifying Entity, or any other person must be repaid to the FTA.

Any portion of the credit in respect of that R&D Project that remains unutilised shall be forfeited and may not be carried forward or refunded.

No other tax credits, special reliefs, tax losses or Pillar Two losses may be directly or indirectly offset against the tax liability arising from the claw-back.

Where the claw-back provisions apply, the Qualifying Entity (or any other entity to which the credits were transferred as part of a business restructuring) shall be liable to pay any penalties applicable under the Federal Decree-Law No. 28 of 2022 on Tax Procedures as if the amount of the credit that was clawed back were due tax or payable tax.

Artificial Separation of Business

Where the FTA establishes that one or more persons have artificially separated their business or business activity and the amount of Qualifying R&D Expenditure across the persons’ entire business or business activity exceeds the relevant expenditure thresholds in any tax period, this would be considered an arrangement to obtain a corporate tax advantage.

The FTA may counteract or adjust such arrangement, and any credit that has been utilised will be clawed back with any unutilised credit being forfeited.

In making their determination, the FTA will consider whether the arrangement was undertaken for a valid commercial purpose and whether the persons carry on substantially the same business or business activity by taking into account all relevant facts and circumstances, including but not limited to their financial, economic and organisational links.

Anti-Abuse and Five-year Rule

Where, having regard to all relevant circumstances, it can be reasonably concluded that any arrangement, contract or procedure has been adopted mainly or partly to obtain or increase a credit in a manner that is not consistent with the economic substance or the genuine nature of the Qualifying R&D Activity, the FTA may counteract or adjust such arrangement, contract or procedure, and any credit that has been utilised will be clawed back with any unutilised credit being forfeited.

Where, within a period of five years from the end of the tax period or fiscal year in which a credit was last claimed, a Qualifying Entity:

• ceases to be a Taxable Person,
• becomes a Qualifying Free Zone Person,
• applies the small business relief,
• enters into liquidation, or
• redomiciles outside the UAE,

any credit that has been utilised will be clawed back and any unutilised credit will be forfeited.

This five-year rule will not apply where credits are transferred as part of a qualifying business restructuring transaction.

Claw-back following a Business Restructuring

Where there is a transfer of credits as part of a qualifying business restructuring and Qualifying R&D Activities are discontinued by the transferee within two years from the date of transfer, the following claw-back provisions will apply:

• Any portion of the credit that has been utilised by the transferee or any other person to whom the transferee transfers the credit will be clawed back.
• Any unutilised portion of the R&D Tax Credit will be forfeited.
• No other tax credits, special reliefs, tax losses or Pillar Two losses may be directly or indirectly offset against the tax liability arising from the claw-back.
• The transferee, any other person to whom the transferee transfers the credit, the parent company of a Tax Group or the Domestic Designated Filing Entity (as relevant) shall be liable to pay the penalties.

Where, after the transfer, the credit is clawed back due to a failure of the transferor to continuously meet the relevant conditions and the transferor has ceased to be a taxable person or a Constituent Entity or a Joint Venture or a JV Subsidiary, the transferee shall be liable for payment of the amount of credit that is subject to claw-back.

Application to Tax Groups

Where a Tax Group includes more than one Qualifying Entity, the Qualifying R&D Expenditure and R&D Staff of all such entities shall be aggregated for the purposes of calculating whether the relevant thresholds have been met.

The credit arising to a Qualifying Entity that is a member of a Tax Group will be utilised against the corporate tax liability of the Tax Group.

Any unutilised credit of a Qualifying Entity that joins a Tax Group (“pre-Grouping R&D Tax Credits”) will be utilised to offset the corporate tax liability of the Tax Group before the credits of the Tax Group.

The credit must be utilised against the corporate tax liability of the Tax Group, prior to being utilised against the top-up tax liability of the entity or Domestic Group, carried forward to any subsequent tax period or fiscal year or transferred to another entity.

Where a Qualifying Entity leaves a Tax Group, the credit of the Tax Group shall remain with the Tax Group, with the exception of any unutilised pre-Grouping R&D Tax Credits.

On cessation of the Tax Group, any unutilised credit of the Tax Group shall be allocated as follows:

• Where the parent company continues to be a taxable person, the credits of the Tax Group shall remain with the parent company, with the exception of any unutilised pre-Grouping R&D Tax Credits, which will remain with the relevant entity.
• Where the parent company ceases to be a taxable person, the credits of the Tax Group shall be forfeited, with the exception of any unutilised pre-Grouping R&D Tax Credits, which will remain with the relevant entity.

Where it is established that a Qualifying Entity that is a member of a Tax Group did not continuously meet the conditions required to qualify for the credit in respect of a particular R&D Project, any amount of the credit attributable to that R&D Project that has been utilised to reduce the corporate tax liability of the Tax Group must be repaid to the FTA.

Each member of the Tax Group shall be jointly and severally liable for the amount of the credit clawed back that was utilised to reduce the corporate tax liability of the Tax Group for the tax periods when they were members of the Tax Group unless the joint liability is limited to one or more members of the Tax Group following approval by the FTA.

Where the claw-back provisions apply, the parent company shall be liable to pay any penalties.

Where a Qualifying Entity is a member of a Tax Group, the parent company shall be responsible for applying for pre-approval, submitting the claim for the credit and complying with other relevant obligations.

Application to Groups in scope of Pillar Two

The credit arising to a Qualifying Entity that is a Constituent Entity, Joint Venture, or JV Subsidiary of a Domestic Group within the scope of the UAE’s Pillar Two top-up tax shall be utilised against the top-up tax liability of the relevant Domestic Group.

For the purposes of calculating the top-up tax, the top-up tax liability shall be reduced by the credit.

Any unutilised credit of a Qualifying Entity that becomes a Constituent Entity, Joint Venture, or JV Subsidiary of a Domestic Group within the scope of the UAE’s top-up tax  shall be utilised to offset the top-up tax liability of the relevant Domestic Group.

The credit of a Qualifying Entity must be utilised against the corporate tax liability of the Qualifying Entity or a Tax Group in which it is a member, where relevant, or any other person to whom the credit is transferred prior to being utilised against the top-up tax liability of the relevant Domestic Group.

Where it is established that a Qualifying Entity did not continuously meet the conditions required to qualify for the credit in respect of a particular R&D Project, any amount of the credit in respect of that R&D Project that has been utilised to reduce the top-up tax liability of the relevant Domestic Group must be repaid to the FTA.

Each Constituent Entity, Joint Venture, or JV Subsidiary of the relevant Domestic Group shall be jointly and severally liable for the amount of the credit clawed back that was utilised to reduce the top-up tax liability of that Domestic Group for the fiscal year when they were Constituent Entities, Joint Ventures or JV Subsidiaries.

Where the claw-back provisions apply, the Constituent Entities, Joint Ventures, JV Subsidiaries, or the Domestic Designated Filing Entity, where applicable, of the relevant Domestic Group, shall be liable to pay any relevant penalties.

Where a Qualifying Entity is not subject to corporate tax and is a Constituent Entity, Joint Venture, or JV Subsidiary of a Domestic Group that has appointed a Domestic Designated Filing Entity, the Domestic Designated Filing Entity shall be responsible for applying for pre-approval, submitting the claim for the credit and complying with other relevant obligations.

Impact on Effective Tax Rate (“ETR”) for Pillar Two Purposes

The MoF has explicitly tied the Phase 1 design to Pillar Two, noting that in the current international tax environment, a non-refundable credit is expected to deliver a more favourable and predictable ETR outcome for companies operating in the UAE.

As a non-refundable credit, it will be treated as a reduction to Covered Taxes, thus lowering the jurisdictional ETR of in-scope groups, giving rise to a potential top-up tax liability.

By contrast, a Qualified Refundable Tax Credit (being a refundable credit payable as cash or cash equivalents within four years) is added to Pillar Two income, which generally helps to maintain a higher ETR when compared to a non-refundable credit.

It is worth mentioning that the OECD/G20 Inclusive Framework published Administrative Guidance introducing a “Side‑by‑Side” package on 5 January 2026. As part of the package, it was proposed that jurisdictions could elect to treat a Qualified Tax Incentive (“QTI”) as an addition to Covered Taxes, thus neutralising the downwards adjustment to the ETR which arises with non-refundable credits and eliminating the top-up tax liability that would otherwise be attributable to the incentive.

A QTI is an incentive that is generally available to all taxpayers and is calculated based on expenditures incurred or on the amount of tangible property produced in the jurisdiction.

Crucially, a QTI is capped by reference to certain substance-based parameters, broadly, the greater of 5.5% of the eligible payroll costs or depreciation of eligible tangible assets in the jurisdiction. On an elective basis, the MNE Group can use an alternative cap which is equal to 1% of the carrying value of eligible tangible assets in the jurisdiction. The QTI will therefore mainly be of benefit to groups with significant headcount and/or tangible assets.

The package provides that an expenditure-based tax incentive is not qualified if the value of the tax benefit from the incentive exceeds the amount of expenditure incurred on which the incentive is calculated.

Ultimately, it remains to be seen whether the Side-by-Side package will be implemented in the UAE, and if so, how it will interact with the R&D tax credit regime. It will be important to monitor future developments in this regard.

Corporate Structuring Considerations

The design of the R&D Tax Credit regime makes corporate structuring decisions critical to both accessing and preserving the incentive. Group choices around forming Tax Groups and Domestic Groups, and the allocation of R&D functions and staff between entities, will directly affect the ability to pool expenditure and headcount to reach higher credit tiers, as well as determine where credits arise, are utilised and may be subject to claw‑back. In addition, the ownership‑change and five‑year claw‑back rules mean that M&A transactions, migrations into or out of free zones, small business relief elections and other reorganisations should be carefully evaluated to ensure that accumulated credits are not inadvertently forfeited. For in‑scope MNE Groups, the interaction with the UAE’s Domestic Minimum Top‑up Tax framework adds a further layer of complexity.

Innovation, IP and R&D Structuring Considerations

Beyond the tax mechanics, the new UAE R&D tax credit regime also raises important innovation, IP and structuring considerations for businesses undertaking research and development activities in the UAE.

Entitlement to the credit is not determined solely by expenditure thresholds and headcount. A claimant must also obtain the required pre-approvals, bear the financial burden of carrying out the Qualifying R&D Activities, and be beneficially entitled to a share in the returns derived from exploiting the intangibles or other results of those activities. In practice, this makes legal ownership, contractual allocation of rights, and commercialization strategy highly relevant to credit eligibility.

A key practical issue will be determining whether activities genuinely constitute Qualifying R&D Activities. As highlighted above, the Ministerial Decision adopts criteria aligned with internationally recognised R&D concepts, requiring the activity to be novel, creative, uncertain, systematic, and transferable or reproducible, with reference to the OECD Frascati Manual.

These criteria are not identical to patentability requirements, but they overlap in ways that make early IP analysis important. Where R&D activities may generate patentable inventions or other protectable outputs, including products, processes, software and know-how, businesses should consider patent strategy, confidentiality controls, ownership arrangements and disclosure management at an early stage, including before disclosures are made in the course of collaboration, subcontracting, publication, reporting or commercialization.

The regime also has significant implications for R&D collaboration, subcontracting and IP structuring. Where innovation activities are carried out through group entities, external providers, universities, laboratories or strategic partners, businesses should review whether the relevant agreements appropriately allocate functions, risks, expected benefits, confidentiality obligations, and ownership or exploitation rights in any resulting IP or know-how. This is particularly important given the specific conditions applicable to subcontracted R&D and CCAs, as well as the requirement that the claimant be beneficially entitled to the returns derived from exploiting the results of the R&D.

Staffing arrangements similarly require careful attention. The rules recognise employees and certain externally provided workers engaged in Qualifying R&D Activities, and also allow the inclusion of training costs for R&D Staff where directly related to the relevant activities. Businesses should therefore ensure that employment, consultancy, secondment and invention-assignment arrangements properly address supervision, role definition, confidentiality, and ownership of outputs generated through the relevant R&D Project.

The categories of Qualifying R&D Expenditure also create a direct link with IP and technology strategy. In addition to staff costs and subcontracting fees, the regime includes certain licence fees and other non-capital costs related to intangible assets where used directly in the performance of Qualifying R&D Activities. In practice, this may include licences for technical know-how, background technology, software, databases, or other IP used in development projects. Businesses should therefore review their licensing, technology transfer and collaboration arrangements to ensure that the legal structure supports both credit eligibility and the intended commercialization of the resulting innovation.

Finally, as mentioned above, the Decisions require extensive technical documentation to support claims, including written, visual and electronic records of objectives, methodologies, experiments and findings. These records may also be relevant for IP protection, trade secret management, inventorship determination and future commercialization. Businesses seeking to benefit from the new regime should therefore approach it not only as a tax incentive, but also as a broader exercise in innovation governance, IP strategy and legal structuring.

In particular, organisations should consider R&D, Innovation and IP planning in advance in relation to the following aspects in order to maximise the benefit of the R&D tax credit regime:

• Receive proper training on how to guide and structure R&D activities to enhance eligibility of qualified R&D activities and related costs under the new regime;
• Proper assessment of whether activities meet the qualifying R&D criteria and taking advance measures to enhance these, including novelty, creativity, uncertainty, systematic approach and transferability or reproducibility;
• Early consideration of IP and patent protection strategy before disclosure of R&D results to collaborators, subcontractors, authorities or third parties;
• Alignment between the entity claiming the credit and the entity that owns or is entitled to exploit the resulting IP or other outputs;
• Review of R&D collaboration, subcontracting and cost contribution arrangements to ensure that functions, risks, expected benefits and ownership rights are clearly allocated;
• Structuring of staffing, secondment and consultancy arrangements to ensure that R&D staff costs qualify and that ownership of resulting innovations is properly addressed;
• Review of licensing, technology transfer and background IP arrangements, including licence fees for patents, know-how, databases or other intangible assets used in R&D activities;
• Implementation of internal processes for technical documentation, record-keeping and project tracking that support both tax credit claims and IP protection;
• Evaluation of IP holding structuring, free zone positioning and reorganisation plans to avoid unintended loss of credits or claw-back risks.

Conclusion

The MoF’s official announcement frames this as Phase 1 of a broader R&D Tax Incentives Programme, with the non-refundable design chosen to deliver predictable, effective tax rate outcomes for Pillar Two purposes. Phase 1’s non-refundable structure is designed to be easy to administer as the corporate tax regime scales up. The MoF is collecting data to inform Phase 2 and has indicated that Phase 2 may involve a refundable credit and/or expanded levels of Qualifying R&D Expenditure eligible for the credit.

Overall, this is a welcome development which should help to further the UAE’s vision of becoming a global hub for advanced industries and emerging technologies, and should stimulate talent development, knowledge transfer, and local IP creation.

How Al Tamimi & Company can help 

Our multidisciplinary tax team can evaluate your R&D portfolio under the new regime, model the potential benefit of the incentive and (where relevant) the Pillar Two ETR impacts, and build the robust documentation necessary to support the claim. Our tax team has extensive experience of supporting defensible R&D tax credit claims under other Frascati-linked regimes internationally and can help businesses navigate potential pitfalls.

To ensure compliance and maximise the benefit of the regime, it will also be important to review the group’s corporate structure in light of the regime’s rigorous anti‑abuse rules. Our integrated tax and corporate structuring team would be pleased to advise on any required refinements to your structure and implementation steps.

Our R&D, Innovation and Patents & Industrial Property (3IP) team can assist in R&D, Innovation and IP planning planning and assessing whether R&D activities satisfy the qualifying R&D criteria, advising on R&D collaboration and subcontracting models, reviewing employment, secondment and invention-assignment arrangements, and aligning IP ownership, licensing and commercialization structures with the requirements of the regime. We can also support organisations in implementing internal documentation and governance processes that facilitate both defensible R&D tax credit claims and effective protection and commercialisation of the innovations generated through qualifying R&D activities.

For more information please contact: Rachel Fox (r.fox@tamimi.com), Samer Qudah (s.qudah@tamimi.com), Ahmad Saleh (Ah.Saleh@tamimi.com), Nawel Benaisa (n.benaisa@tamimi.com) or Sabeeha Moolla (s.moolla@tamimi.com).