UAE R&D Tax Credit: Cabinet Decision No. 215 and Ministerial Decision No. 24 Explained

The Legal Framework Is Published

Cabinet Decision No. 215 of 2025 is now public. Signed by Mohammed bin Rashid Al Maktoum on 31 December 2025, it establishes the legal framework for the UAE's R&D tax credit programme. The Decision applies to tax periods commencing on or after 1 January 2026. Ministerial Decision No. 24 of 2026, published alongside, fills in the critical operational details: tiered credit rates, staff thresholds, eligible cost definitions, and record-keeping requirements.

This is not a policy announcement or a press release summary. It is binding legislation. The Ministry of Finance has confirmed the Phase 1 parameters: a non-refundable credit on qualifying R&D expenditure at tiered rates of 15%, 35%, and 50%, capped at AED 5 million per qualifying activity.

Here is what the Decision actually says, article by article, and what it means for businesses operating in the UAE.

Phase 1 Parameters (MoF Confirmation)

The Ministry of Finance press release accompanying the Decision confirmed the Phase 1 operating parameters:

• Non-refundable credit (offsets Corporate Tax and/or Top-up Tax liability)
• Tiered credit rates (confirmed by Ministerial Decision No. 24 of 2026):

• Maximum eligible expenditure of AED 5 million per qualifying activity
• Maximum credit per qualifying activity: AED 2,000,000 (15% on first AED 1M + 35% on next AED 1M + 50% on final AED 3M)
• Rates are marginal: you earn 15% on the first AED 1M regardless of total spend. Higher rates apply only to the portion in each band.

The Cabinet Decision framework itself is broader, it allows the Minister to set any percentage and to toggle between refundable and non-refundable. Phase 1 uses a progressive tiered structure that rewards larger R&D investments. The architecture supports expansion.

Who Qualifies (Articles 1, 3, and 4)

Eligible Entities

Under Article 3, a Qualifying Person must meet two conditions:

1. Minimum R&D employees (Article 3.1a), the entity must employ a minimum number of employees engaged in R&D activities. Ministerial Decision No. 24 confirms the thresholds are tiered: at least 2 R&D staff for the 15% rate, at least 6 for the 35% rate, and at least 14 for the 50% rate. R&D staff must be based in the UAE and under the entity's supervision or control. This is a substance requirement. Paper entities with no R&D headcount will not qualify.

1. Emirates R&D Council pre-approval (Article 3.1b), the entity must obtain pre-approval from the Emirates R&D Council before claiming. This is mandatory. No pre-approval, no credit. This is a significant administrative requirement that companies need to plan for.

Free Zone Entities (Article 3.2)

Free Zone persons can qualify, but only if they are:

• Subject to Corporate Tax at 9% on taxable income derived from R&D activities, or
• Subject to Top-up Tax

This is the critical restriction. Qualifying Free Zone Persons (QFZPs) taxed at 0% on qualifying income cannot claim the R&D tax credit. The logic is straightforward: if you are not paying tax, there is no tax to offset with a non-refundable credit. And the policy intent is to incentivise entities that are contributing to the UAE tax base.

If a Free Zone entity has some income taxed at 9% (for example, income that does not meet the qualifying income conditions), the R&D credit can offset that portion.

Foreign Entities

Foreign entities with a UAE Permanent Establishment (PE) qualify, provided they meet the other conditions. The R&D activities and expenditure must relate to the PE's operations in the UAE.

Excluded Entities (Article 4)

Two categories are explicitly excluded:

1. Entities not subject to Corporate Tax or Top-up Tax, if you are outside the UAE tax net entirely, you cannot claim
2. Entities that have elected Small Business Relief under Article 21 of the Corporate Tax Law, this is a deliberate policy choice. You cannot simultaneously claim simplified tax treatment and R&D incentives. Companies will need to evaluate which election provides greater benefit.

Qualifying Expenditure (Article 5)

Eligible Categories (Article 5.1)

The Decision specifies five categories of qualifying R&D expenditure:

1. Staff costs, salaries, wages, allowances, medical insurance, pension, gratuity, bonuses, and benefits in kind for employees engaged in R&D activities. Stock options are excluded. R&D staff must be UAE-based and under the entity's supervision or control.
2. Consumable costs, materials and supplies consumed in R&D. Ministerial Decision No. 24 (Article 9) confirms this includes software licenses (non-capital), materials, and clinical trial payments.
3. Subcontracting fees, costs of outsourcing R&D work. Under MD 24, subcontractors must be UAE-based, back-to-back subcontracting is prohibited, and related-party subcontracting requires audited financials.
4. Arm's length CCA contributions, contributions under cost-contribution arrangements, provided they are at arm's length
5. Capitalised internally generated intangible costs, R&D costs that have been capitalised as intangible assets on the balance sheet

Staff Costs Uplift (MD 24 Article 8.3)

Ministerial Decision No. 24 Article 8.3 provides for a 30% uplift on staff costs. Qualifying staff costs are grossed up by 30% before the credit rate is applied, acting as a proxy for overhead costs (facilities, utilities, administrative support) that are otherwise not directly claimable.

Staff costs are defined as: salaries, wages, allowances, medical insurance, pension contributions, end-of-service gratuity, bonuses, and benefits in kind. Stock options are explicitly excluded.

For example, if your qualifying R&D staff costs are AED 1,000,000, the 30% uplift adds AED 300,000, bringing total qualifying expenditure from staff to AED 1,300,000. Companies should track R&D staff costs separately and in detail. The uplift materially increases credit value.

Minimum Expenditure Threshold (Article 5.3b)

Each R&D project must have qualifying expenditure of at least AED 500,000 per year. Projects below this threshold do not qualify. Note: this minimum is calculated on base qualifying expenditure before the 30% staff costs uplift is applied (per CD 215 Article 5.3b). The uplift increases the credit calculation but does not count toward meeting the AED 500K threshold.

This is a meaningful filter. It excludes small, ad hoc R&D efforts and focuses the programme on substantive projects. Companies with multiple small R&D initiatives may need to consider whether any individual project meets the threshold, or whether activities can legitimately be structured as a single qualifying project.

Key Exclusions

• Must be deductible expenditure, costs that are not deductible under the Corporate Tax Law cannot form part of qualifying expenditure
• Grant-funded expenditure excluded, if R&D costs have been funded by government or institutional grants, they cannot also be claimed under the R&D credit
• No double-dipping, expenditure covered by other incentive programmes cannot be included. This prevents stacking multiple incentives on the same costs

Utilisation and Carry-Forward (Article 6)

How Credits Are Used

The R&D tax credit offsets Corporate Tax liability and/or Top-up Tax liability for the relevant tax period. Under Phase 1, the credit is non-refundable, it reduces your tax bill but does not generate a cash refund if the credit exceeds your liability.

FIFO Ordering (Article 6.2)

Credits are applied on a first-in, first-out basis. Credits earned in earlier periods must be used before credits from later periods. This prevents cherry-picking and ensures orderly utilisation.

Unlimited Carry-Forward (Article 6.3)

Unutilised credits carry forward indefinitely. There is no expiry. If your R&D credit exceeds your tax liability in a given year, the excess rolls forward to the next period, and the next, without time limit.

This is genuinely favourable. Many jurisdictions impose carry-forward limits (typically 5-10 years). The UAE's unlimited carry-forward means that even companies with temporarily low tax liabilities will eventually benefit from their accumulated credits.

For pre-revenue startups: while Phase 1 is non-refundable, the unlimited carry-forward means credits earned now will be available when you become profitable and start paying tax. Document and claim from day one.

Credit Transfer (MD 24 Article 6)

Ministerial Decision No. 24 Article 6 permits the transfer of R&D tax credits between related entities, with the following rules:

• 75% common ownership is required between transferor and transferee
• The transferee cannot re-transfer the credit to another entity
• The transferee cannot carry forward transferred credits, they must be used in the Tax Period in which they are transferred
• Carry-forward of credits by the originating entity requires 50% or more ownership continuity under Article 5.1.a, or passing the same-or-similar-business test under Article 5.1.b. Listed companies on a recognised stock exchange are exempt from this continuity requirement under Article 5.2.

This is an unusual and potentially powerful provision. In most jurisdictions, R&D credits are locked to the entity that incurred the expenditure. The ability to transfer credits enables group companies to optimise credit utilisation across entities. The restrictions (no re-transfer, no carry-forward by transferee) prevent credits from being traded or daisy-chained through multiple entities.

Claw-Back Provisions (MD 24 Article 16)

Ministerial Decision No. 24 Article 16 introduces claw-back provisions. If an entity ceases to meet the qualifying conditions, loses its pre-approval, drops below the minimum employee threshold, or otherwise fails to maintain eligibility, the FTA can claw back previously granted credits.

The implications are serious. This is not a prospective disqualification; it is retrospective recovery. Companies must ensure they continuously meet all qualifying conditions for every period in which they claim or carry forward credits.

Article 16.2 adds a 5-year anti-abuse lookback: if an entity ceases to be a Taxable Person, becomes a Qualifying Free Zone Person, elects Small Business Relief, is liquidated, or redomiciles outside the UAE within five years from the end of the Tax Period or Fiscal Year in which the R&D Tax Credit was last claimed, previously granted credits are clawed back. Joint and several liability applies to Tax Group members under Article 13.7, meaning each Tax Group member is liable for the full group credit, not a proportional share.

Practical risk areas:

• Restructuring that reduces R&D headcount below the minimum threshold
• Failure to maintain Emirates R&D Council pre-approval status
• Changes in Free Zone status or tax treatment (becoming a QFZP is an explicit trigger)
• Expenditure reclassification on audit
• Ceasing to be a Taxable Person within 5 years of the last claim (triggers clawback)
• Liquidation or redomicile outside the UAE within 5 years
• Group restructuring where joint and several liability creates exposure for related Tax Group members

Submission Requirements (Article 9)

Claims must be submitted with the entity's Corporate Tax Return or Top-up Tax Return. The required documentation includes:

1. Emirates R&D Council pre-approval proof, evidence that the Council has approved the entity's R&D activities
2. Senior management declaration, a formal declaration by senior management confirming the accuracy of the claim
3. Qualifying expenditure breakdown, detailed breakdown of expenditure by category and project
4. Audited financial statements, the entity's audited financials for the relevant period

Late claims are not contemplated in the Decision. The expectation is that claims are filed contemporaneously with the tax return.

The senior management declaration is noteworthy. It places personal accountability on management for the accuracy of R&D claims. This is consistent with global best practice (the UK's senior officer declaration requirement, for example) and signals that the FTA takes compliance seriously.

Free Zone Deep Dive

The Free Zone provisions deserve specific attention because they will generate the most questions.

Scenario 1: QFZP at 0%. You are a Qualifying Free Zone Person with all income taxed at 0%. You cannot claim the R&D tax credit. Article 3.2 is explicit: you must be subject to CT at 9% on R&D-derived income, or subject to Top-up Tax.

Scenario 2: Free Zone entity at 9%. Your Free Zone entity has taxable income subject to 9% CT (perhaps because some income does not meet the qualifying income conditions). You can claim the R&D credit against that 9% CT liability.

Scenario 3: Free Zone entity subject to Top-up Tax. You are in a Free Zone and subject to Top-up Tax under the global minimum tax rules. You can claim the R&D credit against your Top-up Tax liability.

Scenario 4: Mixed income. Some income at 0%, some at 9%. You can claim the R&D credit, but only against the CT payable on the 9% portion. The credit cannot offset the 0% qualifying income, there is nothing to offset.

For Free Zone entities, the decision of whether to maintain QFZP status or elect out of it now involves an additional variable: access to R&D tax credits.

What Is Still TBD

Ministerial Decision No. 24 of 2026 has resolved most of the operational gaps left by the Cabinet Decision. The following items remain outstanding:

• Refundability toggle, the framework allows the Minister to switch between refundable and non-refundable. Phase 1 is non-refundable; Phase 2 may change this
• Emirates R&D Council procedures, the Council's pre-approval application process, timelines, review criteria, and appeals procedures have not yet been published
• Sector-specific guidance, whether differentiated rates or terms will apply to priority sectors

The following items are now confirmed by MD 24: tiered credit rates (15%/35%/50%), minimum R&D staff thresholds (2/6/14), 30% staff costs uplift, credit transfer rules (75% common ownership required, no re-transfer or carry-forward by transferee), record-keeping requirements (7-year retention of technical documentation), and the 5-year anti-abuse claw-back rule.

Phase 2 Outlook

The Cabinet Decision framework is deliberately designed to accommodate expansion. The Minister can adjust:

• Whether credits are refundable or non-refundable
• The credit rate percentage
• Qualifying expenditure limits
• Eligible categories

Based on Phase 1 adoption data, the Ministry of Finance may introduce:

• Refundable credits, converting the programme from a tax offset to a potential cash benefit
• Expanded limits, raising the AED 5M cap per qualifying activity
• Sector-specific incentives, differentiated rates or terms for priority sectors

No timeline has been published for Phase 2.

What To Do Now

Five immediate action items:

1. Apply for Emirates R&D Council pre-approval. This is now mandatory and will likely involve lead time. Do not wait until your tax return is due. Start the application process as soon as the Council publishes its procedures.

1. Audit your R&D headcount. Article 3.1a requires a minimum number of R&D employees. Ministerial Decision No. 24 confirms: at least 2 for the 15% rate, 6 for the 35% rate, and 14 for the 50% rate. R&D staff must be UAE-based and under your entity's supervision or control. Ensure your employment records support your headcount claim.

1. Isolate qualifying expenditure in your accounting system. Create GL codes or cost centres that separate the five qualifying categories (staff costs, consumables, subcontracting fees, CCA contributions, capitalised intangibles). You will need a detailed breakdown for your claim.

1. Check the AED 500K minimum per project. Review each R&D project to determine whether it meets the AED 500,000 annual expenditure threshold. If projects fall below this, assess whether they can be legitimately consolidated.

1. Evaluate your Free Zone position. If you are a QFZP at 0%, you cannot claim. Consider whether your Free Zone status and income profile may change, and model the R&D credit benefit against the cost of any changes.

For preparation strategies, see our guide: Preparing for the 2026 UAE R&D Tax Incentive.

For a detailed breakdown of what qualifies as R&D under the Frascati Manual framework, see: What Qualifies as R&D Under UAE Tax Law.

For software companies specifically, see: UAE R&D Tax Credit for Software Companies.

Read the full text of Cabinet Decision No. 215 of 2025 with article-by-article annotations and plain-English summaries.

This article reflects Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026, updated as of 3 April 2026. The tiered credit rates, staff thresholds, uplift percentage, transfer rules, and record-keeping requirements are now confirmed. Emirates R&D Council pre-approval procedures remain pending.

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