Preamble
Having reviewed the Constitution, Federal Decree-Law No. 28 of 2022 on Tax Procedures, Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, Cabinet Decision No. 142 of 2024 on the Imposition of Top-up Tax on Multinational Enterprises, and Cabinet Decision No. 215 of 2025 on R&D Tax Credit for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.
Article 1
Definitions
Definitions in Federal Decree-Law No. 47 of 2022, Cabinet Decision No. 142 of 2024 and Cabinet Decision No. 215 of 2025 referred to above shall apply to this Decision, other than that, the following words and expressions shall have the meaning assigned against each, unless the context requires otherwise:
R&D Staff: A full-time or full-time equivalent (FTE) employee, or an externally provided worker, who is directly and actively engaged in Qualifying R&D Activities in accordance with the conditions specified in Article (8) of this Decision.
What this means
R&D Staff is broadly defined — it covers full-time employees, FTE equivalents, and externally provided workers (e.g. contractors via staffing agencies). They must be directly and actively engaged in qualifying R&D, not just supporting it.
Article 2
R&D Tax Credit
1. The R&D Tax Credit shall be calculated as a percentage of the Qualifying R&D Expenditure incurred by the Qualifying Entity in the relevant Tax Period or Fiscal Year, in accordance with the following table:
| Qualifying R&D Expenditure (AED) | Minimum R&D Staff | R&D Tax Credit Rate |
|---|
| First 1,000,000 | At least 2 | 15% |
| 1,000,001 – 2,000,000 | At least 6 | 35% |
| 2,000,001 – 5,000,000 | At least 14 | 50% |
2. The rates specified in Clause (1) of this Article are marginal rates applied to each respective band of Qualifying R&D Expenditure.
3. The R&D Tax Credit is non-refundable.
4. Where the Qualifying Entity is a member of a Tax Group, the Qualifying R&D Expenditure and R&D Staff of all members of the Tax Group shall be aggregated for the purposes of determining the applicable R&D Tax Credit rate.
5. The average number of R&D Staff for a Tax Period or Fiscal Year shall be calculated as the total number of R&D Staff for each month during which the Qualifying Entity carried on Qualifying R&D Activities, divided by the number of such months.
6. Where the Qualifying Entity meets the Qualifying R&D Expenditure threshold for a particular band but does not meet the minimum R&D Staff requirement for that band, the R&D Tax Credit rate applicable to that band shall be the rate of the highest band for which the minimum R&D Staff requirement is met.
7. Subcontractor staff engaged in Qualifying R&D Activities on behalf of the Qualifying Entity shall count towards the minimum R&D Staff requirement.
What this means
The rates are tiered like income tax brackets — you don't get 50% on everything, only on the portion above AED 2M. A company spending AED 5M with 14+ R&D staff gets: AED 1M × 15% + AED 1M × 35% + AED 3M × 50% = AED 2M credit. Non-refundable confirmed.
Article 3
Qualifying R&D Activities
1. A Qualifying R&D Activity must satisfy all of the following criteria:
a. Novel — aimed at new findings, based on original concepts or hypotheses.
b. Creative — based on original, non-obvious concepts and hypotheses.
c. Uncertain — uncertain about the final outcome, the cost or time needed.
d. Systematic — planned and budgeted, with records of the process and outcome.
e. Transferable and/or reproducible — results could be reproduced or transferred to others.
2. Whether an activity constitutes a Qualifying R&D Activity shall be assessed in accordance with the principles and guidelines of the OECD Frascati Manual.
3. Only activities conducted within the State shall qualify as Qualifying R&D Activities.
4. Activities in the fields of social sciences, humanities and arts are excluded from Qualifying R&D Activities.
What this means
The Frascati criteria are now formally codified. The exclusion of social sciences, humanities and arts is significant — only STEM R&D qualifies.
Article 4
Mandatory Pre-Approval and Ongoing Compliance
1. A Qualifying Entity must obtain pre-approval from the Council prior to claiming the R&D Tax Credit.
2. The Council may require the Qualifying Entity to provide progress updates, accompanied by technical documentation, to verify that the Qualifying R&D Activities are being carried out in accordance with the pre-approval.
What this means
Pre-approval is not a one-time checkbox — the Council can request progress updates at any time to verify your R&D activities match what was approved.
Article 5
Restrictions on Carry-Forward
1. The carry-forward of unutilised R&D Tax Credits shall be permitted only where the following conditions are met:
a. The same persons that held at least 50% of the ownership interests in the Qualifying Entity at the time the R&D Tax Credit arose continue to hold at least 50% of such ownership interests at the time the R&D Tax Credit is utilised, or
b. Where there has been a change in ownership of more than 50%, the Qualifying Entity continues to carry on the same or a similar business as that carried on at the time the R&D Tax Credit arose.
2. The conditions in Clause (1) of this Article shall not apply where the Qualifying Entity's ownership interests are listed on a recognised stock exchange.
3. Where R&D Tax Credits are transferred to a transferee as part of a business restructuring under Article (7) of this Decision, the conditions in Clause (1) of this Article shall also apply to the transferee.
What this means
Carry-forward is not unconditional. If your company changes hands (>50% ownership change), you keep the credits only if the same or similar business continues. Listed companies are exempt from this restriction.
Article 6
Transfer of R&D Tax Credit
1. A Qualifying Entity may transfer all or part of its R&D Tax Credit to another Person where all of the following conditions are met:
a. The transferor and transferee are at least 75% commonly owned, directly or indirectly.
b. The common ownership referred to in paragraph (a) was maintained from the time the R&D Tax Credit arose to the time it is utilised by the transferee.
2. R&D Tax Credits transferred under Clause (1) of this Article are subject to the following restrictions:
a. The transferred R&D Tax Credit must be utilised by the transferee in the Tax Period or Fiscal Year in which it is transferred.
b. The transferred R&D Tax Credit shall not exceed the remaining Corporate Tax and/or Top-up Tax liability of the transferee for the relevant Tax Period or Fiscal Year.
c. The transferred R&D Tax Credit cannot be carried forward or further transferred by the transferee.
d. The transferor must reduce its available R&D Tax Credit by the amount transferred.
What this means
Transfers are tightly controlled. You need 75% common ownership, the transferred credits can only be used immediately (no carry-forward by the recipient), and they can't be passed on again.
Article 7
Business Restructuring
1. Where a Qualifying Entity transfers its business, or part thereof, as part of a business restructuring, the transferee must continue to carry on the business and the Qualifying R&D Activities for a minimum period of two (2) years from the date of the transfer.
2. Where the Qualifying R&D Activities are discontinued by the transferee within the two-year period referred to in Clause (1) of this Article:
a. Any R&D Tax Credits that have been utilised by the transferee shall be subject to claw-back.
b. Any unutilised R&D Tax Credits held by the transferee shall be forfeited.
c. Administrative penalties shall apply in accordance with applicable legislation.
3. Where the transferor ceases to be a Taxable Person following the transfer, the transferee shall be liable for any claw-back obligations arising under this Article.
What this means
If you acquire a business with R&D credits, you must continue the R&D for at least 2 years. Stop early and the credits are clawed back with penalties.
Article 8
Staff Costs
1. Staff Costs means any amounts incurred by the Qualifying Entity in respect of R&D Staff.
2. R&D Staff must be located in the State and under the supervision or control of the Qualifying Entity.
3. A 30% uplift shall be applied to Staff Costs to account for overheads associated with R&D Staff.
4. Staff Costs include the following:
a. Salaries and wages.
b. Allowances.
c. Medical insurance.
d. Pension contributions.
e. End-of-service gratuity.
f. Bonuses.
g. Benefits in kind.
h. Other employment costs.
i. Training costs directly related to Qualifying R&D Activities.
5. Staff Costs exclude employee stock option plans.
6. Where R&D Staff are engaged in Qualifying R&D Activities on a part-time basis, Staff Costs shall be apportioned based on the time spent on Qualifying R&D Activities.
7. For the purposes of this Article:
a. Employees are individuals who have a contract of employment with the Qualifying Entity, or who are seconded to the Qualifying Entity.
b. Externally provided workers are individuals who are not employees or directors of the Qualifying Entity, who are provided through a staff provider or engaged as independent contractors, who are personally obliged to perform the work, and who are not engaged under a subcontracting arrangement.
8. Intra-group staff recharges shall not constitute qualifying Staff Costs.
What this means
The 30% uplift is automatic — if your R&D staff costs are AED 1M, qualifying expenditure is AED 1.3M. This accounts for overheads like office space and utilities. Stock options are excluded. Staff must physically be in the UAE.
Article 9
Consumable Costs
1. Consumable Costs means the cost of materials that are directly used in carrying on Qualifying R&D Activities and are no longer usable after such use.
2. Consumable Costs include:
a. Materials, including water, fuel, and power.
b. License fees that are not capital in nature.
c. Payments to subjects of clinical trials.
3. Where materials are used partly for Qualifying R&D Activities and partly for other purposes, Consumable Costs shall be apportioned accordingly.
4. Consumable Costs exclude the cost of any materials that are disposed of for consideration.
5. Intra-group purchases shall not constitute qualifying Consumable Costs.
What this means
Software licenses used for R&D count as consumables if they're not capital. Clinical trial subject payments also qualify. But if you sell the prototype or test materials, those costs are excluded.
Article 10
Subcontracting Fees
1. Subcontracting Fees means amounts paid to a subcontractor for carrying on Qualifying R&D Activities on behalf of the Qualifying Entity.
2. Subcontracting Fees shall qualify only where all of the following conditions are met:
a. The subcontractor is a Person based in the State.
b. The subcontracted Qualifying R&D Activities are carried on within the State.
c. The Qualifying R&D Activities are not subcontracted to the Qualifying Entity under a back-to-back arrangement whereby the Qualifying Entity further subcontracts such activities.
d. The Qualifying R&D Activities are not attributable to a foreign Permanent Establishment of the subcontractor.
3. Where the subcontractor is a Related Party, the subcontractor must maintain audited financial statements.
4. Intra-group subcontracting shall not constitute qualifying Subcontracting Fees.
What this means
Subcontracting must be genuine and domestic. The subcontractor must be UAE-based, do the work in the UAE, and cannot further subcontract the R&D. If the subcontractor is a related party, they need audited financials.
Article 11
Cost Contribution Arrangement
1. A Qualifying Entity's arm's length contribution under a cost contribution arrangement shall qualify as Qualifying R&D Expenditure to the extent that it is proportional to the expected benefits to be received by the Qualifying Entity from the arrangement.
2. Where the cost contribution arrangement involves activities carried on across multiple jurisdictions, only the portion of the contribution attributable to Qualifying R&D Activities conducted within the State shall qualify.
Article 12
Record Keeping
1. A Qualifying Entity must retain records for a minimum period of seven (7) years from the end of the relevant Tax Period or Fiscal Year.
2. Records shall be maintained in written, visual, or electronic form and must detail the objectives, processes, methodologies, experiments, and findings of the Qualifying R&D Activities.
What this means
Keep everything for 7 years. This includes technical documentation — not just financial records but the actual R&D records: what you tried, how, and what you found.
Article 13
Application to Tax Groups
1. The R&D Tax Credit shall be utilised against the Corporate Tax liability of the Tax Group.
2. R&D Tax Credits that arose prior to an entity joining a Tax Group (pre-Grouping credits) shall be utilised before credits that arose after joining the Tax Group.
3. When a member entity leaves a Tax Group, R&D Tax Credits that arose during the period of membership shall remain with the Tax Group, except for pre-Grouping credits which shall be retained by the departing entity.
4. Upon cessation of a Tax Group:
a. Unutilised R&D Tax Credits shall be allocated to the parent company.
b. If the parent company ceases to be a Taxable Person, unutilised R&D Tax Credits shall be forfeited.
5. All members of the Tax Group shall be jointly and severally liable for any claw-back of R&D Tax Credits.
6. The parent company of the Tax Group shall be responsible for obtaining pre-approval from the Council and submitting claims for the R&D Tax Credit on behalf of the Tax Group.
What this means
In a Tax Group, the parent company handles everything — pre-approval, claims, compliance. All group members are jointly liable if credits are clawed back.
Article 14
Application to Domestic Groups (Pillar Two)
1. The R&D Tax Credit may be utilised against the Top-up Tax liability of a Domestic Group.
2. The R&D Tax Credit shall first be applied against the Corporate Tax liability, and any remaining credit may then be applied against the Top-up Tax liability.
3. All constituent entities of the Domestic Group shall be jointly and severally liable for any claw-back of R&D Tax Credits.
What this means
For Pillar Two groups, R&D credits offset Corporate Tax first, then any remainder offsets Top-up Tax. All constituent entities share claw-back liability.
Article 15
Artificial Separation
1. Where a Qualifying Entity, or a group of entities, artificially separates its business or activities for the purposes of remaining below any Qualifying R&D Expenditure threshold or meeting conditions for a higher R&D Tax Credit rate, such arrangement shall be treated as a tax avoidance arrangement under Article (50) of the Corporate Tax Law.
2. Where an artificial separation is identified, any R&D Tax Credits that have been utilised shall be subject to claw-back, and any unutilised credits shall be forfeited.
What this means
Don't split your business artificially to claim lower-tier rates. The FTA will aggregate related businesses and claw back the advantage.
Article 16
Anti-Abuse
1. The provisions of this Article apply as a general anti-abuse measure.
2. Where, within five (5) years from the end of the last Tax Period or Fiscal Year in which an R&D Tax Credit was claimed, the Qualifying Entity:
a. Ceases to be a Taxable Person.
b. Becomes a Qualifying Free Zone Person subject to a 0% Corporate Tax rate.
c. Elects for the application of Article (21) of the Corporate Tax Law (small business relief).
d. Enters into liquidation or is dissolved.
e. Redomiciles outside the State.
Then all R&D Tax Credits that have been utilised shall be subject to full claw-back.
3. The provisions of Clause (2) of this Article shall not apply to business restructurings under Article (7) of this Decision where the conditions therein are met.
What this means
This is the most aggressive provision. If you claim R&D credits and then within 5 years leave the UAE tax net — by becoming a 0% Free Zone entity, liquidating, or redomiciling abroad — ALL credits used are clawed back. This locks you into the tax system for 5 years after your last claim.
Article 17
Application
This Decision shall apply to Tax Periods or Fiscal Years commencing on or after 1 January 2026.
Article 18
Publication
This Decision shall be published in the Official Gazette and shall come into effect on the date of its issuance, 18 March 2026.
Mohamed bin Hadi Al Hussaini, Minister of State for Financial Affairs
Issued on 18 March 2026