Key Insights from Ministerial Decision No. 24 of 2026
The UAE Ministry of Finance has issued Ministerial Decision No. 24 of 2026, setting out the implementing rules for the Research and Development (R&D) Tax Credit introduced under Cabinet Decision No. 215 of 2025. This development marks a significant step in reinforcing the UAE’s position as a regional hub for innovation, technology, and knowledge-based industries.
The Decision establishes the operational framework for claiming R&D tax incentives under the UAE Corporate Tax regime. It clarifies the scope of qualifying R&D activities, which generally include systematic and investigative work aimed at generating new knowledge or achieving technological advancement. Activities such as product innovation, creative process improvement, software development, and experimental prototyping are expected to fall within the scope of eligible R&D, provided they meet specific technical and documentation requirements, are conducted pursuant to a defined plan and budget, and produce results that are transferable or reproducible.
Importantly, the Decision introduces clear criteria for determining qualifying expenditure, ensuring that only costs directly attributable to R&D activities are considered. This includes, among others, employee costs, materials consumed in experimentation, and certain overheads, while excluding routine operational expenses and commercially driven activities that do not involve scientific or technological uncertainty.
From a compliance perspective, the framework emphasises robust documentation and substantiation. Taxpayers seeking to benefit from the R&D Tax Credit will be required to maintain detailed records demonstrating the nature of the activities undertaken, the uncertainty addressed, and the systematic approach adopted. This aligns with international best practice and is intended to prevent misuse while encouraging genuine innovation.
The introduction of this regime reflects the UAE’s broader strategic objective of diversifying its economy and promoting high-value sectors. By incentivising investment in research and development, the UAE aims to attract multinational enterprises, support start-ups, and enhance local technological capabilities.
Businesses operating in the UAE should assess their current and planned activities to determine eligibility under the new rules and ensure that appropriate processes and documentation frameworks are in place. Early alignment with the requirements of Ministerial Decision No. 24 of 2026 will be key to maximising the available tax benefits while maintaining full compliance with the Corporate Tax Law.
Key Points of Ministerial Decision No. 24 of 2026 (R&D Tax Credit)
1. Formal Implementation of the R&D Tax Credit
The Decision provides detailed rules for applying the R&D Tax Credit introduced under Cabinet Decision No. 215 of 2025 within the UAE Corporate Tax framework.
The R&D Tax Credit is calculated by applying the applicable rate to the portion of qualifying R&D expenditure that falls within each corresponding threshold.
|
Maximum Qualifying R&D Expenditure per Qualifying Entity or Tax Group (per Tax Period / Fiscal Year) (AED) |
Average Number of R&D Staff per Qualifying Entity or Tax Group (per Tax Period / Fiscal Year) |
R&D Tax Credit Rate |
|
First AED 1,000,000 |
At least 2 staff |
15% |
|
Portion exceeding AED 1,000,000 and up to AED 2,000,000 |
At least 6 staff |
35% |
|
Portion exceeding AED 2,000,000 and up to AED 5,000,000 |
At least 14 staff |
50% |
The R&D Tax Credit is calculated by applying the applicable rate to the portion of qualifying R&D expenditure that falls within each corresponding threshold.
2. Definition of Qualifying R&D Activities
Eligible activities must involve:
- Scientific or technological advancement aimed at producing new findings
- Technical uncertainty, where the outcome is not known in advance
- Systematic and investigative processes
Typical examples include product innovation, software development, and process improvement.
3. Eligible Expenditure
Only costs directly linked to R&D activities qualify, including:
- Employee salaries and related benefits attributable to R&D
- Materials and consumables used in testing
- Certain operational costs directly associated with experimentation
Non-qualifying costs include routine business expenses and commercial production costs.
4. Documentation and Substantiation Requirements
Taxpayers must retain records for a period of seven years, including:
- Technical documentation describing the R&D activity
- Evidence of uncertainty and innovation
- Financial records linking expenditure to R&D activities
This reflects a high-compliance regime aligned with international standards.
5. Anti-Abuse and Compliance Focus
The framework is designed to ensure that only genuine R&D activities benefit from the tax credit, thereby limiting potential misuse.
6. Alignment with UAE Economic Strategy
The regime supports the UAE’s transition towards a knowledge-based, innovation-driven economy.
Who Can Benefit from the R&D Tax Credit
1. Technology and Software Companies
- Developing new software, AI solutions, or digital platforms
- Enhancing existing systems with new capabilities
2. Manufacturing and Industrial Companies
- Improving production processes
- Designing new products or materials
3. Engineering and Construction Firms
- Developing innovative construction methods
- Testing new structural or environmental solutions
4. Pharmaceutical and Healthcare Sector
- Clinical research, drug development, and medical innovation
5. Start-ups and Innovation-Driven Businesses
- Particularly those investing heavily in product development
- May significantly reduce early-stage tax exposure
6. Large Corporates and Multinationals
- Establishing or expanding R&D hubs in the UAE
- Optimising group tax efficiency
Practical Takeaway
Businesses in the UAE undertaking activities aimed at resolving scientific or technical uncertainty, developing new products or processes, or enhancing existing systems may qualify for the R&D Tax Credit. To do so, such activities must meet the prescribed criteria of being novel, creative, uncertain, systematic, and capable of being replicated, and must be supported by appropriate documentation in accordance with Ministerial Decision No. 24 of 2026.
For further advice on the application of the UAE R&D Tax Credit regime, including eligibility assessments, structuring considerations, and compliance requirements under Ministerial Decision No. 24 of 2026, please contact Suneer Kumar at suneer@alsuwaidi.ae, Vida Grace Serrano at vida@alsuwaidi.ae or Mamdouh Tawfik at m.tawfik@alsuwaidi.ae