The UAE has issued Ministerial Decision No. 96 of 2026 (the "Decision"), which updates how the UAE's domestic Pillar Two regime is interpreted to reflect the OECD's Side-by-Side Package released by the Inclusive Framework on 5 January 2026.

The Side-by-Side Package introduced four new Safe Harbours, including the Substance-Based Tax Incentive (SBTI) Safe Harbour and the underlying Qualified Tax Incentive (QTI) framework. MD 96/2026 brings these into the UAE DMTT, allowing taxpayers to assess how the UAE R&D Tax Credit interacts with Pillar Two. This alert focuses specifically on the implications of the SBTI framework and the related Qualified Tax Incentive (QTI) rules for the UAE R&D Tax Credit[1].

The point matters for in-scope Pillar Two MNE groups that are planning on claiming R&D credits. Without QTI treatment, the R&D credit reduces Covered Taxes, drags the Effective Tax Rate (ETR) down, and risks pulling the group into top-up tax. Under the SBTI Safe Harbour, the credit is added back to Covered Taxes instead, so the ETR is less impacted, and the benefit may be better preserved at group level.

Key Highlights

MD 96/2026 adopts the OECD's 2026 Consolidated Commentary, the Administrative Guidance with the Central Record, and the January 2025 GloBE Information Return, and repeals MD 88/2025.

The 2026 Consolidated Commentary incorporates the OECD Side-by-Side Package of 5 January 2026, which includes the SBTI Safe Harbour and the related QTI framework.

The Decision applies to fiscal years beginning on or after 1 January 2025. This precedes the first year of the UAE R&D Tax Credit regime, which applies to tax periods beginning on or after 1 January 2026.

Under the SBTI Safe Harbour, a QTI is added to Covered Taxes and excluded from GloBE Income, subject to a Substance Cap of 5.5% of eligible payroll or depreciation on eligible tangible assets (with a 5-year election to use 1% of tangible asset carrying value instead).

The UAE R&D Tax Credit is non-refundable, so it cannot be a QRTC, but it should meet the QTI definition. For UAE entities which are Constituent Entities of in-scope  Pillar Two groups, this may allow the group to preserve the cash-tax and ETR value of the credit that would otherwise be diluted by a non-refundable credit and the corresponding reduction of Covered Taxes.

Pre-approval is project-level and mandatory. Candidate projects should be identified, and relevant documentation prepared for submission to the R&D Council, ahead of the first qualifying tax period.

Impact on the UAE R&D Tax Credit

QRTC – Not Available

A QRTC must broadly be payable in cash, or as a cash equivalent, within four years of the conditions for payment being met. The UAE R&D Tax Credit is non-refundable in Phase 1. Unused credit may be carried forward or transferred within qualifying group structures, but it is not paid in cash. The credit therefore does not satisfy the QRTC definition.

QTI – The Relevant Test

The SBTI Safe Harbour is a jurisdictional, annual election that allows an MNE Group to treat QTIs as an addition to Covered Taxes of the Constituent Entities located in that jurisdiction, with a corresponding exclusion of the QTI amount from GloBE Income. To qualify as a QTI, an incentive must be expenditure-based or based on volume of tangible production in the jurisdiction, generally available, and with a direct link between the benefit and the qualifying expenditure or output.

The UAE R&D Tax Credit is calculated as a percentage of Qualifying R&D Expenditure at tiered rates of 15%, 35% and 50% across the relevant expenditure bands, with a direct link between the credit and the underlying qualifying expenditure. On that basis, the credit fits within the expenditure-based QTI category. Pre-approval at project level operates as an administrative process to confirm compliance with qualifying conditions, rather than as a discretionary or negotiated outcome, which is consistent with the QTI "generally available" requirement[2]. The position will need to be revisited once any further FTA guidance is issued.

Substance Cap

The Substance Cap limits the amount of QTI that can be added back to Covered Taxes in a jurisdiction by reference to local economic activity (payroll and tangible assets). It is calculated as the higher of 5.5% of Eligible Payroll Costs in the UAE, or 5.5% of depreciation and depletion on Eligible Tangible Assets located in the UAE. Alternatively, MNE groups can make a five-year jurisdictional election to apply a cap of 1% of the carrying value of Eligible Tangible Assets in the UAE (excluding land and other non-depreciable assets).

The Substance Cap is unlikely to be a binding constraint for many UAE claimants. It is measured against total UAE payroll or asset depreciation, whereas the R&D credit is calculated on a narrower pool of UAE qualifying R&D expenditure.

Example Calculation

The example below illustrates how the calculation looks, an AED 0.5M, and that the Substance Cap does not apply.

Impact of the SBTI Election

Where the SBTI Safe Harbour applies and the UAE R&D Tax Credit is treated as a QTI, the credit is added to Covered Taxes and excluded from GloBE Income.

This means the credit does not reduce the UAE ETR for Pillar Two purposes and will not create additional top-up tax. The economic benefit of the credit may therefore be retained at the group level.

This is consistent with the MoF's stated policy that a non-refundable design should deliver a more favorable and predictable ETR outcome for UAE companies.

Key Takeaways

MD 96/2026 brings the OECD's 2026 Consolidated Commentary, and through it the Side-by-Side Package and SBTI Safe Harbour, into the UAE's DMTT.

The UAE R&D Tax Credit should meet the QTI definition under the SBTI Safe Harbour (expenditure-based, direct link, percentage of qualifying expenditure), preserving the cash-tax and ETR value of the credit at group level.

The Substance Cap is not expected to be a binding constraint for most UAE claimants, given the narrow qualifying R&D expenditure base relative to other costs.

The combination of MD 24/2026 and MD 96/2026 gives businesses a clearer basis to identify projects, prepare documentation and begin planning pre-approval submissions.

What to Do Now

Identify candidate R&D projects across UAE entities and tax groups against the qualifying criteria.

Prioritize projects for submission to the R&D Council, given approvals are granted project-by-project and are a prerequisite to claiming.

Map the documentation trail (technical narratives, cost capture, contracts, staffing records) required to support pre-approval and the eventual claim.

For Pillar Two groups, model the SBTI Safe Harbour election alongside the R&D claim, so the group-level value is understood and protected.

How A&M Can Help

Alvarez & Marsal can support businesses through project identification workshops, pre-approval documentation, integrated governance frameworks, and modeling of the Corporate Tax and Pillar Two impact (including the SBTI Safe Harbour election).

The first claim year is now live. Businesses should identify candidate projects and prepare pre-approval submissions ahead of their first qualifying tax period to avoid missing the first year of benefit. Please contact your usual A&M contact to discuss how the regime applies to your business.

[1] For a more more detailed analysis of the Side-by-Side package, see THE NEW PILLAR TWO FRAMEWORK: UNBOXING THE SIDE-BY-SIDE PACKAGE

[2] For a detailed analysis on the “generally available” requirement see Qualified Tax Incentives: Pillar Two SBTI Safe Harbor