The UAE has now published the long‑awaited framework legislation for an R&D tax credit under the UAE Corporate Tax regime through Cabinet Decision No. (215) of 2025 (the “Decision”). The Decision establishes the structure of an R&D “tax credit balance” that can be used to settle UAE Corporate Tax and, importantly, can also be applied against UAE Top‑up Tax (Pillar Two/DMTT), where relevant.

While the Decision confirms the incentive will be calculated as a percentage of qualifying R&D expenditure, the headline commercial terms are left to a future Ministerial Decision, including the percentage rate(s), the conditions for different rates, and whether the credit will be refundable or non‑refundable. Until that Ministerial Decision is released, the “value” of the incentive remains unknown, and any Pillar Two conclusions need to be treated as provisional.

This article is based on the framework set out in the Cabinet Decision, which confirms the credit will be calculated as a percentage of qualifying R&D expenditure but leaves the headline commercial terms to a future Ministerial Decision. Separately, the Ministry of Finance has publicly referenced a “Phase 1” approach to the R&D Tax Incentives Programme, indicating a non-refundable R&D tax credit of up to 50% on qualifying expenditure of up to AED 5 million.

These Phase 1 parameters are not yet set out in a Cabinet Decision or Ministerial Decision and therefore should be treated as an announced policy direction rather than final, binding terms. We will await further implementing guidance to confirm how any cap and rate apply in practice. The refundable vs non-refundable design will also be central to Pillar Two outcomes: a non refundable credit may behave differently for Pillar Two effective tax rate purposes than a refundable credit, so any Pillar Two impact assessment will remain provisional until the Ministerial Decision and associated guidance are issued.

Key Highlights

• A percentage‑based R&D tax credit calculated on qualifying R&D expenditure.
• Credit rates and refundability to be confirmed by Ministerial Decision.
• Access to the regime will require prior approvals from the UAE R&D Council.
• Applies to tax periods beginning on or after January 1, 2026.
• Free Zone Persons can qualify, but access is not automatic, the Decision builds in additional conditions for Free Zone claimants.
• Qualifying costs include personnel costs, consumables costs, subcontracting fees and must be properly attributable to qualifying UAE R&D activity, with an AED 500K minimum spend per project.
• Credit may be used to settle both Corporate Tax and Top‑up Tax, signalling that the incentive is being designed in the context of Pillar Two outcomes.

What We Now Know (From the Cabinet Decision)

Who Can Claim

• The regime is aimed at eligible entities that are subject to UAE Corporate Tax and/or the UAE Top-Up Tax and that undertake qualifying R&D activities in the UAE.
•  It is also relevant for foreign groups where qualifying R&D is undertaken through a UAE Permanent Establishment, to the extent the UAE taxes the PE’s income under Corporate Tax and/or Top-Up Tax .

Who Cannot Claim?

• Entities that are not subject to Corporate Tax or Top-Up Tax.
• Businesses claiming Small Business Relief (SBR) under Article 21.

What Is Considered Qualifying R&D 

R&D is framed broadly as creative and systematic work intended to increase knowledge and to develop new applications.

•  “Qualifying R&D activity” is explicitly tied to a Ministerial Decision setting the detailed requirements, so the final technical requirements have not been detailed yet.
•  “Qualifying” is also linked to an R&D project with clear objectives and expected outputs (i.e., it is project‑based, not a vague “business‑as‑usual” label).

Qualifying Expenditure Categories

The Decision sets the main eligible cost categories (subject to further definitions and clarification through a Ministerial Decision):

• Personnel costs
• Consumables
• Subcontracting fees
• Cost contribution arrangements (share of contributions, subject to arm’s length principle)
• Plus, any other categories the Minister may add

Certain costs in the categories above may also qualify even if they are capitalized (rather than expensed) under accounting standards as internally developed intangibles arising from qualifying R&D. 

The Expenditure Must Meet the Following Requirements:

•  Wholly and exclusively for qualifying R&D (or properly apportioned)
• Deductible (except for the specific capitalized category noted above)
•  Not grant‑funded (no portion financed directly or indirectly by a government grant to the extent recorded in the accounts)
•  No double dipping (cannot be subject to any other UAE incentive/balance/exemption/facility)

There is a clear minimum spend threshold, and eligible R&D expenditure must be at least AED 500,000 per R&D project per tax period/fiscal year (excluding any personnel‑cost uplift that may later be permitted by Ministerial Decision).

Conditions To Access the Credit 

•  A minimum R&D employee participation threshold (to be set by the Minister).
• Prior approval from the R&D Council and ongoing compliance with the Minister/Council/Authority requirements
• The claimant must bear the financial burden of the qualifying R&D activities.
• The claimant must benefit from a share of the returns/outcomes from exploiting results (including IP/results transfer/rights/use).
• The project must genuinely aim to increase knowledge or to innovate new applications, and the activities must be carried out directly for that purpose.

Claims and Timing 

• The claim is made through the Corporate Tax return or the DMTT return (as applicable) for the period/year in which the eligible R&D expenditure was incurred.
•  The Decision sets out a clear documentation expectation:
  • Proof of prior Council approval.
  • A senior management signed declaration confirming accuracy.
  • A detailed schedule of eligible R&D expenditures, in the format required by the Authority.
  • Audited financial statements.
  • Plus, any additional information the Minister requires.
• Late claims are not considered unless the Authority accepts them as exceptional cases.

Pillar Two/DMTT (What This Means and What Is Still Uncertain)

This is the part many large groups will care about most, and it is where the Decision is helpful but not yet conclusive.

 What Is Clear

The Decision explicitly contemplates the credit being used against Top‑up Tax liabilities as well as Corporate Tax. That is a strong signal that the UAE is designing the incentive with Pillar Two realities in mind, not as a solely “Corporate Tax only” relief.

What Is Not Yet Clear

Under the OECD Pillar Two rules, the way a tax credit affects the effective tax rate depends heavily on whether it is treated as a refundable credit, a qualified refundable credit, or a non‑refundable credit (and on the timing/conditions of any refund).

The Decision does not yet specify whether the UAE credit will be refundable or non‑refundable. That single design feature can materially change Pillar Two outcomes:

• A structure that is treated more like a “qualified refundable” credit can, in many cases, be more Pillar Two‑efficient than a credit that simply reduces covered taxes.
• A non‑refundable credit that reduces taxes payable can lower the UAE effective tax rate for Pillar Two purposes and potentially increase top‑up exposure elsewhere, depending on the group’s overall profile and how the DMTT operates in practice.
• If the credit is ultimately refundable (and structured to meet Pillar Two “qualified refundable” style criteria), the Pillar Two ETR impact may be more predictable and potentially more favourable; if it is non‑refundable, it is more likely to operate as a reduction to covered taxes (lowering UAE ETR), which could increase Top‑up Tax exposure depending on the group’s position and how the UAE Top‑up Tax rules apply.

Please note the Ministry of Finance has indicated that this design is expected to support a more predictable Pillar Two ETR outcome. Usually under Pillar Two mechanics, non‑refundable credits are treated as a reduction to covered taxes, so the position will need to be assessed once the final design and guidance are issued.

Key Takeaways

• The legal framework is now in place, but the most important headline detail - the percentage rate and whether it is refundable - is still pending a Ministerial Decision.
• The regime is clearly being designed with Pillar Two/DMTT interaction in mind, including the ability to apply the credit to Top‑up Tax, but the Pillar Two impact cannot be finalized until the refundability and mechanics are confirmed.
• Pre‑approval and documentation appear to be central, so businesses should not wait for the rate announcement before starting internal readiness work.
• Once the Ministerial Decision is issued, businesses should consider the IAS 20 vs. IAS 12 assessment early, as this can affect presentation (above‑the‑line vs. tax line), the timing of recognition, and key performance metrics.

Final Thoughts

This Decision is a meaningful step toward implementing a UAE R&D incentive that is intended to reward genuine UAE‑based innovation and to align the UAE with leading international approaches. The next major milestone is the Ministerial Decision setting the credit rate(s), refundability and detailed qualifying criteria, and that will be the point at which businesses can quantify value and Pillar Two outcomes with confidence.

How A&M Can Help

Alvarez & Marsal can support businesses at each stage of this rollout, including:

• Identifying and mapping candidate R&D projects that are likely to meet the UAE criteria (and are capable of passing a Council pre‑approval process).
• Designing practical processes to capture technical narratives and cost data throughout the year, aligned to expected record‑keeping and claim requirements.
• Reviewing contract structures to confirm that the entity bearing the cost and benefiting from outcomes is the entity positioned to claim.
• Modelling scenarios for Corporate Tax and Pillar Two (including DMTT interaction) once the Ministerial Decision is issued, to help businesses understand ETR and cash‑flow implications.
• Building a claim-ready documentation pack and governance approach so the first filing cycle runs smoothly.

We will be organizing a webinar to discuss the R&D scheme in further detail. Please email your usual A&M contact to be invited.