UAE Introduces Legislation for R&D Tax Credits

The United Arab Emirates has published its long-awaited legislative framework for a new Research and Development (R&D) tax credit, set to integrate with the existing UAE Corporate Tax regime. The newly released Cabinet Decision establishes a structure for an R&D "tax credit balance" that can be applied to settle UAE Corporate Tax obligations and potentially UAE Top-up Tax under Pillar Two rules.

While the decision confirms that the incentive will be calculated as a percentage of qualifying R&D expenditure, crucial details such as the exact percentage rates, conditions for different rates, and whether the credit will be refundable or non-refundable are deferred to a future Ministerial Decision. Until these specifics are clarified, the ultimate value of the incentive and its implications for global tax frameworks remain uncertain.

The framework released outlines a percentage-based credit on qualifying R&D spending. Separately, the Ministry of Finance has indicated a "Phase 1" approach potentially offering a non-refundable credit of up to 50% on qualifying expenditure capped at AED 5 million. However, these parameters are not yet codified in official decisions and should be treated as policy direction rather than final terms.

Access to the R&D tax credit regime will necessitate prior approval from the UAE R&D Council. The credit is intended for eligible entities subject to UAE Corporate Tax or Top-up Tax undertaking qualifying R&D activities within the UAE. Qualifying expenditure categories include personnel costs, consumables, and subcontracting fees, with a minimum spend of AED 500,000 per R&D project per tax period.