The UAE’s Phase 1 Research and Development Tax Incentives Programme introduces a non-refundable credit on qualifying R&D expenditure. The credit can reach 50% for the highest qualifying band, but it is not a flat 50% benefit on every project or every dirham spent. Expenditure bands, R&D staff thresholds and the statutory conditions all matter.
The official Ministry of Finance announcement says Phase 1 covers qualifying expenditure up to AED 5 million. Ministerial Decision No. 24 of 2026 sets the graduated rates and average R&D-staff requirements. Businesses should read the legal decisions and obtain advice for their own facts rather than treating this guide as a claim calculation.
Phase 1 rates at a glance
| Qualifying expenditure portion | Average R&D staff threshold | Credit rate |
|---|---|---|
| First AED 1 million | At least 2 | 15% |
| Above AED 1m up to AED 2m | At least 6 | 35% |
| Above AED 2m up to AED 5m | At least 14 | 50% |
| Above AED 5 million | Outside the announced Phase 1 cap | Review future rules |
| Credit form | Non-refundable | Apply subject to the legal conditions |
Begin with the activity, not the job title
A team called “innovation” does not automatically conduct qualifying R&D, and an ordinary product update does not qualify merely because it is new to the company. Document the technological or scientific uncertainty, the planned investigation, tests, failures and conclusions. The project file should show what was not readily knowable and how the team tried to resolve it.
Use our UAE business expense records guide to organise invoices and approvals. The e-invoicing record-storage guide helps align project evidence with the broader tax file.
- Define the R&D question and project period.
- Identify qualifying activities separately from routine work.
- Track staff time using a consistent, reviewable method.
- Link payroll, contractor and material costs to the project.
- Retain test plans, results, failures and technical decisions.
- Reconcile the claim schedule to the general ledger.
- Obtain tax advice before filing a material claim.
Understand the staffing thresholds
Ministerial Decision No. 24 defines R&D Staff by reference to full-time or full-time-equivalent employees and externally provided workers who are directly and actively engaged in qualifying activities and meet the stated conditions. A headcount list alone is not enough. Keep contracts, roles, time records and evidence of direct technical contribution.
Do not count administrative support simply because it sits in the same department. Where an employee divides time, document the allocation method. Our UAE e-invoicing compliance guide illustrates the evidence controls that tax files need.
Apply the bands carefully
The rates apply to portions of qualifying expenditure within corresponding thresholds, subject to the staff condition for each band. A business should not multiply the entire AED 5 million by 50%. Build a calculation that shows each band, the staff test, excluded costs and the resulting non-refundable credit.
Tax Groups and related entities should confirm how the threshold applies to the qualifying entity or group. Use our UAE beneficial-owner records guide to separate legal entities and ownership relationships, but rely on the tax legislation for final treatment.
Prepare for review
A defensible file should let a reviewer follow the project from technical uncertainty to expenditure schedule. Keep dated documents created during the work, not only a narrative written after year-end. Reconcile supplier invoices, payroll, asset use and allocations, and record why each cost was included or excluded.
Where a cost also appears in VAT records, keep the tax evidence consistent using our UAE VAT invoice guide. For corrections, read the UAE VAT correction guide without assuming that an R&D claim automatically changes a VAT position.
Questions people often ask
Is the UAE R&D tax credit refundable?
Phase 1 is described as a non-refundable credit.
What is the maximum qualifying expenditure in Phase 1?
The announced maximum is AED 5 million per qualifying entity or Tax Group for the relevant period, subject to the decisions.
Does every business receive a 50% credit?
No. Rates are graduated by expenditure band and depend on the applicable R&D-staff threshold and other conditions.
Can external workers count as R&D staff?
The decision can include full-time-equivalent externally provided workers when they are directly and actively engaged and meet the legal conditions.
What evidence should a business retain?
Keep technical project records, staff-time evidence, contracts, payroll, invoices, allocation methods, calculations and ledger reconciliations.
