The United Arab Emirates’ first research and development tax credit is now in force, offering credits of up to 50% on eligible spend. But most businesses that could claim it probably won’t—and the reason is rarely a shortage of qualifying work.
Few firms recognize their own activity as R&D, fewer understand how the incentive is structured, and none have tested the pre-approval process that stands between them and the credit. That process is the immediate problem.
The Emirates Research and Development Council, which must approve every project, hasn’t yet opened its application portal or published its timelines, even though the tax period that applies to the first claims is already running.
Waiting for the portal to open is the wrong instinct. Pre-approval is granted on a project-by-project basis and can’t be secured after the fact.
Multinational groups face an additional layer of complexity. Qualifying activity alone doesn’t guarantee a meaningful benefit. Intragroup arrangements and the interaction with Pillar Two can materially affect the ultimate value, making early modeling and structuring analysis essential.
There are ways businesses can build records now to support a future claim while the behind-the-scenes portal work is happening:
Recognize the work you already do. The first barrier is perception. Many UAE businesses still picture R&D as involving laboratories and patents, when the test is far broader. According to the Frascati Manual, an activity must satisfy five criteria to be considered R&D: It must be novel, creative, uncertain in outcome, systematic, and transferable or reproducible.
A firm writing proprietary software, testing new materials, building predictive models, or engineering past a problem with no off-the-shelf answer is already carrying out relevant activities. It simply had never labeled its work that way.
The first move isn’t to read the legislation; it’s to audit the technical challenges the business already seeks to overcome day to day, then test each against the five Frascati criteria.
Know how the credit is structured. The incentive is a credit, not a super-deduction, and that distinction shapes how a business should plan for it.
The credit offsets corporate tax and, where it applies, domestic minimum top-up tax, but it’s non-refundable and in this first phase can’t produce a cash refund. A profitable company sees a direct cut in tax payable. A pre-profit company can carry the benefit forward or transfer it within a qualifying group. Model the entity’s tax position before assuming the credit will release cash this year.
Plan around the pre-approval bottleneck. This is where most claims will be won or lost. Some tax regimes let businesses self-assess; the UAE requires pre-approval for each project before the credit is available, and no approval means no credit, however strong the underlying work. With the council’s procedures still unpublished, the prudent assumption is that the queue will only lengthen once the portal opens.
Track eligible costs and activities from the start of each project, keep the technical narrative current as the work progresses, and have the claim ready to file the moment approval allows, rather than reconstructing it at year end.
Watch the traps for multinationals. Two features can shut a group out. Intra-group transactions don’t qualify, so a group that recharges R&D staff through intercompany arrangements may be excluded by structure alone. And where a UAE entity joins a cost contribution arrangement, only its arm’s-length share of UAE-based R&D counts. Before claiming, a group should test whether a centralized R&D model still pays once the credit is in play.
There is a catch for large multinational groups. Global rules require them to pay an effective tax rate of at least 15% in every country where they operate. Because this credit cuts the tax a group pays in the UAE, it can push that rate below that threshold, and the UAE can then take the difference back through its domestic minimum top-up tax, wiping out some or all of the benefit.
The Organization for Economic Cooperation and Development has a rule that would protect real incentives from this, but the UAE hasn’t adopted it. So before claiming, a group of this size should check whether the credit it wins in one place is simply collected back in another.
Headcount, not just spend, sets the rate. The credit runs in three tiers—15%, 35%, and 50%—but each rate demands both a minimum spend and a minimum average R&D headcount. The first 1 million UAE dirham ($272,000) earns 15% with at least two R&D staff; the next 1 million to 2 million UAE dirham earns 35% with at least six staff; and a 2 million to 5 million UAE dirham earns 50% with at least 14 staff.
Fall short on headcount and the rate drops to the highest tier at which both tests are satisfied. The gap between clearing a threshold and missing it can be worth a large amount.
For the lean teams common across the UAE, that turns workforce planning into tax planning. Staff costs carry a 30% uplift in qualifying expenditure to recognize overheads reasonably attributable to the undertaking of qualifying R&D activities, which rewards hiring R&D people directly.
Conversely, staff recharged from another group member and employee stock-options are both specifically excluded. Any multinational that runs R&D through a central hub should therefore look hard at where its people actually sit.
What to Do
The Ministry of Finance calls this Phase 1 and has signaled that Phase 2 may bring refundable credits and wider eligibility. That’s worth watching, but it does nothing for the first filing cycle, which is the one that counts right now.
Map qualifying activities, organize spending into the right cost categories, build technical records as the work happens, and open a line to the council early. The seven-year record-keeping requirement is the clearest signal of intent, because evidence of that kind can’t be assembled after the fact.
The key question is whether businesses will build the processes early enough to capture the credit before the first claims are due.
This article does not necessarily reflect the opinion of Bloomberg Industry Group Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.
Author Information
Nimish Goel is leader, Middle East at Dhruva, Ryan LLC Affiliate, where he advises multinational companies on corporate tax, international tax, and R&D tax credit strategies across the Gulf region.
Fran Wilhelm is an associate partner at Dhruva, Ryan LLC Affiliate, leading R&D tax advisory, drawing on over a decade of specialist experience in innovation incentives across the UK and global markets.
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