Entity Setup
Structuring R&D Investments in the UAE Under the New Tax Credit Regime
Leverage the UAE’s non-refundable R&D tax credit to invest in innovation with clear strategies for setup, eligible expenditures, and future phases.
By NomadicTax Research Team • 5-8 min read • August 17, 2026
## Introduction
To drive innovation and high-value industries, the UAE introduced its **Research & Development Tax Incentives Programme** (“Phase 1”) in **March 2026**, offering businesses a **non-refundable tax credit up to 50%** on qualifying R&D spending (capped at AED 5 million expenditure under Phase 1). ([mof.gov.ae](https://mof.gov.ae/en/news/uae-launches-phase-1-of-research-and-development-tax-incentives-programme/?utm_source=openai))
## Eligible Entities and Activities
- Businesses subject to **Federal Corporate Tax** (i.e. UAE companies and branches) undertaking qualifying R&D.
- Qualifying expenditure includes in-house research, partnerships with research institutions, R&D staff costs, consumables, prototypes, and similar innovation costs.
- Phase 1 is designed as a **non-refundable** credit; meaning, any unused credit cannot be rebated but may reduce corporate tax liability. Subsequent phases may introduce **refundable credits** or expanded sub-caps. ([mof.gov.ae](https://mof.gov.ae/en/news/uae-launches-phase-1-of-research-and-development-tax-incentives-programme/?utm_source=openai))
## Strategic Considerations
- **Plan for CAGR of R&D spend**: known cap of AED 5 million in Phase 1—companies expecting larger spend should try to time or split projects across phases.
- **Documentation & eligibility**: rigorous documentation required—clear scope, timelines, approvals; avoid grey areas that could lead to disallowance.
- **Cost allocation**: separate R&D spend from overhead, ensure accounting standards track project-level costs.
## Example Scenario
A tech company invests AED 4 million in product R&D in Abu Dhabi during 2026. Under Phase 1, it could claim **50% credit (AED 2 million)** against its corporate tax owed. If its tax liability is AED 3 million, it reduces to AED 1 million—but unused credit cannot be refunded beyond tax payable.
## Looking Ahead
The UAE has signaled that **Phase 2** could expand credit eligibility, possibly making it **refundable**, expanding thresholds or sector focus. As such, early engagement and feedback during Phase 1 is valuable. ([mof.gov.ae](https://mof.gov.ae/en/news/uae-launches-phase-1-of-research-and-development-tax-incentives-programme/?utm_source=openai))
## Action Steps for Investors
1. Identify or partner on R&D projects before the end of 2026 to maximize Phase 1 benefits.
2. Set up robust accounting and project tracking systems for eligible R&D costs.
3. Review contracts with universities or labs to ensure qualifying arrangements.
4. Monitor for Phase 2 changes—especially if refundable status or broader caps are introduced.
## Conclusion
While Phase 1 offers strong incentives, being non-refundable and capped means businesses should strategically plan both their investment and structure to fully benefit—and prepare for enhancements in the second phase.