Companies can now reduce their corporate and domestic minimum top-up tax liability by claiming a credit against “eligible” R&D expenditure, after the Finance Ministry rolled out tax breaks for companies doing R&D, according to a press release. The tax incentive program will be rolled out in phases, and will apply on the tax period starting from 1 January, 2026, according to Alvarez and Marsal.

In the first phase of the program, firms that invest in scientific or technological advancements — think sectors like biotech, fintech, and advanced manufacturing — can lower their effective tax rate by up to 50% by claiming a non-refundable credit, capped at AED 5 mn, on qualifying spend.

There’s rules… and thresholds: The credit is tiered, meaning the first AED 1 mn of spend gets a 15% credit, the next gets 35%, and the final AED 3 mn gets 50%. You also cannot spend your way to a lower tax rate alone. You must meet a 14-person R&D headcount to unlock the 50% credit tier. If you have the spend but only five staff, your entire claim is capped at the 15% tier.

What qualifies as R&D spend? Salaries (including a 30% uplift for overheads), consumables, and sub-contracting fees.

What’s next: A second phase is already on the table, and could include a refundable credit and potentially broader eligibility for what counts as qualifying expenditure.

Why does a refundable credit matter? A refundable credit allows companies — especially ones that pay heavy R&D expenses like startups that have yet to become profitable — to receive a rebate if their R&D spend qualifies them for a tax credit that’s larger than their current tax bill. Under the first phase, the non-refundable credit only allows them to pay zero tax in that case, with the remaining amount possibly carried forward to the next year.

ICYMI- Tax incentives for R&D have been under consideration for a while now — and the latest move signals that the UAE continues to double down on economic diversification efforts by focusing on advanced sectors like tech and AI.

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