The UAE is to offer corporate tax incentives to companies for spending on research and development under a new scheme aimed at boosting the country's innovation ecosystem.
As part of the first phase of the research and development tax incentives programme, businesses can benefit from a non-refundable R&D tax credit of up to 50 per cent on qualifying expenditure of up to Dh5 million ($1.36 million), the Ministry of Finance said on Wednesday.
Non-refundable tax credits reduce the amount of tax paid, but will not be refunded if the tax amount is less than the credit offered.
The first phase takes immediate effect, with the decision applying to tax periods or fiscal years commencing on or after January 1, 2026.
During the next phase, the ministry said it will also consider offering a refundable credit and/or expanding the level of qualifying expenditure eligible for relief, either across the economy or within priority sectors.
Further details on phase 2 will be announced in due course, the ministry said.
The measure is designed to “encourage private-sector investment in research and innovation, while supporting the UAE’s ambition to become a global hub for advanced industries and emerging technologies”, its statement said.
The initial design of the incentive takes into account recent developments under the OECD Pillar Two framework, “recognising that in the current international tax environment, a non-refundable credit is expected to deliver a more favourable and predictable effective tax rate outcome for companies operating in the UAE”.
The ministry said it will monitor the uptake, assess behavioural and economic impact, and gather the data from the first phase to decide on future policy.
The UAE imposed value-added tax (VAT) at a rate of 5 per cent in 2018 and corporate tax at 9 per cent in 2023 as part of its plans to diversify its economy. Companies with an income exceeding Dh375,000 are within the corporate tax bracket. Taxable profits below that level are subject to a levy of zero per cent.
From January 2025, the UAE also implemented a domestic minimum top-up tax of 15 per cent on large multinational companies in line with OECD’s corporate tax guidelines.
