The United Arab Emirates has announced the launch of the first phase of its “Tax Incentive Program for Research and Development,” a significant initiative aimed at establishing the country as a conducive environment for innovation and fostering sustainable economic growth based on knowledge.
In this initial phase, companies can benefit from a non-refundable tax credit of up to 50% on eligible research and development expenses, capped at five million dirhams. This incentive aims to encourage the private sector to invest in research, development, and innovation, aligning with the country’s vision of becoming a global hub for advanced industries and future technologies.
This incentive also takes into account recent developments in the global tax landscape, particularly in accordance with the OECD’s “Pillar Two” framework. The introduction of the non-refundable tax credit is expected to provide a more stable and transparent effective tax rate for businesses operating within the current global tax environment.
Implementing a non-refundable credit model, characterized by flexible management and ease of application, underscores the modernization of the UAE’s corporate tax system. Accordingly, the first phase of this incentive has been structured to deliver immediate and tangible support for companies engaging in genuine research and development activities. Simultaneously, the Ministry of Finance will monitor how well the incentive is utilized, assess its behavioral and economic impacts, and gather data necessary for future policy development related to the program.
The outcomes from this phase are expected to guide the design of the program’s second phase. The Ministry of Finance will evaluate the potential expansion of incentives, including the possibility of introducing a refundable tax credit or increasing the cap on eligible expenses—either broadly or for priority strategic sectors. Further details regarding the second phase will be announced in due course.
By adopting this well-considered approach, the UAE reaffirms its commitment to developing a competitive tax system that is transparent and aligned with best practices and international standards, thereby supporting innovation, attracting investments, and accelerating the country’s sustainable economic transformation.