The growth of any society depends on the quality of research and development that leads to innovation. In the UAE, the government aims to provide benefits and reliefs to firms, leading to high-tech advancements. One such relief is in the form of tax incentives. Taxation responsibilities have a significant impact on businesses in monetary terms; therefore, a reduction in tax liability fosters growth due to a lower tax burden. In this blog, we aim to discuss tax incentives for R&D in the UAE and how they create opportunities for businesses in the region.
Tax Incentives for R&D in the UAE: Opportunities under New Corporate Tax Law
Research and development (R&D) is the core of sustainable growth, innovation, and investment. So, what is R&D? Let’s touch on some basics here.
What is R&D?
In simple terms, research and development provide information to businesses to create new products, processes, or technologies or improve the existing ones. Although the process is not simple, it is a systematic way of investigating, innovating, and experimenting. So, what does it bring? R&D brings improvements and advancements, thus leading to innovation and new opportunities in the market. As a result, it is a tool for the sustainable growth of the overall economy.
R&D Opportunities under New Corporate Tax Law
The current version of the corporate tax law does not provide clear information on tax incentives for R&D in the UAE. However, the UAE government aims to update the law through amendments. The Ministry of Finance announces amendments to the corporate tax law. The following incentives are expected to be in effect from January 2026. However, the exact dates will be available once legislation is in place.
R&D Tax Credit
To promote sustainable growth and innovation, a research and development (R&D) tax incentive is being proposed. This is as per the public consultation during April 2024 and is expected to be applicable from tax periods starting on and after 1 January 2026.
The tax credit will be an expenditure-based relief. The incentive will offer a 30%-50% tax credit and will be refundable depending on the revenue and number of employees of the UAE business. The qualifying research and development activities to claim the incentive will be as per the OECD’s guidelines of the Frascati Manual.
Refundable Tax Credit
The other proposed incentive for research and development is a refundable tax credit. This is mainly for high-value employment activities. The objective of this tax incentive is to promote growth and innovation and encourage businesses that promote such practices. The ultimate goal is to enhance the global competitiveness of UAE businesses.
The tax credit will be available as a percentage of employment costs (salaries) for personnel engaged in high-value employment activities. For instance, C-suite executives and other senior employees involved in core business activities are adding substantial value to the UAE economy.
The point worth noting here is that the above incentives are not yet final. They are subject to final legislative amendments and approvals.
Impact of R&D Tax Incentives on UAE Businesses
Apart from benefits to the overall UAE economy, there will be massive benefits for UAE firms. Let’s highlight some key benefits briefly.
Higher Profitability
The introduction of tax incentives will ultimately lower the tax liability and thus increase the net income (profitability). Apart from the incentives discussed above, the UAE offers numerous reliefs for small businesses and start-ups. Furthermore, expenses wholly and exclusively for business purposes are also tax deductible.
Innovation & Growth
The tax incentives for R&D directly impact businesses that are innovative and believe in sustainable growth. The monetary benefits in the form of tax incentives, reliefs, and deductions ultimately lower the effective cost of innovation. Therefore, firms will now be able to take more risks, and there will be higher chances of innovation-led growth.
Global Tech Hub
The tax-friendly practices and policies will attract global players in the field of technology and other innovative businesses in the UAE. The result will be a growing economy and thus attractive to every business.
Conclusion
The UAE aims to bring tax incentives for R&D through amendments to the corporate tax law. This will create opportunities for businesses, especially in tech and innovation. There are two proposed tax incentives: the R&D tax credit and the refundable tax credit. Both of these incentives will promote sustainable growth, innovation, and investments. However, these will be available only upon regulatory confirmation. Firms operating in the UAE will benefit from opportunities such as higher profitability, innovation-led growth through a lower tax cost, and a lower cost of innovation.
Creative Zone Tax & Accounting (CZTA)
At our core, we are committed to growth and innovation — both for our firm and for your business. We work diligently to maximize the benefits available to our clients while ensuring full compliance with the law. The UAE offers significant advantages, including various tax reliefs for small businesses, startups, and more, and we are here to help you leverage them effectively. Contact us today to discuss optimising your tax liabilities.
