On March 18 2026, the United Arab Emirates’ Ministry of Finance issued Ministerial Decision No. 24 of 2026, giving operational effect to the R&D tax credit regime established under Cabinet Decision No. 215 of 2025. With a headline rate of 50% on qualifying expenditure – the highest in the Gulf Cooperation Council (GCC) – the regime introduces significant transfer pricing (TP) obligations that go well beyond a straightforward tax credit claim.
This article identifies and analyses ten TP takeaways for multinational groups operating in the UAE.
Legislative framework
The UAE R&D tax credit sits within a four-layer statutory architecture. Each layer carries distinct TP-relevant provisions, and advisory analysis must account for the full stack.
Federal Decree-Law No. 47 of 2022 (the UAE Corporate Tax Law) – primary statute;
Federal Decree-Law No. 28 of 2025 (Amendment) – inserted Article 49bis; statutory basis for R&D tax credit;
Cabinet Decision No. 215 of 2025 – defined qualifying entity, expenditure categories, utilisation rules, and claw-back provisions; and
Ministerial Decision No. 24 of 2026 (March 18 2026) – implementing regulation; tiered rates, staff thresholds, pre-approval, cost contribution arrangement (CCA) pricing, and record-keeping.
The TP-relevant provisions are concentrated in articles 8 to 15 of Ministerial Decision No. 24 of 2026 – covering qualifying expenditure categories, CCA conditions, subcontractor pricing, carry-forward mechanics, and the anti-abuse claw-back. These articles operationalise the arm’s-length standard directly within the credit computation framework.
Unlike many incentive regimes where TP is a secondary consideration, the UAE R&D tax credit makes TP compliance a condition precedent to credit qualification.
Credit structure: the dual threshold test
The credit operates on a tiered structure under Article 2 of Ministerial Decision No. 24 of 2026. Both a qualifying expenditure threshold and a qualifying headcount threshold must be satisfied simultaneously. Failure to meet either threshold causes the applicable rate to step down – not just cap out. The dual-threshold design has direct TP implications: the headcount requirement cannot be satisfied through intra-group secondments recharged from other tax group members.
TIER 1 15% credit rate | TIER 2 35% credit rate | TIER 3 50% credit rate |
First AED 1 million on qualifying expenditure Minimum two R&D full-time employees (FTEs) | AED 1 million–2 million on qualifying expenditure Minimum 6 R&D FTEs | AED 2 million–5 million on qualifying expenditure Minimum 14 R&D FTEs |
Maximum annual credit: AED 2 million · Non-refundable (Phase 1) · Five-year carry-forward available | ||
Illustrative computation: AED 5 million R&D spend
The following example illustrates how the credit is computed, applied, and interacts with the pillar two domestic minimum top-up tax (DMTT) framework for a multinational enterprise (MNE) group with AED 5 million in qualifying R&D expenditure (QRE) and 14 or more R&D FTEs in the UAE.
QRE | Amount | Article reference |
Staff costs – direct UAE employees | AED 2 million |
|
30% overhead uplift on staff costs | AED 600,000 | Article 8(1) |
Consumable materials | AED 800,000 |
|
UAE subcontractor fees (arm’s length) | AED 400,000 | Article 10 |
CCA contribution (arm’s length, proportionate) | AED 1,200,000 | Article 11 |
Total QRE | AED 5 million |
|
| ||
Credit computation (tiered) |
| |
First AED 1 million × 15% (two R&D staff) | AED 150,000 | Tier 1 |
AED 1,000,001–2 million × 35% (six R&D staff) | AED 350,000 | Tier 2 |
AED 2,000,001–5 million × 50% (14 R&D staff) | AED 1,500,000 | Tier 3 |
Total credit computed | AED 2 million | Statutory cap applied |
| ||
Utilisation – priority order |
|
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Step 1: offset against corporate tax (CT) liability | AED 1,800,000 | CT liability assumed |
Step 2: residual credited against DMTT | AED 200,000 | Pillar two interaction |
Carry-forward of unutilised credit (maximum of five years) | — | Continuity conditions apply |
In this scenario, the group achieves the maximum AED 2 million credit. However, if the entity is part of a group within scope of pillar two, the non-qualified refundable tax credit (NQRTC) reduces adjusted covered taxes and directly impacts the UAE effective tax rate (ETR) computation. Groups with a UAE ETR close to 15% must model this impact before claiming.
Ten TP takeaways
The following ten takeaways represent the most consequential TP considerations arising from the regime. Each is grounded in the provisions of Ministerial Decision No. 24 of 2026 and Cabinet Decision No. 215 of 2025, cross-referenced against the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (the OECD TP Guidelines) and the OECD Global Anti-Base Erosion Model Rules (the GloBE Rules).
1 CCA contributions are explicitly arm’s length – and that is non-negotiable
The provision
Article 11 of Ministerial Decision No. 24 of 2026 establishes that CCA contributions qualify as QRE only where two cumulative conditions are satisfied:
The contribution must be priced at arm’s length; and
It must be proportionate to the qualifying entity’s expected share of benefit from the arrangement.
Why it matters
Many UAE entities participate in global R&D cost-sharing arrangements structured around intangible property (IP) consolidation or tax efficiency rather than commercial benefit proportionality. The ministerial decision imposes a binary test: if CCA pricing is not demonstrably arm’s length, or the benefit share does not align with the contribution, the entire CCA contribution is excluded from QRE – not merely the excess.
The practical consequence
Groups with existing CCAs must immediately review pricing methodology and benefit allocation documentation. A CCA contribution of AED 2 million that fails the arm’s-length test produces zero credit on that element – turning a potential AED 1 million credit into a complete disallowance.
Participant A UAE qualifying entity | CCA contribution Arm’s-length price + proportionate benefit share ✔ Qualifies as QRE | Participant B Group entity |
If pricing is not arm’s length or benefit share is disproportionate → entire contribution is disqualified | ||
OECD reference: OECD TP Guidelines 2022, Chapter VIII: Cost Contribution Arrangements (benefit test, arm’s length contribution, and service CCA conditions).
2 Intra-group staff cost recharges are entirely disqualified
The provision
Article 8(2) of Ministerial Decision No. 24 of 2026 explicitly excludes from QRE any staff costs recharged from other members of a tax group. This is an absolute exclusion – there is no safe harbour, no de minimis threshold, and no proportional apportionment.
Why it matters
Many MNE groups operate centralised shared service centres where R&D employees are employed by a parent or regional holding entity and their costs recharged to UAE operating entities via management fee or cost-plus arrangements. Under the regime, all such recharged costs – regardless of the arm’s-length mark-up applied – are excluded from QRE.
The practical consequence
Groups planning to maximise the credit must ensure R&D staff are directly employed by the UAE qualifying entity, not seconded or recharged. This has immediate HR and payroll structure implications. A group that discovers post-year-end that its primary R&D staff costs are recharged – not direct – will find its QRE base dramatically reduced.
Regulatory anchor: Ministerial Decision No. 24/2026, Article 8(2); Cabinet Decision No. 215/2025, Article 6.
3 Related-party subcontractor fees require arm’s-length pricing and audited financials
The provision
Article 10 of Ministerial Decision No. 24 of 2026 permits subcontracting fees to qualify as QRE only if:
The R&D activity is conducted within the UAE;
The subcontractor is not another member of the same tax group;
The fee satisfies the arm’s-length standard under Article 34 of the UAE Corporate Tax Law; and
Where the subcontractor is a related party, it maintains audited financial statements.
Why it matters
The combination of arm’s-length pricing and audited financial statement requirements creates a dual evidentiary burden. The arm’s-length condition means groups cannot simply pay a related-party UAE subcontractor any amount – the price must be benchmarked and defensible. The audited financials requirement adds an additional layer: related-party subcontractors without audited accounts disqualify the entire fee.
The practical consequence
Groups must audit all R&D subcontracting arrangements:
Identify related versus unrelated parties;
Confirm all work is UAE-based;
Ensure no tax group member is used as a subcontractor;
Commission arm’s-length benchmarking; and
Verify subcontractor audit status.
Regulatory anchor: Ministerial Decision No. 24/2026, Article 10; UAE Corporate Tax Law, Article 34.
4 The 30% staff cost uplift is available only for direct UAE employees
The provision
Article 8(1) of Ministerial Decision No. 24 of 2026 provides a 30% overhead uplift on the direct staff costs of qualifying employees and qualifying externally provided workers – covering administrative, overhead, and indirect costs without granular allocation. The uplift applies only to staff whose costs are not recharged from a tax group member.
Why it matters
The 30% uplift increases the QRE base without requiring entity-level overhead allocation documentation. However, the uplift only applies to genuinely direct UAE staff costs. Groups that attempt to include recharged staff and apply the 30% uplift on those recharged costs will find the base cost and the uplift disallowed.
The practical consequence
From a TP perspective, the 30% uplift reinforces the incentive to have R&D staff directly employed in the UAE. A group with AED 2 million in direct R&D staff costs gains an automatic AED 600,000 QRE uplift – potentially worth AED 300,000 in additional credit at the 50% tier. This structural advantage is only available through genuine UAE employment, not through cost-sharing or recharge structures.
Regulatory anchor: Ministerial Decision No. 24/2026, Article 8(1); Cabinet Decision No. 215/2025, Article 5.
5 IP ownership and DEMPE substance in the UAE are now financially material
The provision
While the ministerial decision does not use the term DEMPE explicitly, the R&D tax credit regime attaches to the entity performing R&D – not the entity owning the resulting IP. This creates a direct alignment with the OECD DEMPE framework: the entity that performs and controls R&D activities in the UAE should hold the economic rights to the resulting intangibles.
Why it matters
Groups that have historically separated IP ownership from R&D performance – consolidating IP in a foreign holding entity while UAE subsidiaries perform the actual R&D – now face a structuring decision. If the UAE entity performs R&D but transfers resulting IP without arm’s-length rigour, the FTA may challenge the economic substance of the UAE R&D activity itself and, by extension, the credit claim.
The practical consequence
Groups should conduct a DEMPE analysis of UAE R&D operations:
Map who controls, develops, maintains, protects, and exploits IP;
Align economic ownership with R&D substance; and
Document the arm’s-length nature of any post-R&D IP transfer or licensing arrangement.
The R&D tax credit amplifies the financial stakes of getting DEMPE right in the UAE.
OECD reference: OECD TP Guidelines 2022, Chapter VI: Special Considerations for Intangibles (DEMPE functions, Section D.2).
6 The credit is an NQRTC under pillar two – model before you claim
The provision
Under the GloBE Rules as implemented in the UAE via Cabinet Decision No. 142 of 2024, the Phase 1 R&D tax credit is classified as an NQRTC. NQRTCs reduce adjusted covered taxes in the GloBE computation, directly depressing the UAE ETR. The UAE Ministry of Finance explicitly designed Phase 1 as non-refundable to produce a more predictable ETR outcome for pillar two-in-scope groups.
Why it matters
A group with a UAE ETR of 16% that claims a large R&D tax credit may find its adjusted covered taxes reduced to a point where its UAE ETR falls below 15% – triggering a top-up tax obligation under the DMTT. The credit designed to reward R&D investment could, in certain ETR configurations, create a tax liability that partially or fully offsets the credit benefit.
Compute the UAE R&D tax credit claimed for the tax year;
Classify as NQRTC under Article 10.1 of the GloBE Rules;
Reduce adjusted covered taxes by the NQRTC amount and recalculate UAE ETR;
If the UAE ETR falls below 15% – DMTT obligation triggers, credit benefit is partially offset;
If the UAE ETR remains above 15% – no additional top-up tax, credit is fully effective;
R&D staff costs also contribute to substance-based income exclusion (SBIE) payroll carve-out, supporting the UAE ETR even after the NQRTC reduction.
The practical consequence
Every in-scope MNE group must model the credit’s pillar two impact before filing. This is not optional – it is a fiduciary obligation. TP advisers should integrate R&D tax credit modelling into the annual GloBE ETR projection exercise.
Regulatory anchor: GloBE Rules, Article 10.1; UAE DMTT regulations, Cabinet Decision No. 142 of 2024.
7 R&D staff costs produce a dual benefit under pillar two SBIE
The provision
Under the GloBE Rules, the SBIE carves out from the GloBE income base a percentage of eligible payroll costs and the carrying value of eligible tangible assets. The same R&D staff employed by a UAE qualifying entity to satisfy the R&D credit headcount thresholds also contribute to the UAE entity’s eligible payroll costs for SBIE purposes.
Why it matters
This dual benefit – R&D credit qualification and SBIE payroll carve-out – makes genuine UAE R&D employment the most tax-efficient form of workforce deployment in the UAE for in-scope MNE groups. Investing in UAE R&D headcount simultaneously delivers higher credit rates, a larger QRE base through the 30% overhead uplift, and an enhanced SBIE payroll carve-out that supports a higher UAE ETR even after the NQRTC reduction.
The practical consequence
TP advisers should quantify the aggregate pillar two benefit of UAE R&D employment – not just the credit upside. In many cases, the SBIE payroll benefit materially reduces the pillar two downside risk created by the NQRTC. This interaction must be modelled jointly, not sequentially.
OECD reference: GloBE Rules, articles 5.3 (SBIE) and 10.1 (QRTCs and NQRTCs).
8 Intra-group credit transfer within a tax group requires structured planning
The provision
Articles 13 and 14 of Ministerial Decision No. 24 of 2026 and articles 13 and 14 of Cabinet Decision No. 215 of 2025 permit the credit to be transferred within a domestic group or tax group, following a defined priority utilisation order: first offset against the qualifying entity’s own CT liability; then – if residual credit exists – transfer to reduce the DMTT of other group entities.
Why it matters
The credit must first be applied to exhaust the qualifying entity’s CT liability before any transfer is permitted. Groups that attempt to skip the CT-offset step and apply the credit directly to DMTT – or to another entity’s CT – will violate the utilisation priority. Unutilised credit carries forward for up to five years, but only under continuity conditions.
The practical consequence
Group tax teams must develop a coordinated credit utilisation model that maps expected CT liability by entity, identifies where DMTT offsets are available, and sequences the credit application to maximise net value. The five-year carry-forward provides planning runway, but only if UAE tax residency, non-migration to free zone status, and group continuity are maintained.
Regulatory anchor: Ministerial Decision No. 24/2026, articles 13–14; Cabinet Decision No. 215/2025, articles 13–14.
9 The five-year claw-back is a material M&A due diligence risk
The provision
Article 15 of Ministerial Decision No. 24 of 2026 and Article 12 of Cabinet Decision No. 215 of 2025 impose a claw-back of previously claimed credits if, within five years of a credit claim, the qualifying entity:
Migrates to qualifying free zone person status;
Becomes an exempt person;
Liquidates or dissolves;
Redomiciles outside the UAE; or
Undergoes a restructuring that causes it to cease being a qualifying entity.
Why it matters
The claw-back provision is a fundamental structuring constraint. Any M&A transaction involving a UAE entity that has claimed R&D tax credits must include a claw-back risk assessment as part of tax due diligence. The claw-back amount is the full credit previously claimed – not a proportional recovery – making it a significant contingent liability.
The practical consequence
TP practitioners involved in UAE M&A transactions – particularly restructuring of UAE innovation hubs, conversion of mainland entities to free zone status, or group-wide reorganisations – must integrate R&D tax credit claw-back exposure into deal pricing and warranty and indemnity negotiations. This is a new liability category that did not exist pre-2026 and will increasingly appear in UAE M&A tax indemnity schedules.
Regulatory anchor: Ministerial Decision No. 24/2026, Article 15; Cabinet Decision No. 215/2025, Article 12.
10 The seven-year documentation requirement is a new TP compliance pillar
The provision
Article 16 of Ministerial Decision No. 24 of 2026 mandates that all records, accounts, and documents relating to R&D activities, qualifying expenditure, pre-approval, and credit utilisation must be retained for a minimum of seven years from the end of the relevant tax year – mirroring the TP documentation retention standard under the UAE TP regulations.
Why it matters
The seven-year retention requirement transforms R&D tax credit compliance into a TP documentation obligation. The same documentation infrastructure – activity logs, expenditure records, pricing analyses, benefit allocation analyses – that supports a TP local file is now also required to defend an R&D tax credit claim. Groups that treat these as separate compliance streams will face duplicative effort and inconsistency risk.
The practical consequence
The most efficient approach is to integrate R&D tax credit documentation into the existing TP documentation framework. The three-tier structure below illustrates how TP documentation and R&D credit compliance can be unified into a single, audit-ready evidence stack.
Master file | · Group R&D policy and innovation strategy · Global IP ownership chart and DEMPE analysis · Group CCA framework and benefit allocation methodology |
Local file | · UAE qualifying entity R&D activity log · QRE computation workbook (staff + 30% uplift, consumables, subcontracting, CCA) · Arm’s-length benchmarking for CCA and subcontractor pricing · TP policy for related-party R&D transactions |
R&D technical file (seven-year retention) | · Project-level Frascati compliance evidence · Council pre-approval certificates · R&D activity records – progress, outcomes, methodology · Expenditure invoices, payroll records, CCA agreements |
Regulatory anchor: Ministerial Decision No. 24/2026, Article 16; UAE Corporate Tax Law, Article 53; UAE TP regulations, Ministerial Decision No. 97/2023.
TP risk matrix
The matrix below consolidates the principal TP risk areas arising from the regime, mapped against their regulatory anchors, exposure levels, and recommended advisory actions.
TP risk area | Regulatory anchor | Exposure | Advisory action |
CCAs | Ministerial Decision 24/2026, Article 11; OECD TP Guidelines, Chapter VIII | Critical | Arm’s-length pricing; benefit-cost proportionality documentation |
Intra-group staff cost recharges | Ministerial Decision 24/2026, Article 8(2); Cabinet Decision 215/2025 | Critical | Identify and exclude all tax group recharges from QRE |
Related-party subcontracting fees | Ministerial Decision 24/2026, Article 10(2); Corporate Law, Article 34 | High | Arm’s-length benchmarking; audited financials for related-party subcontractors |
IP ownership and DEMPE substance | OECD TP Guidelines, Chapter VI; Corporate Tax Law, Article 34 | High | DEMPE analysis; align economic ownership with UAE R&D performance |
Pillar two/DMTT ETR impact | GloBE Rules; DMTT regulations, Cabinet Decision 142/2024 | Critical | Model NQRTC impact on UAE ETR before claiming |
Benefit allocation in multi-entity groups | OECD TP Guidelines, Chapter VI; Ministerial Decision 24/2026, Article 11(1) | Medium | Document expected benefit share per entity; update annually |
Intra-group credit transfer ordering | Cabinet Decision 215/2025, articles 13–14; Ministerial Decision 24/2026, Article 13 | Medium | Sequence CT offset before DMTT transfer; coordinate with CT group filing |
Five-year claw-back on restructuring | Ministerial Decision 24/2026, Article 15; Cabinet Decision 215/2025, Article 12 | High | Integrate claw-back triggers into M&A due diligence and indemnity terms |
Global benchmarking
The UAE R&D tax credit compares favourably with leading global R&D incentive regimes on headline rate. The presence of arm’s-length conditions as a feature of each regime confirms that the UAE’s approach is consistent with international standard-setting.
Jurisdiction | Headline rate | Refundable? | Maximum annual benefit | Arm’s-length condition |
UAE (Phase 1) | Up to 50% | No (Phase 1) | AED 2 million | Mandatory – CCA and subcontractor pricing |
Ireland | 30% | Yes | Uncapped | Required |
UK (R&D expenditure credit scheme) | 20% | Yes (SMEs) | Uncapped | Required |
France (crédit d'impôt recherche, or research tax credit) | 30%/5% | Yes (immediate, SMEs) | Uncapped | TP documentation required |
Australia | 43.5% (SMEs) | Yes | A$150 million cap | Arm’s-length standard |
Singapore | 250% deduction | No (deduction) | Uncapped | TP rules apply |
Saudi Arabia | None announced | N/A | N/A | N/A |
The UAE’s non-refundable structure is a deliberate pillar two policy choice. Phase 2 of the regime – which may introduce refundability and expanded expenditure categories – has its statutory basis already embedded in Article 49bis of Federal Decree-Law No. 28 of 2025. If Phase 2 introduces a QRTC under GloBE, its pillar two treatment improves significantly, and the UAE's incentive architecture will become even more competitive.
Summary of the takeaways
No. | Takeaway | Priority |
1 | CCA contributions must satisfy a binary arm’s-length and proportionate benefit test – non-compliance disqualifies the entire contribution | Critical |
2 | Intra-group staff cost recharges are fully excluded from QRE – regardless of the arm’s-length mark-up applied | Critical |
3 | Related-party subcontracting fees require arm’s-length pricing and mandatory audited financial statements for the subcontractor | High |
4 | The 30% staff cost overhead uplift applies only to direct UAE employees – not to recharged or seconded staff | High |
5 | IP ownership and DEMPE substance must be genuinely aligned with R&D performance activity in the UAE | High |
6 | The credit is classified as an NQRTC under GloBE – pillar two ETR modelling is a prerequisite before claiming | Critical |
7 | UAE R&D staff produce a dual pillar two benefit: credit headcount threshold satisfaction and SBIE payroll carve-out enhancement | High |
8 | Intra-group credit transfer follows a strict priority ordering – CT liability must be exhausted before DMTT transfer | Medium |
9 | The five-year claw-back creates a contingent liability in M&A transactions – integrate into due diligence and indemnity structuring | High |
10 | The seven-year documentation requirement should be integrated into the existing TP master file/local file framework | High |
Conclusion: a TP practitioner’s perspective
The UAE R&D tax credit is not a self-assessment benefit that a client can claim from a spreadsheet. It is a compliance event that requires TP documentation, pillar two modelling, benefit allocation analysis, and, in many cases, structural reform of existing intra-group R&D arrangements.
The UAE R&D tax credit, as implemented through Ministerial Decision No. 24 of 2026, is one of the most technically sophisticated tax incentive instruments introduced in the GCC in a generation. Its headline rate of 50% on qualifying expenditure up to a maximum of AED 5 million places the UAE among the world's most generous R&D incentive jurisdictions. But the regime’s true complexity – and its true advisory value – lies not in the rate table. It lies in the TP architecture that underlies every qualifying expenditure category.
The regime is, at its core, a test of arm’s-length compliance. CCAs must be priced at arm’s length. Subcontracting fees must satisfy the arm’s-length standard. Related-party transactions that fail TP scrutiny do not produce proportionally reduced credits – they produce complete disqualification. The UAE legislator has made a deliberate policy choice: the R&D tax credit is available only to those whose intra-group transactions are genuinely, demonstrably, and documentably at arm’s length.
For groups within scope of pillar two, the analytical framework becomes more complex still. The NQRTC classification means that claiming the credit without first modelling its GloBE ETR impact is not merely an oversight – it is a material governance risk. Groups close to the 15% ETR threshold must stress-test every credit claim. Equally, groups that invest in genuine UAE R&D employment will discover that the same headcount that satisfies the credit’s tiered rate thresholds also enhances their SBIE – a dual benefit that makes UAE R&D employment the most tax-efficient workforce investment available to an in-scope MNE in the UAE today.
The five-year claw-back, the seven-year documentation mandate, and the mandatory pre-approval process collectively ensure that this credit rewards substance – genuine research, genuine employment, genuine arm’s-length pricing – and penalises the artificial structuring of R&D arrangements to capture a benefit without the underlying economic activity.
For the TP practitioner, the message is clear. The groups that will capture the full AED 2 million annual credit are those whose TP frameworks were built correctly before the credit was claimed – not those that attempted to reverse-engineer eligibility after the year-end. In a regime where a single CCA pricing failure can eliminate millions in otherwise qualifying expenditure, the investment in rigorous TP advisory is not discretionary. It is the price of admission.
Disclaimer: This article is intended for informational purposes and constitutes general commentary on the UAE R&D tax credit regime as of April 2026. It does not constitute legal, tax, or accounting advice and should not be relied upon as such without independent professional consultation. Ministerial Decision No. 24 of 2026 and Cabinet Decision No. 215 of 2025 should be read in their original Arabic text for authoritative interpretation. The positions expressed are those of the author in their professional capacity as a transfer pricing adviser.
