Banking
R&D tax credits
in the UAE.
Developing credit-risk, fraud, payments, digital-banking or data-and-AI technology in a UAE bank, or building the platform behind a digital bank or payments licence? Some of that work may be Qualifying R&D Activity if it investigates a scientific or technological uncertainty through planned, documented work.
Most bank technology spend is delivery: implementing vendor platforms, meeting regulatory change and running established systems.
The R&D assessment starts with what your team could not resolve using available knowledge, what it tested and what it learned. A banking licence, a transformation budget or the use of AI does not establish eligibility on its own. The project, entity, expenditure and pre-approval conditions must also be met. [1, 2]
Where banking innovation may involve R&D.
In a bank, qualifying work usually sits inside a much larger technology or change programme. The useful starting point is a specific technical problem and the investigation undertaken to resolve it.
CREDIT RISK & DECISIONING
Did the team develop new statistical, mathematical or machine-learning methods because established techniques could not deliver the required accuracy, stability or explainability on the bank's data, whether for scorecards, PD/LGD/EAD models or IFRS 9 expected credit loss models?
Not R&D by itself: recalibrating an existing scorecard, deploying a vendor model or completing model validation using established methods.
FRAUD & FINANCIAL CRIME
Did the team test a new technical approach to detecting patterns across fragmented, high-volume transaction data within latency, accuracy or privacy constraints that available methods could not meet?
Not R&D by itself: buying a screening tool, tuning known rules or producing routine regulatory reports.
CORE BANKING & PAYMENTS
Did throughput, consistency or integration requirements create a technological uncertainty that the team resolved through experimentation rather than configuration, whether for real-time settlement, ISO 20022 processing or high-throughput ledgers?
Not R&D by itself: implementing a vendor core-banking platform, migrating to cloud using standard patterns or connecting to a published payment scheme.
DIGITAL CHANNELS & OPEN FINANCE
Did consent, authentication or interoperability requirements raise a technical problem with no known solution under the bank's constraints?
Not R&D by itself: building app features with existing tools or implementing documented Open Finance APIs and consent flows.
DATA PLATFORMS & AI
Did the team investigate methods for processing Arabic and English documents, unstructured data or streaming data at a performance level that existing models and tools could not reach?
Not R&D by itself: deploying a licensed language model, building dashboards or routine data engineering.
CYBERSECURITY & CRYPTOGRAPHY
Did the team create new security or encryption techniques, such as post-quantum key management or secure multi-party computation, rather than implement established ones?
Not R&D by itself: applying standard encryption, security verification or penetration testing methods.
Separate experimental development from routine delivery.
Under Ministerial Decision No. 24 of 2026, Article 3(1)(a) to (e), every Qualifying R&D Activity must be novel, creative, uncertain, systematic, and transferable or reproducible. The assessment is made having regard to the OECD Frascati Manual (MD 24, Article 3(2)). For software, the Manual sets the bar at the project level: completion must depend on a scientific or technological advance, and the aim must be the "systematic resolution of a scientific and/or technological uncertainty". [2, 7]
An assessment should identify the existing technical baseline, including any vendor or model baseline, explain its limitations and trace the alternatives tested. Business requirements documents and vendor specifications rarely answer those questions alone. A technically unsuccessful experiment may still be relevant to the assessment; success or failure by itself does not establish tax eligibility. [7]
Not R&D on their own: Vendor platform implementation, regulatory change programmes, routine model recalibration and validation, standard cloud migration, ordinary bug fixing and reporting. The Frascati Manual excludes routine change to products or processes, routine testing, routine debugging of existing systems, the development of business application software using known methods and existing tools, and the use of standard methods of encryption, security verification and data integrity testing (Frascati 2015, paragraphs 2.17 and 2.72). Its borderline table is more direct still, listing routine compliance with public inspection control and enforcement of standards and regulations as outside R&D (Table 2.3). For a bank, that is the authority that puts most regulatory change work outside the credit. If a broader programme contains a distinct qualifying investigation, identify its activities and costs separately from the rest of the programme. [7]
Technology qualifies. Financial-product design usually does not.
Banking is unusual because much of its innovation is financial, behavioural or legal rather than technological. Ministerial Decision No. 24 of 2026, Article 3(4) excludes any R&D activity conducted in the fields of social sciences, humanities and the arts. The Frascati Manual's field classification places economics and business, psychology and law within the social sciences (Table 2.2), and gives new risk theories and new types of savings instruments as examples of research in economics and business (paragraph 2.41). [2, 7]
In practice, new product concepts, pricing theory, customer-behaviour research and the Sharia structuring of Islamic products fall outside the credit. The technical work of building the systems that deliver them may not.
Credit-risk and other quantitative models are the difficult boundary. Where the uncertainty is mathematical, statistical or computational, the work sits closer to the natural sciences and can qualify if the five criteria are met. Where it concerns borrower or market behaviour, it sits closer to economics and does not qualify. MD 24 does not define the excluded fields at sub-field level, and the Emirates R&D Council has not published guidance on where it will draw this line. The project description should therefore state the scientific or technological uncertainty explicitly. [2, 7]
One point to resolve before you rely on the Manual.
Frascati carries a short list headed “Examples of R&D in banking and insurance” at paragraph 2.87. It includes mathematical research relating to financial risk analysis and the development of risk models for credit policy, which sit comfortably within the UAE regime. It also includes the development of techniques for investigating consumer behaviour in order to create new types of accounts and banking services, and R&D related to new or significantly improved financial services, including new concepts for accounts, loans and saving instruments. Read alone, that list appears to bring product innovation inside the credit. [7]
It does not, and the reason is structural rather than a matter of interpretation. MD 24, Article 3(2) directs the assessment to have regard to Frascati, but Article 3(4) then removes the social sciences from the UAE regime altogether. Frascati itself places economics and business inside the social sciences. So the paragraph 2.87 examples that rest on financial, product or behavioural research are carved out by UAE law even though the Manual treats them as R&D. The examples that rest on a computational, algorithmic or systems question are not. Anyone building a claim from paragraph 2.87 without applying Article 3(4) will overstate it. [2, 7]
This distinction is not yet clarified by Council guidance. Frame the technological uncertainty precisely at pre-approval. A model or platform whose R&D value is described in economic or behavioural terms is more likely to be challenged than one framed around a computational, algorithmic or systems uncertainty.
Credit bands and staffing thresholds.
Under Cabinet Decision No. 215 of 2025, Article 13, and Ministerial Decision No. 24 of 2026, Article 17, the credit applies to Tax Periods or Fiscal Years commencing on or after 1 January 2026. It is non-refundable in Phase 1 and is utilised against Corporate Tax and/or Top-up Tax liability (MD 24, Article 2(2); CD 215, Articles 2(2) and 6(1)). [1, 2]
First AED 1M of qualifying expenditure
AED 1M to 2M of qualifying expenditure
AED 2M to 5M of qualifying expenditure
First AED 1M of qualifying expenditure
AED 1M to 2M of qualifying expenditure
AED 2M to 5M of qualifying expenditure
The rates apply to the portion of Qualifying R&D Expenditure in each band (MD 24, Article 2(1)). Both thresholds must be met for a rate to apply: if either the expenditure band or the minimum average R&D Staff count is missed, the rate drops to the highest band where both are satisfied (MD 24, Article 2(7)). R&D Staff are full-time or full-time-equivalent employees or externally provided workers directly and actively engaged in Qualifying R&D Activities (MD 24, Article 1), counted as a monthly average (MD 24, Article 2(4)). [2]
Applying all three bands gives a maximum credit of AED 2 million on AED 5 million of Qualifying R&D Expenditure per Qualifying Entity or Tax Group in each Tax Period or Fiscal Year. For a bank, the cap applies regardless of total technology spend. It is not a flat 50% credit and it is not a cash refund. Each R&D Project must reach AED 500,000 of Qualifying R&D Expenditure in the relevant Tax Period or Fiscal Year, excluding the 30% uplift on Staff Costs (CD 215, Article 5(3)(b); the uplift itself is MD 24, Article 8(3)). Only activities carried out in the UAE qualify (MD 24, Article 3(3)). [1, 2]
Pre-approval comes first.
Pre-approval from the Emirates R&D Council is mandatory for every R&D Project claimed, and proof of it must accompany the claim (CD 215, Articles 3(1)(b) and 9(1)(a); MD 24, Article 4(1)). The legislation does not fix when the application must be made. Timing is expressly reserved to the Council, which sets the rules, timelines and procedures for the submission, review and determination of pre-approval requests (CD 215, Article 12(2); MD 24, Article 4(1)), and the Council has not yet published them or launched the operational portal. No retrospective route appears anywhere in CD 215 or MD 24. Plan on the basis that approval must be in place before qualifying expenditure is incurred: if the Council sets the timing that way, spend already committed cannot be brought back into a claim. For a bank with FY2026 technology programmes already running, that makes the pre-approval position the first thing to establish, not the last. [1, 2]
Tax Groups.
Where group entities form a Tax Group, their Qualifying R&D Expenditure and R&D Staff are aggregated for the rate bands (MD 24, Article 2(3)), and the parent company applies for pre-approval and submits the claim (MD 24, Article 13(9)). Aggregation applies to the rate bands. It does not apply to the AED 500,000 per-project test, which each R&D Project must meet on its own. [1, 2]
One cap per business, however the group is structured.
A banking group rarely holds its technology in one entity. Development sits across the bank, a technology or shared-services subsidiary, an innovation company and sometimes a free zone service entity. That structure is ordinary and commercially driven, and it does not prejudice a claim.
What does prejudice a claim is separating a business so that the same R&D is spread across entities in order to sit in lower expenditure bands or to obtain more than one AED 5 million ceiling. Ministerial Decision No. 24 of 2026, Article 15 gives the Federal Tax Authority a direct remedy. Where the Authority establishes that one or more Persons have artificially separated their Business or Business Activity, and Qualifying R&D Expenditure across the entire business exceeds the Article 2(1) thresholds, credits already claimed are clawed back as Payable Tax or Due Tax and unutilised credit is forfeited and cannot be carried forward (MD 24, Article 15(1)). [2]
The test is not structural on its face. The Authority considers whether the arrangement was undertaken for a valid commercial purpose and whether the persons carry on substantially the same business, on all the facts and circumstances (MD 24, Article 15(2)). A structure that predates the regime, has its own regulatory or operational rationale and runs its own governance is in a very different position from one created as the credit came into force. [2]
The practical point for a bank is to be able to explain, in advance, why the R&D sits where it sits. That explanation is easier to give at pre-approval than to reconstruct under enquiry.
Challenger banks and scale-ups.
The regime reads differently at the other end of the market. For a licensed incumbent the AED 2 million cap is the binding constraint. For a digital bank, payments company or lending platform, the cap is irrelevant and three other features decide whether the credit is worth anything.
Non-refundability bites hardest on a loss-making business.
The credit offsets Corporate Tax and Top-up Tax liability. It does not generate cash (MD 24, Article 2(2)). A company still investing ahead of revenue has little or no liability to offset, so the credit is accrued rather than realised, and its value depends entirely on surviving to a profitable period with the credit intact.
Carry-forward is conditional, and funding rounds are the risk.
Unutilised credit carries forward only if the same person or persons continuously owned at least 50% of the entity from the beginning of the period in which the credit arose to the end of the period in which it is used, or, where ownership changes by more than 50%, the entity continues to conduct the same or a similar business, judged by the factors in Article 39(2) of the Corporate Tax Law (MD 24, Article 5(1)). The listed-company exception at Article 5(2) does not help a private company. A business that raises successive rounds can cross the 50% threshold well before it is profitable enough to use the credit, and would then need to rely on the same-business limb. That is a real planning point at term-sheet stage, not a filing point. [2]
Exit and restructuring can trigger claw-back.
Within five years of the end of the period in which credit was last claimed, utilised credit becomes Payable Tax or Due Tax and unutilised credit is forfeited if the entity ceases to be a Taxable Person, becomes a Qualifying Free Zone Person, elects Small Business Relief, enters liquidation or redomiciles outside the UAE (MD 24, Article 16(2)). Genuine business restructuring meeting the conditions in MD 24, Article 7 is excepted. Redomiciliation and free zone migration are both common in this segment and both are triggers. [2]
Two further constraints apply regardless of size. Each R&D Project must still reach AED 500,000 of Qualifying R&D Expenditure in the period, excluding the staff-cost uplift, which for a small engineering team means the perimeter of a project matters as much as the total spend. And the staffing tiers are measured as a monthly average of staff directly and actively engaged in Qualifying R&D Activities (MD 24, Articles 2(4) and 2(7)), not total headcount. A team of thirty engineers does not automatically reach fourteen once platform delivery and run work are stripped out. [1, 2]
DIFC and ADGM bank subsidiaries.
Banking activities are an Excluded Activity for Qualifying Free Zone Person purposes (Ministerial Decision No. 229 of 2025, Article 2(2)(b), under the Cabinet Decision No. 100 of 2023 framework). "Banking activities" means the regulated financial activities specified under Federal Decree-Law No. 14 of 2018 (MD 229, Article 2(3)(n)). [3, 4]
De minimis (MD 229, Article 3).
Non-qualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period must not exceed 5% of total Revenue or AED 5,000,000, whichever is lower. The de minimis test is a condition of QFZP status itself (MD 229, Article 5(1)(a)); it is not an income-by-income classification. [3]
Five-period lock-out (MD 229, Article 5(2)).
A Qualifying Free Zone Person that fails to meet the conditions ceases to be a Qualifying Free Zone Person from the beginning of the relevant Tax Period and for the subsequent four Tax Periods. That is a full five-period lock-out from the 0% regime. [3]
What that means for a DIFC or ADGM bank.
A subsidiary whose principal activity is banking will have non-qualifying Revenue far above the de minimis threshold. In practice it is not a Qualifying Free Zone Person at all: it ceases to hold that status from the beginning of the relevant Tax Period and for the four subsequent Tax Periods, and is subject to 9% Corporate Tax on all of its Taxable Income, not on its banking income alone. [3, 4]
That simplifies the R&D credit position rather than complicating it. An entity outside the QFZP regime claims on the ordinary conditions in CD 215, Article 3(1), like any other 9% taxpayer. It does not need to satisfy the additional free zone condition in CD 215, Article 3(2), which applies only where the claimant is a Qualifying Free Zone Person. Substance, documentation and Council pre-approval remain the binding requirements. [1, 3]
Where CD 215, Article 3(2) does apply.
The other entities in a banking group's free zone footprint, being the holding, treasury, service and innovation companies, may genuinely retain QFZP status. Those entities can claim only on one of the following bases:
Loss of QFZP status for the period (the principal route).
Where the entity fails de minimis or any other QFZP condition, it is taxed at 9% on all Taxable Income and satisfies Article 3(2)(a) on the same footing as the bank itself, accepting the five-period lock-out as the price.
Specific R&D-derived income taxable at 9% within an otherwise valid QFZP.
This is a narrower technical reading of Article 3(2)(a). The QFZP regime operates at entity level under Federal Decree-Law No. 47 of 2022, Article 18 and CD 100/2023, and the Emirates R&D Council has not published guidance confirming this reading. It should not be relied on to file without clarification.
Top-up Tax (Article 3(2)(b)).
Bank entities in DIFC or ADGM
In practice not a Qualifying Free Zone Person: subject to 9% Corporate Tax on all Taxable Income. Claims under the ordinary CD 215, Article 3(1) conditions; CD 215, Article 3(2) does not apply to an entity outside the QFZP regime. Substance, documentation and pre-approval remain essential.
Free-zone group entities (holding, treasury, service, innovation companies)
Must actively monitor de minimis. A single Excluded-Activity earning above the 5% / AED 5M threshold can strip QFZP status for the current Tax Period and the four subsequent periods. The reverse risk applies too: an entity that claims the credit and then becomes a Qualifying Free Zone Person within five years of the period in which credit was last claimed faces claw-back of utilised credit as Payable Tax or Due Tax and forfeiture of unutilised credit (MD 24, Article 16(2)).
Pillar Two: what your group tax function needs to test.
This section states the mechanism and stops there. Whether the UAE R&D Tax Credit qualifies for the relief described below, and whether a group should elect for it, is a Pillar Two question for the group's own tax advisers. RDvault establishes and defends the R&D position; the interaction with the global minimum tax is assessed alongside it, not by us.
When it applies.
Cabinet Decision No. 142 of 2024 applies to Constituent Entities of MNE Groups with consolidated revenue of EUR 750 million or more in at least two of the four preceding Fiscal Years (CD 142, Article 1.1.1). A UAE bank inside a group above that threshold is in scope. [5]
Why a non-refundable credit is a Pillar Two question at all.
Under the GloBE mechanics a tax credit that is neither a Qualified Refundable Tax Credit nor a Marketable Transferable Tax Credit is treated as a reduction to Adjusted Covered Taxes (CD 142, Article 4.1.3(b)). Adjusted Covered Taxes is the numerator of the effective tax rate (CD 142, Article 5.1.1), so the credit lowers the jurisdictional ETR, and a lower ETR raises the Top-up Tax Percentage (CD 142, Article 5.2.1). The UAE R&D Tax Credit is non-refundable in Phase 1 (MD 24, Article 2(2)), so it does not meet the Qualified Refundable Tax Credit definition in CD 142, Article 18, which requires payment in cash or cash equivalents within four years. On the default treatment, therefore, claiming the credit reduces Covered Taxes. [1, 2, 5]
The relief that may change that.
Ministerial Decision No. 96 of 2026, issued 22 June 2026, adopts the OECD 2026 Consolidated Commentary, the 2026 Administrative Guidance with the Central Record, and the January 2025 GloBE Information Return for the purposes of CD 142/2024, and repeals Ministerial Decision No. 88 of 2025. It applies to Fiscal Years beginning on or after 1 January 2025. The 2026 Consolidated Commentary incorporates the Inclusive Framework's Side-by-Side Package of 5 January 2026, which introduced the Substance-Based Tax Incentive Safe Harbour and the Qualified Tax Incentive framework. Under that Safe Harbour, which is a jurisdictional annual election, a Qualified Tax Incentive is added to Adjusted Covered Taxes and excluded from GloBE Income, subject to a substance cap set by reference to payroll and tangible assets in the jurisdiction. [6]
To be a Qualified Tax Incentive an incentive must be generally available, must reduce a Covered Tax, and must be calculated by reference to expenditure incurred or to the volume of tangible production in the jurisdiction, with a direct link between the benefit and that expenditure or output. Early published commentary is aligned on the mechanism and leans towards the UAE credit falling within the expenditure-based category. No confirmation has been issued by the Federal Tax Authority or the Ministry of Finance, and commentators differ on how far the substance cap limits the benefit in practice. [6]
One distinction worth holding.
The Substance-based Income Exclusion at CD 142, Article 5.3 is the existing payroll and tangible asset carve-out from the Top-up Tax base. The Substance-Based Tax Incentive Safe Harbour is the new and separate relief described above. The names are similar and the mechanisms are not.
What to put to your Pillar Two adviser.
Whether the group is a Constituent Entity of an in-scope MNE Group for the relevant Fiscal Years.
Whether the UAE R&D Tax Credit satisfies the Qualified Tax Incentive conditions, and what weight to give the project-level pre-approval requirement against the generally available test.
Whether to make the Substance-Based Tax Incentive Safe Harbour election for the UAE, and whether the substance cap binds on the group's UAE payroll and tangible asset base.
How MD 24, Article 14, which utilises the credit against Domestic Group Top-up Tax after that liability is computed, interacts with a safe harbour election that operates on the effective tax rate computation itself. The published commentary does not address this, and the ordering is not obvious on the face of either instrument.
How the credit's non-refundable character is treated in the parent jurisdiction's own GloBE computation.
The R&D position should be built to stand on its own regardless of how those questions resolve: the project must satisfy MD 24, Article 3, be pre-approved, be conducted in the UAE and be evidenced. Pillar Two affects what the credit is worth to the group, not whether the underlying R&D qualifies.
Build the evidence around the investigation.
Prepare a record that connects the technical work to the project and the expenditure. Useful assessment material includes:
The project objective,
the existing technical baseline (including any vendor or model baseline) and the uncertainty encountered.
Design alternatives,
experimental plans, prototypes, test results and findings, including unsuccessful approaches, kept separately from model validation and change-management documentation.
The people who performed the work,
their UAE location and a record of time or activity allocation. Staff Costs qualify only for R&D Staff located in the UAE and under the entity's supervision, direction and direct control (MD 24, Article 8(2)).
Project-level staff costs,
consumables including non-capital licence fees directly used in the R&D (MD 24, Article 9(2)(b)), and qualifying subcontracting, separated from run-the-bank costs and overseas work.
Records showing which group entity funds the work and holds rights to its results. This is relevant to the financial-burden and beneficial-entitlement conditions in CD 215,
Article 3(1)(c) to (d).
Council pre-approval documentation for each R&D Project,
with the date of application and the date of approval recorded against the project's expenditure.
On the claim itself: proof of pre-approval,
a signed senior-management declaration, a Qualifying R&D Expenditure breakdown and audited financial statements (CD 215, Article 9(1)(a) to (d)).
Technical documentation sufficient to demonstrate the activities and expenditure must be retained for seven years following the end of the Tax Period or Fiscal Year to which it relates (MD 24, Article 12(1)). Documentation should explain what happened and why; it should not retrofit uncertainty to ordinary delivery work. [1, 2]
Regulatory approval and R&D assessment answer different questions.
CBUAE, DFSA and FSRA requirements shape how a bank builds, tests, outsources and governs technology. Meeting them does not establish R&D eligibility, and no regulatory approval replaces Emirates R&D Council pre-approval (CD 215, Article 3(1)(b); MD 24, Article 4(1)). [1, 2]
Regulatory approvals
A CBUAE non-objection, a DFSA Innovation Testing Licence approval or an FSRA RegLab admission demonstrates that a regulator is satisfied with a specific arrangement. It does not demonstrate that the underlying project resolved a scientific or technological uncertainty.
R&D assessment
The R&D assessment tests whether a specific project satisfied MD 24, Article 3's five criteria (novel, creative, uncertain, systematic, transferable) through documented experimental work. Regulatory context is useful evidence of constraint, not evidence of R&D.
Four overlaps arise in practice.
Model management.
CBUAE Model Management Standards and Model Management Guidance (December 2022) set requirements for developing, validating and monitoring models across banks. [8] Validation evidence shows a model is sound; it does not show that its development resolved a scientific or technological uncertainty. The uncertainty-resolution record is separate documentation.
Outsourcing.
CBUAE Outsourcing Regulation for Banks (C 14/2021, dated 31 May 2021, in force), Article 6, governs outsourcing arrangements, including outsourcing outside the UAE; the accompanying Outsourcing Standards took effect on 15 July 2021. [9] A regulatory non-objection permits an offshore arrangement, but only R&D activities carried out in the UAE can be Qualifying R&D Activities (MD 24, Article 3(3)), and subcontracted work must meet every condition in MD 24, Article 10, including that the subcontractor is UAE-based and performs the work in the UAE.
Open Finance.
CBUAE Open Finance Regulation (C 03/2025, superseding the earlier C 7/2023) mandates specific Open Finance implementation for Data Holders and Service Owners. [10] Implementing those requirements using established methods is a compliance task.
Regulatory testing permissions.
A CBUAE-licensed bank cannot hold one. Licensed Financial Institutions are not permitted to participate in the CBUAE Regulatory Sandbox, and innovative testing falling outside their authorised business activities must be discussed with the Central Bank before market deployment (Sandbox Conditions Regulation C 6/2023, paragraph 5-2). [10] The sandbox is relevant to the fintech counterparties a bank partners with. For a DIFC or ADGM entity, a DFSA Innovation Testing Licence or an FSRA RegLab admission is regulatory testing permission, not R&D pre-approval, and neither substitutes for Council pre-approval (CD 215, Article 3(1)(b); MD 24, Article 4(1)).
Questions banks ask.
Can a bank claim the UAE R&D tax credit?
Yes, where it is a Qualifying Entity subject to Corporate Tax and/or Top-up Tax that carries on Qualifying R&D Activities (CD 215, Article 1) and meets the conditions in CD 215, Article 3. Financial services are not an excluded category; the test is tax status, not sector (CD 215, Article 4). [1]
Does developing credit-risk or AI models qualify?
It may, where the uncertainty is scientific or technological and all five criteria are met (MD 24, Article 3(1)). R&D in economics, business and other social sciences is excluded (MD 24, Article 3(4)). The Council has not yet published guidance on where quantitative modelling sits, so frame the technical uncertainty precisely. [2, 7]
Does a core banking replacement or digital-transformation programme qualify?
Can we apply for pre-approval after the work has started?
The legislation does not answer it. Pre-approval is mandatory for every R&D Project claimed and proof must accompany the claim, but the timing of the application is expressly reserved to the Emirates R&D Council, which has not yet published its rules (CD 215, Articles 3(1)(b), 9(1)(a) and 12(2); MD 24, Article 4(1)). No retrospective route appears anywhere in CD 215 or MD 24 either. Treat approval before expenditure as the planning assumption, because if the Council sets the timing that way, spend already committed cannot be brought back into a claim. Speak to us before the next tranche of programme spend is committed rather than after. [1, 2]
Is the UAE R&D tax credit refundable?
No, under the current Phase 1 framework (MD 24, Article 2(2)). Unused credit carries forward subject to ownership-continuity or same-business conditions (MD 24, Article 5(1)). Those conditions do not apply to Qualifying Entities whose shares are listed on a Recognised Stock Exchange (MD 24, Article 5(2)), which is relevant to the UAE's listed banks. Cabinet Decision No. 215 of 2025, Article 2(2) read with Article 2(3)(b) leaves refundability to ministerial decision; MD 24, Article 2(2) has exercised that power as non-refundable. A change would require a new or amending decision, so the position is Phase 1 rather than permanent. [1, 2]
What is the minimum project expenditure?
Can a DIFC or ADGM bank, or a bank's free-zone innovation subsidiary, claim?
A DIFC or ADGM bank almost certainly can, and not via the free zone route. Banking activities are an Excluded Activity (MD 229, Article 2(2)(b), under CD 100/2023), so a banking subsidiary's non-qualifying Revenue exceeds the lower of 5% of total Revenue or AED 5 million and it ceases to be a Qualifying Free Zone Person from the start of that Tax Period and for the following four Tax Periods (MD 229, Articles 3 and 5(2)). It is then taxed at 9% on all Taxable Income and claims under the ordinary CD 215, Article 3(1) conditions. A free-zone innovation or service subsidiary that genuinely retains QFZP status is in a different position: it must satisfy CD 215, Article 3(2) on one of two bases: 9% Corporate Tax on Taxable Income derived from the Qualifying R&D Activities (Article 3(2)(a)), or Top-up Tax (Article 3(2)(b)). The reading under which an otherwise-valid QFZP claims on a specific 9%-taxed R&D income stream is a narrow technical one and Council guidance has not been published. [1, 3, 4]
We are a digital bank and still loss-making. Is the credit worth claiming?
It can be, but the value is deferred and conditional. The credit is non-refundable in Phase 1 (MD 24, Article 2(2)), so with no Corporate Tax liability there is nothing to offset in the current period. Unutilised credit carries forward only where the same persons continuously held at least 50% of the entity across the relevant periods, or, on a change of more than 50%, the entity continues the same or a similar business (MD 24, Article 5(1)). Successive funding rounds can cross that threshold. The position is worth modelling before a round, not after. [2]
Can we split R&D across group entities to increase the benefit?
No. Where the Federal Tax Authority establishes that a business has been artificially separated and Qualifying R&D Expenditure across the whole business exceeds the Article 2(1) thresholds, credits claimed are clawed back as Payable Tax or Due Tax and unutilised credit is forfeited (MD 24, Article 15(1)). The Authority considers whether there was a valid commercial purpose and whether the persons carry on substantially the same business (MD 24, Article 15(2)). An existing group structure with its own regulatory and operational rationale is a different matter; be ready to explain it at pre-approval. [2]
Can offshore technology centres or vendors be included?
Only activities carried out in the UAE can qualify (MD 24, Article 3(3)). Individual contractors who work in the UAE under the bank's supervision, direction and control may count as externally provided workers within Staff Costs, and towards the R&D Staff headcount (MD 24, Articles 8(2) and 8(9)). R&D contracted out to a firm is treated as Subcontracting Fees and must meet every condition in MD 24, Article 10, including that the subcontractor is based in the UAE, performs the work in the UAE and does not subcontract it onward. Where the subcontractor is a Related Party, such as a group shared-service or technology company, it must also maintain audited financial statements (MD 24, Article 10(1)(f)). [2]
Does a CBUAE non-objection, model validation or regulatory testing permission replace R&D pre-approval?
How does the credit interact with Domestic Top-up Tax and Pillar Two?
For a group inside CD 142/2024, MD 24, Article 14(4) requires the credit to be utilised against Corporate Tax liability before it is utilised against the Top-up Tax liability of the Domestic Group; Articles 13(3) and 14(1) set the equivalent sequence where a Tax Group is in place. Separately, the credit's non-refundable character affects the effective tax rate computation itself, and MD 96 of 2026 has brought the Substance-Based Tax Incentive Safe Harbour into the UAE regime. The mechanism is set out in the Pillar Two section above, together with the questions to put to your group's Pillar Two adviser. We do not take a position on those questions. [1, 2, 5, 6]
Discuss your bank's R&D project.
Bring a short description of the technical problem, what your team investigated, which entity performed and funded the work, where it took place and the expenditure involved. If the work has not yet started, that is the better position: the perimeter of a claimable project is set at pre-approval, the Council has not yet published its timing rules, and approval in place before the spend runs is the safe assumption. Those details provide a useful starting point for a project assessment and for identifying the evidence still needed.
Supporting references
1. Ministry of Finance, Cabinet Decision No. 215 of 2025 on R&D Tax Credit for the purposes of Federal Decree-Law No. 47 of 2022. Entity and project conditions, expenditure categories, use of credit, claim requirements, and the Council’s rule-making power over pre-approval rules, timelines and procedures at Article 12(2).
2.Ministry of Finance, Ministerial Decision No. 229 of 2025 on Qualifying Activities and Excluded Activities. Banking activities as an Excluded Activity, the definition of banking activities by reference to Federal Decree-Law No. 14 of 2018, the de minimis threshold and the five-period lock-out.
3. Ministry of Finance, Cabinet Decision No. 100 of 2023 on determining Qualifying Income for the Qualifying Free Zone Person. Underlying QFZP framework, entity-level nature of QFZP status and the de minimis mechanic at Article 4.
4. Federal Tax Authority, Cabinet Decision No. 142 of 2024 on the imposition of Top-up Tax on Multinational Enterprises. Article 1.1.1 (scope and EUR 750 million consolidated-revenue threshold), Article 4.1.3(b) (credits as a reduction to Covered Taxes), Articles 5.1.1 and 5.2.1 (effective tax rate and Top-up Tax Percentage), Article 5.3 (Substance-based Income Exclusion) and Article 18 (definition of a Qualified Refundable Tax Credit).
5.Ministry of Finance, Ministerial Decision No. 96 of 2026 on the Commentary and Agreed Administrative Guidance for CD 142/2024, issued 22 June 2026. Adopts the OECD 2026 Consolidated Commentary, the 2026 Administrative Guidance with the Central Record, and the January 2025 GloBE Information Return; applies to Fiscal Years beginning on or after 1 January 2025; repeals Ministerial Decision No. 88 of 2025. The Inclusive Framework’s Side-by-Side Package of 5 January 2026, including the Substance-Based Tax Incentive Safe Harbour and the Qualified Tax Incentive framework, reaches UAE law through the 2026 Consolidated Commentary.
9. Central Bank of the UAE, Open Finance Regulation, C 03/2025 (superseding C 7/2023), and Sandbox Conditions Regulation, C 6/2023, effective 15 April 2024, paragraph 5-2 (Licensed Financial Institutions not permitted to participate in the Regulatory Sandbox).
7. Central Bank of the UAE, Model Management Standards and Model Management Guidance, December 2022. Model development, validation and monitoring requirements applicable to banks.
8. Central Bank of the UAE, Outsourcing Regulation for Banks, C 14/2021, dated 31 May 2021 (accompanying Outsourcing Standards for Banks effective 15 July 2021). Article 6, outsourcing outside the UAE.