UAE R&D Tax: Qualifying Expenditure Explained

At a glance

The UAE R&D tax credit rewards genuine innovation, but only on specific categories of expenditure that meet strict conditions. Here is what you need to know before you start calculating your claim.

What qualifies: Staff costs (with a 30% uplift), consumable costs, subcontracting fees, and cost contribution arrangement contributions.

What does not qualify: Intra-group transactions, grant-funded expenditure, non-UAE activity, employee stock options, and any expenditure already covered by another UAE incentive.

Minimum threshold: AED 500,000 per R&D project per tax period, excluding the 30% staff uplift, before any credit applies.

Maximum qualifying expenditure: AED 5,000,000 per qualifying entity (or per Tax Group) per tax period. Above this cap, no additional credit accrues.

Maximum credit at the cap: AED 2,000,000 (MD 24/2026 Art 2(1)).

If you are trying to understand whether a specific cost qualifies, start with this guide. For the staffing rules and headcount thresholds that determine your credit rate, read UAE R&D Tax Credit Staffing Thresholds: the 2, 6 and 14 Rule.

This guide covers expenditure. Separate entity-level conditions in CD 215/2025 Article 3 must also be satisfied, including the beneficial entitlement requirement for any qualifying entity claiming the credit.

The four categories of UAE R&D tax eligible expenses

Article 5(1) of Cabinet Decision No. 215 of 2025 (CD 215/2025) sets out the categories of expenditure that can constitute qualifying R&D expenditure. There are four defined categories, plus an open category for any additional types the Minister may specify. A fifth provision, Article 5(1)(f), extends qualifying status to costs that have been capitalised as internally generated intangibles.

1. Staff Costs (MD 24/2026, Article 8)

Staff costs are the most significant category for most businesses and contain the most complex rules. The legislation distinguishes between three types of R&D worker, and the category to which a worker belongs determines both whether their costs qualify and how they are calculated.

There are three distinct categories of R&D worker under MD 24/2026:

• Employees (Art 8.8): individuals with a contract of employment with the qualifying entity, or seconded individuals whose costs the entity bears directly.

• Externally provided workers (Art 8.9): individuals who are not directors or employees of the qualifying entity, who provide services through a staff provider company or as independent contractors, who are personally obliged to provide those services under contract, and whose work does not constitute subcontracting of R&D activities.

• Subcontractors (Art 10): separate UAE-based persons to whom the qualifying entity contracts out the R&D activities themselves. Their costs qualify as subcontracting fees, not staff costs.

Staff costs, for both employees and externally provided workers, are subject to a 30% overhead uplift under Article 8(3) of MD 24/2026. This uplift is applied to the base staff cost figure to account for overheads reasonably attributable to the R&D activity. It is the only category that receives an uplift.

Per Article 8(4), the following amounts qualify: salaries and wages, allowances, medical insurance, pension contributions, end-of-service gratuity, bonuses, benefits in kind, and any other employment-related expenses borne by the entity under contract. Training costs for R&D staff in connection with qualifying activities are also included under Article 8(6).

Two key exclusions from staff costs: Employee stock option plans do not qualify (Art 8.5). Staff cost recharges from another member of the same Tax Group do not qualify (Art 8.11). Both are clear and unambiguous.

Where a member of staff does not work on qualifying R&D on a full-time basis, only the pro-rata portion of their cost that is reasonably attributable to their time on qualifying activities may be counted (Art 8.7). Precise timesheets or allocation records are not merely good practice, they are essential for demonstrating this apportionment.

Two conditions apply to all R&D staff costs regardless of worker type (Art 8.2). First, the R&D staff must be located in the UAE when performing qualifying R&D activities. Second, they must be under the supervision, direction and direct control of the qualifying entity.

2. Consumable Costs (MD 24/2026, Article 9)

Consumable costs are amounts incurred for consumable or transformable materials or items that are directly used in the performance of qualifying R&D activities and are no longer usable in their original form after that use. Both conditions must be satisfied: direct use and transformation or consumption.

Article 9(2) confirms that consumable costs include:

• Consumable or transformable materials, including water, fuel and power

• Licence fees and similar costs related to intangible assets that are not capital in nature

• Payments made to patients or subjects participating in a clinical trial that forms part of a qualifying R&D activity

Where a material or item is only partially used in qualifying R&D activities, only the proportion reasonably attributable to that use qualifies (Art 9.3).

Two exclusions for consumable costs: If consumables are disposed of in the ordinary course of business for consideration, they do not qualify as consumable costs (Art 9.4). Consumables acquired from another member of the same Tax Group do not qualify (Art 9.5).

3. Subcontracting Fees (MD 24/2026, Article 10)

Subcontracting fees qualify where a qualifying entity contracts out qualifying R&D activities to a third party. The rules here are more restrictive than for staff costs, and there is no 30% overhead uplift on subcontracting fees.

Article 10(1) sets out the conditions that must all be met:

• The qualifying R&D activities must be contracted out to a person based in the UAE

• The activities must be undertaken within the UAE

• The activities must not themselves have been subcontracted to the qualifying entity by another party (no reverse subcontracting)

• The subcontractor must not further subcontract the activities to another party (no chain subcontracting)

• The expenditure must not be attributable to a foreign permanent establishment

• Where the qualifying entity and subcontractor are related parties, the subcontractor must maintain audited financial statements

The amount of qualifying expenditure is the amount paid to the subcontractor, subject to the arm's length principle under Article 34 of the Corporate Tax Law (Art 10.2).

No chain subcontracting: Where a subcontractor subcontracts any part of the R&D activities further, none of the expenditure on that chain qualifies. This needs to be addressed contractually with any subcontractor before work commences.

Subcontracting between members of the same Tax Group does not qualify (Art 10.3).

4. Cost Contribution Arrangements (MD 24/2026, Article 11)

A cost contribution arrangement (CCA) is a contractual arrangement between parties to share the contributions and risks of conducting R&D jointly, where each party expects to benefit from the results.

Where a qualifying entity is party to a CCA for qualifying R&D activities, its proportionate share of the contributions qualifies as qualifying R&D expenditure, provided two conditions are met (Art 11.2):

• The contribution is determined in accordance with the arm's length principle

• The contribution corresponds to the qualifying entity's expected share of the benefits arising from the arrangement

Where the R&D activities under the CCA are carried out partly inside the UAE and partly outside the UAE, only the portion attributable to activities carried out within the UAE qualifies (Art 11.3).

Capitalised R&D costs also qualify

Article 5(1)(f) of CD 215/2025 contains a provision that many businesses overlook. Any costs that fall within categories (a) to (e) above, but which have been capitalised under applicable accounting standards as internally generated intangibles resulting from qualifying R&D activities, also constitute qualifying R&D expenditure.

The ordinary gateway condition requires that expenditure be deductible. Article 5(3)(c) contains a carve-out specifically for capitalised amounts under Article 5(1)(f). This means that even where R&D costs have been treated as an asset on the balance sheet rather than expensed through the profit and loss account, the credit remains available.

For businesses developing software, pharmaceutical compounds, or other internally generated intangibles where R&D costs are capitalised under IFRS or other standards, the credit is not lost simply because costs were not expensed in the tax period.

The five gateway conditions: all must be met

Even if expenditure falls within one of the four qualifying categories, it does not automatically constitute qualifying R&D expenditure. Article 5(3) of CD 215/2025 imposes five conditions that every item of expenditure must satisfy. All five must be met.

The AED 500,000 threshold in practice

The AED 500,000 minimum applies per R&D project, not per business. A qualifying entity running three separate R&D projects must reach AED 500,000 on each individually.

The threshold is calculated excluding the 30% staff uplift. A project with AED 480,000 of base staff costs receives a 30% uplift to AED 624,000. The threshold test ignores the uplift and uses the AED 480,000 base figure, which is below AED 500,000, so the project fails the minimum and no credit is available.

Tax Group aggregation

Where a qualifying entity is a member of a Tax Group, MD 24/2026 Article 2(3) requires both qualifying R&D expenditure and R&D staff to be aggregated across all qualifying entities in the group. Two subsidiaries in the same Tax Group, each spending AED 300,000 on a single joint R&D project, can aggregate to AED 600,000 and satisfy the minimum threshold at the group level. Equally, the AED 5,000,000 maximum qualifying expenditure cap applies to the group as a whole, not per entity.

The double dip prohibition

The condition at Article 5(3)(e) prevents businesses from claiming the R&D tax credit on the same expenditure that is already benefiting from another UAE incentive, credit, exemption or relief. This is a complete prohibition. Where mixed incentive positions exist, careful analysis is required to ring-fence expenditure and ensure each item is only attributed to one incentive regime.

What does not qualify

The critical distinction: three types of R&D worker

Correctly classifying the people working on R&D activities is one of the most practically significant issues in the regime. The legislation creates three distinct categories, each with different treatment.

Employees and externally provided workers both fall under Staff Costs (MD 24/2026 Art 8). Their costs receive the 30% overhead uplift and both categories count towards the R&D staff headcount thresholds that determine your credit rate. See UAE R&D Tax Credit Staffing Thresholds: the 2, 6 and 14 Rule for the headcount rules in detail.

Subcontractors are treated separately under Subcontracting Fees (MD 24/2026 Art 10). Their costs do not receive the 30% uplift. Where R&D activities are subcontracted, MD 24/2026 Article 2(5) requires the qualifying entity to include, in its R&D staff headcount calculation for the tiered credit rates, both its own employees and externally provided workers and the subcontractor's employees and externally provided workers who are directly and actively engaged in the subcontracted qualifying R&D activities. General subcontractor headcount does not count, only staff directly engaged on the qualifying work.

The distinction between an externally provided worker and a subcontractor turns on control. An externally provided worker is under the supervision, direction and direct control of the qualifying entity (Art 8.2(b)); a subcontractor conducts the R&D independently. Getting this classification wrong affects both the credit rate and the value of qualifying expenditure.

Where interpretations differ

The legislation is precise in several areas but leaves open questions in others.

Licence fees and the capital/revenue distinction

Article 9(2)(b) of MD 24/2026 includes licence fees within consumable costs where those fees are not capital in nature. The boundary between a capital and a revenue licence fee is not defined in the legislation and will require analysis under applicable accounting standards on an asset-by-asset basis. Subscription-based annual licences are the clearer category. Perpetual licences or right-of-use assets under IFRS 16 require closer examination.

Partial R&D use of consumables

Where a material or item is partially used in qualifying R&D activities, Article 9(3) requires an apportionment based on the portion "reasonably attributable" to qualifying use. The legislation provides no specific methodology. Volume-based, time-based, and cost-based approaches all appear permissible, but businesses should select and document a consistent and defensible methodology from the outset.

The AED 500,000 threshold and multi-phase projects

An R&D project is defined in CD 215/2025 as a set of qualifying R&D activities organised for a specific purpose with its own objectives and expected outcomes. Where a long-term programme is structured as a single project across multiple tax periods, the AED 500,000 threshold applies per period. Where it is structured as successive separate projects, each project must independently satisfy the threshold. The structuring of project boundaries has a direct impact on access to the credit.

Grant-funded expenditure and mixed funding structures

The grant exclusion under Article 5(3)(d) applies only to expenditure funded by a Grant as defined in CD 215/2025 Article 1. Grant means assistance provided by the Federal Government or a Local Government of the UAE. This is a narrow definition. Funding from a private investor, a commercial incubator, a corporate venture arm, or a non-government body is not a Grant for these purposes and does not trigger the exclusion.

Where a UAE entity does receive Federal or Local Government assistance and also conducts R&D with its own separate funds, the qualifying expenditure must be carefully ring-fenced to exclude the grant-funded portion. Mixed funding structures require precise accounting separation before any credit calculation is attempted.

Foreign permanent establishment subcontracting

Article 10(1)(e) of MD 24/2026 excludes subcontracting fees where the expenditure is attributable to a foreign permanent establishment. For multinational groups with UAE operations, this requires careful analysis of which entity in the group is bearing the cost and where that cost is ultimately booked. A UAE qualifying entity that books subcontracting fees attributable to an overseas branch or PE loses the qualifying status of that expenditure, regardless of where the R&D activity itself was performed.

Pre-approval precedes everything: No amount of qualifying expenditure delivers a credit unless the qualifying entity has obtained pre-approval from the Emirates Research and Development Council for the R&D project in question (MD 24/2026 Art 4). The Council's pre-approval portal has not yet been published. Businesses should monitor rdvault.ae for updates and begin preparing their project documentation now.

Frequently asked questions

What are the four categories of UAE R&D tax qualifying expenditure?

Under Article 5(1) of Cabinet Decision No. 215 of 2025, the four defined categories are: (1) staff costs, (2) consumable costs, (3) subcontracting fees, and (4) arm's length contributions under cost contribution arrangements. A fifth open category may be added by Ministerial decision. Capitalised R&D costs that fall within these categories also qualify under Article 5(1)(f).

Does the 30% staff uplift apply to all types of R&D worker?

No. The 30% overhead uplift under Article 8(3) of MD 24/2026 applies only to staff costs, that is, costs for employees and externally provided workers under the direct supervision and control of the qualifying entity. Subcontracting fees (Article 10) do not attract the uplift. Cost contribution arrangement contributions (Article 11) similarly do not receive an uplift.

Does the AED 500,000 minimum include or exclude the 30% staff uplift?

The AED 500,000 minimum per project under Article 5(3)(b) of CD 215/2025 explicitly excludes any uplift to staff costs. The threshold is tested against actual underlying qualifying expenditure before any uplift is applied. A business with only AED 480,000 of base qualifying expenditure per project does not satisfy the threshold even after the 30% uplift takes the calculated amount to AED 624,000.

Is there a maximum amount of qualifying expenditure?

Yes. MD 24/2026 Article 2(1) caps qualifying expenditure at AED 5,000,000 per qualifying entity per tax period. For Tax Groups, the cap applies to the group as a whole under Article 2(3). Above this cap, no additional credit accrues. At the cap, the maximum credit value is AED 2,000,000 (15% on the first AED 1M, 35% on the next AED 1M, 50% on the final AED 3M).

Does funding from a commercial investor or incubator count as a grant that disqualifies expenditure?

No. The definition of Grant in CD 215/2025 Article 1 is limited to assistance provided by the Federal Government or a Local Government of the UAE. Funding from private investors, commercial incubators, corporate venture arms, or non-government bodies is not caught by the grant exclusion in Article 5(3)(d).

Can a UAE business claim the R&D tax credit on expenditure already covered by a grant?

No. Article 5(3)(d) of CD 215/2025 excludes any expenditure that has been directly or indirectly funded by a grant, to the extent that such expenditure is recorded in the financial statements of the qualifying entity.

Do employee bonuses qualify as R&D staff costs?

Yes, where the employee is an R&D staff member. Article 8(4)(f) of MD 24/2026 expressly includes bonuses within staff costs. However, employee stock option plans are explicitly excluded by Article 8(5). Only cash remuneration and direct employment costs qualify.

Can costs be claimed if an R&D project has both UAE and overseas elements?

Only the UAE element qualifies. Article 3(3) of MD 24/2026 states that only R&D activities carried out within the UAE may constitute qualifying R&D activities. Where a project involves work done both in the UAE and in another country, the qualifying expenditure must be carefully apportioned to include only the costs attributable to the UAE-based activity.

Can a business claim both the UAE R&D tax credit and another UAE tax incentive on the same expenditure?

No. Article 5(3)(e) of CD 215/2025 expressly prohibits this. Expenditure that is subject to any other incentive, credit, exemption or relief under the Corporate Tax Law or any other UAE legislation cannot also qualify for the R&D tax credit.

What to do next

Understanding UAE R&D tax qualifying expenditure is the foundation of any credit claim. Getting the categories right, meeting the gateway conditions, and correctly classifying R&D workers all determine both whether a claim succeeds and what credit value it generates.

At RDvault, the team supports businesses in identifying and documenting qualifying R&D expenditure from first principles, working directly from Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026. RDvault's work covers the full claim process, from project scoping and expenditure analysis through to the submission requirements under CD 215/2025 Article 9.

The Emirates R&D Council's pre-approval portal has not yet launched. Any business planning to claim the credit should begin the groundwork now so it is ready to submit as soon as the portal goes live. Contact the RDvault team to start that conversation.

Sources: Cabinet Decision No. 215 of 2025 | Ministerial Decision No. 24 of 2026 | UAE Ministry of Finance announcement. This article is for informational purposes only and does not constitute tax advice.