UAE Tax Benefits for Companies: Phase 1 Introduces a Non-Refundable Tax Credit
UAE tax benefits for companies are expanding as the UAE government has taken the first step in an incentive initiative aimed at fostering innovation, specifically by implementing its R&D Tax Incentives Programme. Phase 1 includes the announcement of a non-refundable tax credit, which would provide businesses with up to 50% of qualifying expenditures, up to a limit of AED 5 million. The incentive is intended to help the private sector invest in R&D and innovation, while also helping to position the UAE as a global leader for high-technology industries and emerging technology sectors.
The design of the incentive reflects updated developments with respect to the OECD Pillar Two framework and acknowledges that a non-refundable credit can result in a better and more predictable effective tax rate for companies doing business in the UAE due to the international tax environment. Furthermore, because the UAE’s Corporate Tax regime has just been established, the introduction of a streamlined and easily administered non-refundable credit is an appropriate response to this early phase. Therefore, the design of Phase 1 of the incentive has been done in a way to provide immediate and significant assistance to businesses engaged in genuine R&D activities.
In addition, it allows the Ministry of Finance to review the uptake of the programme, understand its effect on people’s behaviour and the economy, and then gather data required to guide any future changes in policy. Information collected during this phase will be instrumental in informing the design of Phase 2 of the R&D Tax Incentives Programme. In Phase 2, the Ministry of Finance may consider changes to the programme by introducing a refundable credit and/or considering increasing the number of activities that qualify as eligible for the R&D Tax Incentives Programme (either across the entire economy or targeted at specific priority sectors).
The Ministry of Finance will announce more details regarding Phase 2 soon. Through its phased approach to developing the R&D Tax Incentives Programme, the UAE is reaffirming its commitment to establishing an internationally competitive and transparent tax system that supports innovation, attracts investment, and promotes long-term economic transformation.
