UAE Tax Incentives to Drive Innovation and High-Value Employment

UAE Tax Incentives to Drive Innovation and High-Value Employment

The UAE continues to strengthen its position as a global hub for innovation, knowledge creation, and high-value economic activity. In line with this vision, the Ministry of Finance (MoF) has announced plans to introduce targeted tax incentives aimed at encouraging research and development (R&D) and attracting high-value talent to the country. These initiatives form part of the UAE’s broader strategy to diversify its economy and foster sustainable, innovation-led growth.

• Proposed R&D Tax Incentive

Following public consultations conducted in April 2024, the MoF is considering the introduction of an expenditure-based R&D tax incentive under the UAE Corporate Tax framework. 

The incentive is expected to apply to tax periods starting on or after 1 January 2026, subject to legislative approval.

The proposed regime would offer a tax credit of between 30% and 50% on qualifying R&D expenditure. Importantly, the credit may be refundable, depending on factors such as the business’s revenue and the number of employees based in the UAE. This approach is designed to benefit businesses across all stages of growth, from startups and SMEs to large multinational groups.

Qualifying R&D activities are expected to align closely with the OECD’s Frascati Manual, which defines R&D as systematic, creative work undertaken to increase knowledge and develop new applications. To qualify, activities must be novel, creative, uncertain in outcome, systematic in approach, and transferable or reproducible. Crucially, the R&D activities must be conducted within the UAE, reinforcing the country’s goal of building domestic innovation capabilities.

The MoF’s consultation materials also highlight the importance of clear eligibility rules, treatment of outsourced R&D, handling of capital and indirect costs, and mechanisms to manage unutilized credits, including potential refunds or carry-forward options.

•  High-Value Employment Tax Credit

In addition to the R&D incentive, the UAE is considering a refundable tax credit for high-value employment activities, proposed to take effect from 1 January 2025. This incentive aims to encourage businesses to locate senior leadership and strategically important roles in the UAE.
The credit would be calculated as a percentage of eligible salary costs for employees engaged in high-value activities that generate significant economic benefits. This includes C-suite executives and other senior personnel performing core functions that enhance productivity, innovation, and global competitiveness.

•  Implications for Your Business

These incentives open up exceptional opportunities for organizations across a wide range of industries:

• Technology Firms: Enhanced cost recovery for software development, artificial intelligence research, and digital transformation initiatives
•  Life Sciences: Strong support for pharmaceutical innovation, biotechnology advancements, and medical device development
•  Manufacturing: Benefits for process improvements, advanced materials, and industrial research and development
•  Energy Sector: Incentives promoting renewable energy innovation and sustainability-driven projects
•  Startups and SMEs: Refundable credits that improve cash flow and provide vital funding for early-stage innovation

Way forward

Both incentives remain subject to final legislative approval, and further guidance will be issued by the Ministry of Finance in due course. Once implemented, these measures are expected to significantly reduce the effective cost of innovation and talent investment, making the UAE an even more attractive destination for R&D-driven and knowledge-based businesses.

Businesses operating in or considering expansion into the UAE should closely monitor developments and begin assessing how their R&D activities and workforce structures may align with the proposed incentives.