On 18 March 2026, the UAE launched Phase 1 of its R&D Tax Incentives Programme — a non-refundable tax credit worth up to 50% of qualifying R&D expenditure. For tech founders and AI companies already considering Dubai, the timing is significant.
50%
Maximum credit rate on eligible R&D expenditure
AED 5M
Annual cap on total credit claimed per entity
Non-refundable
Reduces corporate tax liability; excess cannot be reclaimed as cash
A non-refundable credit works differently from a grant or a refundable credit. If your company's UAE corporate tax liability is AED 200,000 and you have earned an R&D credit of AED 150,000, your actual payment to the FTA is AED 50,000. The credit is applied directly against your tax bill.
If your credit exceeds your tax liability in a given year, the excess is typically carried forward to future tax periods under Phase 1 rules. This matters most for early-stage companies that may not yet be generating profits above the AED 375,000 threshold — the credit accumulates and can be used once profitability grows.
Important: Qualifying Free Zone Persons (QFZP) that already pay 0% corporate tax on qualifying income should assess carefully. If your business is structured purely for QFZP 0% status, your base tax liability to offset may be limited. Consult a UAE tax adviser to model the optimal structure.
Phase 1 of the programme covers UAE-registered companies in both mainland and free zone jurisdictions. The key eligibility criteria are:
Both mainland and free zone companies can qualify — the programme is not restricted by jurisdiction type. A tech company in DMCC, DIFC, or Dubai Silicon Oasis is as eligible as a mainland LLC operating from a Dubai Science Park office.
The programme applies to expenditure on projects that seek to achieve a scientific or technological advance. Routine activities — including standard software updates, data gathering without novel methodology, and market research — do not qualify.
Building proprietary algorithms, AI/ML model development, original software architecture, cybersecurity research
Developing new manufacturing methods, novel product formulations, engineering prototypes, materials science research
Clinical trials, environmental technology, cleantech, biotech research with commercial application
Testing and validation activities that systematically advance technical knowledge, iterative prototype development
The R&D credit does not exist in isolation. It is one of several converging factors that make 2026 an unusually strong year for technology companies — particularly AI and deep tech — to incorporate in Dubai.
Founders pay no personal income tax on salaries or dividends. The R&D credit reduces the 9% corporate tax bill on profits above AED 375,000 — a compelling dual incentive.
The UAE has committed AED 100+ billion to AI and tech infrastructure. Companies building qualifying AI products have a direct pipeline to government contracts.
Tech companies benefit from clustering effects: shared talent pools, investor networks, and proximity to free zone authorities who actively support R&D licence holders.
The R&D Tax Incentives Programme launched in phases. Phase 1 covers core expenditure. Founders setting up now are positioned to benefit from expanded eligibility as the programme matures.
Consider a Dubai mainland LLC generating AED 2 million in taxable profit for the 2026 tax year. Corporate tax on profit above AED 375,000 equals approximately AED 146,250. If the same company spent AED 500,000 on qualifying R&D, the credit is AED 250,000 — wiping out the entire tax bill for that year and carrying the remaining AED 103,750 credit forward.
For AI companies, software-as-a-service businesses, and any founder investing significantly in building proprietary technology, the R&D credit fundamentally changes the tax arithmetic of Dubai incorporation. Combined with 0% personal income tax, the effective burden on founder income in Dubai can be very low even for profitable companies.
The programme is new and full administrative guidance is still being issued by the FTA. We recommend starting your R&D documentation practices now — cost tracking, project logs, and technical narratives — so that claims are supportable when you file your first eligible return.
We help tech founders choose the right structure — mainland or free zone — based on their team, customers, and tax position. Get a personalised recommendation.
Get Free ConsultationNo obligation. Response within 30 minutes.