Free Zone Companies and the UAE R&D Tax Credit: Who Is Eligible

By Shoayb Patel, ICAEW Chartered Accountant and founder of RDvault. Status as at 13 October 2026.

The UAE’s R&D Tax Credit applies to tax periods beginning on or after 1 January 2026, and one of the most common questions about it comes from free zone businesses: can we claim?

The short answer is yes, but with conditions. Free zone companies are not excluded as a group. Whether a particular company can claim depends on how it is taxed. This guide explains the routes in, who is left out, and the one trap every free zone company should know about before planning around the credit.

The rules come from Cabinet Decision No. 215 of 2025 (CD 215) and Ministerial Decision No. 24 of 2026 (MD 24), read alongside the free zone Corporate Tax rules.

Can a free zone company qualify at all?

Yes. As regards its qualification, a Free Zone Person is explicitly included in the definition, subject to Corporate Tax or Top-up Tax and conducting qualifying R&D activities (CD 215, Article 1).

The key difference between two types of Free Zone company is:
A free zone company that is not a QFP. It will be subject to Corporate Tax at the standard rates, and will be taxed in the same manner as a mainland company on the R&D credit.

A Qualifying Free Zone Person (QFZP). Benefits of 0% Corporate Tax on its qualifying income. It must also satisfy one of two additional requirements in CD 215, Article 3(2), for it to qualify for the R&D credit.

The two routes for a Qualifying Free Zone Person

Route 1: taxed at 9% on R&D-derived income (CD 215, Article 3(2)(a)). The QFZP shall be subject to the Corporate Tax at 9% in the tax period the taxable income arising from the qualifying R&D activities is earned. There are two ways this can occur:

The company has been kicked out of the status of QFP for the period. This is the main route. After the loss of status, the company is taxed at 9% and is treated like other taxpayers.
The company continues to maintain its QFZP status, but the income generated from R&D activities is taxed at 9%. Income from intellectual property is only considered as 0% qualifying income up to the amount calculated according to free zone rules, with the remaining income taxed at 9% (after income tax). It is a more limited and literal interpretation of Article 3(2)(a) and the Emirates R&D Council has yet to decide how it will apply this. Formal clarity should be obtained from companies before it is used.

Route 2: subject to Top-up Tax (CD 215, Article 3(2)(b)). If a QFZP is part of a large multinational entity under the umbrella of the UAE’s Top-up Tax (MD 24, Article 14), it may avail the benefit of a credit that is applied against the Top-up Tax of the group (MD 24, Article 14). The groups in this position should check with their Pillar Two adviser to ensure that the interaction has occurred as it will vary according to the structure of the group.

Who cannot claim

The credit is not available at this time for a free zone company taxed at 0% on its qualifying income and outside the Top-up Tax. More generally, it does not include any company that is not subject to both Corporate Tax and Top-up Tax (CD 215, Article 4(1)) or a company that has opted for Small Business Relief (CD 215, Article 4(2)).

The trap: do not give up QFZP status just for the credit

Some businesses question whether they should “opt out” of QFZP intentionally since it opens up Route 1. The two rules make it a much larger decision.

First of all, the loss isn’t a one-year deal. When a company ceases to be a QFZP, the company has no right to remain a QFZP from the start of the tax period in which the company ceases in order to continue to benefit from the QFZP status for another four tax periods (Ministerial Decision No. 229 of 2025, Article 5(2)). That’s a pledge of at least five years of regular Corporate Tax.

Second, delaying the return to the regime comes with a price tag. One of five claw back events is to become a QFZP within 5 years of the end of the tax period the credit was last claimed (MD 24, Article 16(2)). The full list includes ceasing to be a taxable person, becoming a QFZP, Small Business Relief and liquidating or redomiciling outside the UAE. All of these, credit already used is paid back as taxes and unused credit are lost. A business restructuring which satisfies the requirements of MD 24, Article 7 is excepted (MD 24, Article 16(3)).

The value of one year’s credit is not a good comparison of the company’s full tax position, it’s the value of the company’s full tax position over at least five years.

The rules that apply to every claimant

Regardless of which route is followed, the general conditions are the same:

Pre-approval is mandatory. Any research and development project must be pre-approved by the Emirates Research and Development Council and the proof of this must be attached to the claim (CD 215, Article 3(1)(b) and Article 9(1)(a) and MD 24, Article 4(1)). The Council have not yet published their application rules as at 13 October 2026.
There are five tests that the R&D will have to pass. It must be novel, creative, be of an uncertain type, be systematic and be transferable or reproducible (MD 24, Article 3(1)) and must be conducted in the UAE (MD 24, Article 3(3)).
To qualify for the 30% uplift on staff costs (CD 215, Article 5(3)(b)), each project must have qualifying spend of at least AED 500,000 in the tax period.
The credit is split up. Rates are 15%, 35% and 50% each based on the lowest set of average numbers of R&D employees and capped at AED 5 million in qualifying R&D spend and AED 2 million in R&D credit (MD 24, Article 2(1)).
It is not refundable at this stage. Not all credit is paid in cash, it’s applied to Corporate Tax or Top-up Tax and remains unused, it can be carried forward, subject to ownership conditions (MD 24, Article 2(2) and Article 5).

A practical first step

A free zone business should first establish two things for the current tax period: is it a QFZP and is it subject to the Top-up Tax? Those two answers determine what route (or routes) is open. Then, you can be able to review check R&D tax credit eligibility at every stop point to prepare an application to the Council.

Shoayb Patel has over 15 years of experience of R&D tax and is an ICAEW Chartered Accountant with an electrical engineering background. He started RDvault, an R&D tax credit practice based in the UK and UAE. The information in this article is not tax advice.

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