UAE energy sector urged to act swiftly on new R&D tax credit for early benefits

Energy companies operating in the UAE are being encouraged to act quickly if they want to capture some value from the country’s new research and development tax credit, as advisers warn that delaying could leave them with millions of dirhams unclaimed.

The regime, which kicks in for tax periods starting on or after 1 January 2026, marks the UAE’s first dedicated incentive specifically for R&D activities. It was introduced via Cabinet Decision No. 215 of 2025 and brought into operation through Ministerial Decision No. 24 of 2026, issued back in March. Tax specialists suggest that the framework is designed to reward projects that are already being planned and tracked carefully, rather than those put together after the fact at year-end.

This is especially relevant for the energy sector. The UAE’s hydrocarbons industry is increasingly leaning on complex work in areas like carbon capture, methane reductions, digital control systems, grid support, storage solutions, and more efficient methods of production. Much of this activity might now qualify for a credit of up to 50 per cent , provided it meets the regime’s technical and administrative criteria. Industry insiders say the opportunity is quite significant but only for firms that can demonstrate their R&D in real time, rather than in hindsight.

Nimish Goel, who leads Dhruva’s Middle East practice (a firm affiliated with Ryan LLC), pointed out that the country’s energy transition isn’t just about sustainability or investment themes anymore , it’s also a question of tax planning. He explained that work on decarbonising hydrocarbon production , including enhanced oil recovery, carbon capture and storage, methane mitigation, and digital twins for processing facilities , falls into the sort of uncertainty-driven engineering that this regime aims to support. But he did caution that essential to this is the paper trail. His words: “The evidence cannot be reconstructed after the fact, at least not easily.” That makes proper documentation crucial.

That warning is likely to hit home across the sector. Energy companies often run technically demanding projects, but not every bit of engineering work can be classified as R&D for tax purposes. For example, applying a well-known recovery method in a different reservoir probably won’t qualify on its own. On the other hand, experiments that systematically tackle technical uncertainties, like testing material performance under extreme conditions or capturing CO₂ from sulphur recovery exhaust streams, could qualify if their work is well documented as it happens.

One peculiar aspect of the UAE regime is that it links the credit not only to qualifying expenditure but also to the number of R&D staff involved. According to firms like KPMG, FTI Consulting, PwC, and Grant Thornton, the credit isn’t refundable, but it can be applied against corporate tax , and where relevant , top-up tax. The maximum eligible spending per tax period or fiscal year is AED 5 million, which equals a maximum annual credit of AED 2 million per company or group.

The rebate structure is tiered. The first AED 1 million of qualifying expenses earns a 15 per cent credit, but only if the business maintains at least two R&D staff members. Spending between AED 1 million and AED 2 million can bring a 35 per cent credit, if the company has an average R&D team of six. For spendings between AED 2 million and AED 5 million, the top rate of 50 per cent applies , but, that’s only if the organisation has an average of at least 14 R&D staff. If the staffing threshold isn’t met, the claim defaults to the highest level for which both criteria are satisfied.

Now, this creates a tricky situation for oil and gas operators. R&D in their sector tends tends to be very equipment-heavy and capital-intensive, not necessarily that Labour-intensive. A pilot project on carbon capture or enhanced recovery might cost millions but employ relatively few people. Under the UAE rules, that could limit the claim , unless companies also hire enough R&D staff locally in the country, which is not always straightforward.

Fran Wilhelm, an associate partner at Dhruva, pointed out two things that might surprise multinational energy firms. First, only R&D conducted within the UAE qualifies for the credit. Second, subcontracted research counts only if it’s carried out by UAE-based third parties. That’s a big deal because many companies have historically done technical work through overseas innovation centres or affiliates. So, they’ll need to figure out exactly where their research is taking place before assuming it’s eligible.

There’s also a strict administrative hurdle to consider , approval from the Emirates Research and Development Council must be obtained beforehand, with no exceptions. It’s quite a rigid requirement that could trip companies up. In practice, that means even a scientifically valid, economically vital project might be disqualified if the necessary approval isn’t secured in advance.

On top of that, the documentation requirements are pretty strict too. Businesses must keep detailed records of objectives, methods, experiments, and results , for at least seven years. This means governance and meticulous record-keeping are just as important as the science itself. Companies used to integrating R&D into broader engineering activities might find they need a new internal discipline , logging, describing, and reviewing projects as they go, rather than after everything is finished.

According to Grant Thornton, the regime also has minimum expenditure thresholds, and some claims may be carried forward or transferred within a qualifying group , subject to certain conditions. While this offers some flexibility for larger groups, rules still favour those who plan early, with clear research, staffing, and approval procedures in place from the start.

Right now, the credit isn’t refundable, so it mainly helps businesses with existing corporate or top-up tax obligations. That typically includes many established producers and contractors. However, advisers note there’s potential for future phases of the scheme to become more generous , some even suggest it could eventually be made refundable. If that’s the case, early prep by companies that don’t yet have a hefty tax bill could be quite advantageous.

The key takeaway? The UAE has built a substantial fiscal incentive for innovation within energy , but it’s not a programme for lazy, retrospective storytelling. Companies that pinpoint eligible projects now, secure pre-approval, and build their evidence as 2026 unfolds will be well-positioned to make successful claims when the application window opens in 2027. On the other hand, those who delay might find that their spend was valid, but the proof wasn’t properly documented , and unfortunately, that won’t help them claim the credit later.