Insights Corporate Tax
Investment Tax Allowance in the UAE Explained
The UAE has no investment tax allowance. What replaces it — depreciation, the Article 22 exemptions, and the R&D tax credit rates for 2026.
Key takeaways
- The UAE has no named investment tax allowance — no bonus deduction on qualifying capital spend sits in the corporate tax law
- Capital spending is recovered through ordinary depreciation in the accounts, which flows into Article 20 taxable income
- A 9% rate above AED 375,000 and 0% below does much of the work a dedicated allowance does elsewhere
- The R&D tax credit runs at tiered rates of 15%, 35% and 50% on expenditure up to AED 5,000,000 per period
- Article 2(2) of Ministerial Decision No. 24 of 2026 makes the R&D credit non-refundable
- Ministerial Decision No. 173 of 2025 allows a 4% depreciation deduction on investment property held at fair value
The UAE has no investment tax allowance. Federal Decree-Law No. 47 of 2022 recovers capital spending through ordinary depreciation in the financial statements rather than a bonus deduction. The nearest equivalent is the R&D tax credit in Cabinet Decision No. 215 of 2025, running at 15%, 35% and 50% on qualifying spend from 1 January 2026.
Type “investment tax allowance” into a search bar and most of what comes back describes a very specific thing: a government incentive letting a company deduct a slice of what it spends on qualifying assets against taxable profit, over and above the ordinary depreciation it would claim anyway. Countries such as Malaysia have run schemes with that exact name for years.
So it is a reasonable question for a UAE business owner to ask whether the Emirates offer anything similar — and, if not, how the corporate tax system actually treats the money they put into equipment, property, technology and people. This guide answers both, and it ends at the one genuine investment incentive the UAE now has.
What an investment tax allowance actually is
In the jurisdictions that use it, an investment tax allowance is a targeted deduction. A business that spends money on qualifying capital items is allowed to write off an extra percentage of that cost against taxable income, on top of the depreciation it already records. The purpose is to lower the effective cost of investing and steer money into activities the government wants to encourage.
Two ideas get muddled here. An allowance reduces the amount of income that is taxed. A credit reduces the tax bill itself, dirham for dirham. Both make investment cheaper, but they work at different points in the calculation.
That distinction matters because when the UAE finally reached for an investment-style incentive, it chose the credit route. Article 2(2) of Cabinet Decision No. 215 of 2025 puts the R&D tax credit against the corporate tax and top-up tax liability, not against taxable income.
Does the UAE have an investment tax allowance?
No. There is no provision in Federal Decree-Law No. 47 of 2022 that grants a bonus deduction on qualifying capital expenditure, and no Cabinet or Ministerial Decision has created one. The table below sets out what exists instead.
| Mechanism | Legal source | What it does |
|---|---|---|
| 0% band on the first AED 375,000 | Art 3(1)(a); Cabinet Decision No. 116 of 2022 | Removes tax on the first slice of taxable income |
| 9% headline rate above that | Art 3(1)(b) | Keeps the base cost of investing low without extra allowances |
| Ordinary depreciation | Art 20(1) and Art 28(1) | Recovers capital cost as the accounts recognise it |
| Investment property depreciation election | Ministerial Decision No. 173 of 2025 Art 2(1) | 4% of original cost per 12-month period, by irrevocable election |
| Exempt income | Art 22 | Removes qualifying dividends and participation income from the base |
| Participation exemption | Art 23(2) | Exempts gains and dividends on a 5%+ holding meeting four conditions |
| Interest deductibility | Art 30; Ministerial Decision No. 126 of 2023 | 30% of EBITDA, or AED 12,000,000, whichever is higher |
| Small Business Relief | Art 21; Ministerial Decision No. 73 of 2023, as amended by Ministerial Decision No. 131 of 2026 | Elective, revenue up to AED 3,000,000, periods ending by 31 December 2029 |
| Qualifying free zone regime | Art 18; Cabinet Decision No. 100 of 2023 | 0% on qualifying income, subject to conditions |
| R&D tax credit | Cabinet Decision No. 215 of 2025; Ministerial Decision No. 24 of 2026 | Tiered 15%, 35%, 50% credit against tax liability from 2026 |
Every row above was read against the English texts published by the UAE Ministry of Finance and the Federal Tax Authority, on 4 August 2026.
AED 375,000
The 0% band under Article 3(1)(a) of Federal Decree-Law No. 47 of 2022 and Cabinet Decision No. 116 of 2022 — the UAE's broadest investment relief, applied to every taxable person
How the UAE rewards capital spending: depreciation, not a bolt-on
Article 28(1) makes expenditure deductible where it is incurred wholly and exclusively for the business and is not capital in nature. Capital spending therefore does not hit the tax computation when the cheque clears. It arrives gradually, as depreciation or amortisation reduces accounting profit, which Article 20(1) then takes as the starting point for taxable income.
The consequence is that your depreciation policy is your capital allowance regime. There is no separate statutory schedule to reconcile to, no pooling, no writing-down allowance rate set by the FTA. What the accounts recognise, subject to the Article 20(2) adjustments, is what reduces tax.
That places real weight on unglamorous things. A fixed asset register that agrees to the ledger. A consistent useful-life policy applied across similar assets. Documentation showing that an asset exists and is used in the business. Where those are missing, the deduction is not disallowed by a rule — it is simply unevidenced, and Article 56(1) gives the FTA seven years to ask.
The investment property election in Ministerial Decision No. 173 of 2025
One narrow but valuable relief sits outside the ordinary depreciation route. Where a business holds investment property at fair value under IAS 40, no depreciation runs through profit or loss at all — fair value movements do the work instead. That leaves a real economic cost with no tax deduction attached.
Ministerial Decision No. 173 of 2025, issued 23 June 2025 and effective for tax periods commencing on or after 1 January 2025, fixes it.
| MD 173/2025 | Rule |
|---|---|
| Art 2(1) | Available where the taxable person prepares accrual-basis statements and has elected the realisation basis under Article 20(3) |
| Art 2(1) | The election is irrevocable |
| Art 2(1)(a) | Deduction of 4% of original cost for each 12-month tax period, prorated for shorter or longer periods or part-year holdings |
| Art 2(1)(b) | Or the tax written down value at the start of the period |
| Art 2(1) | The deduction is the lower of (a) and (b) |
| Art 1 | ”Original cost” takes the IAS 40 meaning and includes subsequent capitalised costs, subject to the arm’s length principle in Article 34 |
| Art 2(2) | Opening value and original cost are determined by reference to the transferor on qualifying-group and restructuring transfers |
Four per cent of original cost implies a 25-year write-off. For a Dubai commercial property carried at fair value, that is the closest thing in the UAE regime to a statutory capital allowance — and it only becomes available if the realisation-basis election under Article 20(3) was made first.
The 2026 R&D tax credit: the closest thing to a true investment incentive
Cabinet Decision No. 215 of 2025 was issued on 31 December 2025. Article 13 applies it to tax periods or fiscal years commencing on or after 1 January 2026. Ministerial Decision No. 24 of 2026, issued 18 March 2026, supplies the operating detail.
Article 2(1) of the Ministerial Decision sets the rates. Both the expenditure band and the staff threshold must be met.
| Qualifying R&D expenditure band per entity or tax group, per period | Average number of R&D staff | Credit rate |
|---|---|---|
| First AED 1,000,000 | At least 2 | 15% |
| The portion exceeding AED 1,000,000 and up to AED 2,000,000 | At least 6 | 35% |
| The portion exceeding AED 2,000,000 and up to AED 5,000,000 | At least 14 | 50% |
Article 2(7) is the sting. To qualify for a specific rate, the entity or tax group must meet both the expenditure threshold and the minimum average R&D staff threshold. If either is not met, the rate is adjusted downward to the highest rate for which both are satisfied.
Article 2(2) makes the credit non-refundable. It is used against corporate tax and top-up tax liability, and Article 6(3) of the Cabinet Decision allows any unutilised amount to be carried forward to subsequent periods, oldest credits first under Article 6(2).
What you have to do to claim it
Article 3(1) of Cabinet Decision No. 215 of 2025 sets six conditions, and the second is the one that has to be planned for years ahead of the return.
| CD 215/2025 Art 3(1) | Condition |
|---|---|
| (a) | The entity meets the minimum number of employees engaged in qualifying R&D activities specified by the Minister |
| (b) | The entity obtains pre-approvals from the Council — the Emirates Research and Development Council — and meets ongoing compliance requirements |
| (c) | The entity bears the financial burden of carrying out the qualifying R&D activities |
| (d) | The entity is beneficially entitled to a share in the returns from exploiting the resulting intangibles |
| (e) | The R&D project has a specified objective to increase the stock of knowledge or devise new applications of it |
| (f) | The entity complies with all requirements of the decision and of any Minister, Council or FTA decisions under it |
Article 3(2) adds a condition for a qualifying free zone person: it must either be subject to corporate tax at 9% on taxable income derived from the R&D activities, or be subject to top-up tax for the fiscal year. A QFZP earning 0% on the relevant income is outside the credit — the conditions of that status are set out in our guide to the qualifying free zone person and the QFZP 0% rules.
Article 4 then excludes two categories outright: an entity that is neither subject to corporate tax nor top-up tax, and an entity that has elected Small Business Relief under Article 21 of the Corporate Tax Law.
What spending qualifies
| CD 215/2025 Art 5(1) | Qualifying category |
|---|---|
| (a) | Staff costs |
| (b) | Consumable costs |
| (c) | Subcontracting fees |
| (d) | Arm’s length share of contributions under cost contribution arrangements |
| (e) | Any further category the Minister specifies |
| (f) | Any of the above capitalised under accounting standards for internally generated intangibles from qualifying R&D |
Article 5(3) then imposes five gating conditions.
| CD 215/2025 Art 5(3) | Condition |
|---|---|
| (a) | Incurred wholly and exclusively for qualifying R&D; mixed-purpose costs qualify only to the identifiable extent |
| (b) | At least AED 500,000 for each R&D project in the period, excluding any staff-cost uplift the Minister determines |
| (c) | It is deductible expenditure, except for the capitalised intangibles in Art 5(1)(f) |
| (d) | It excludes any part funded by a grant, to the extent recorded in the financial statements |
| (e) | It is not subject to any other incentive, credit, exemption or relief under UAE law |
Paragraph (b) is per project, not per company. A business spending AED 1,400,000 across four projects of roughly AED 350,000 each qualifies on none of them.
Paragraph (e) matters for free zone and grant-funded businesses in particular: you cannot stack the R&D credit on top of another UAE relief covering the same expenditure.
The R&D credit is not a year-end claim. Article 3(1)(b) requires pre-approval from the Emirates Research and Development Council before the fact, and Article 5(3)(b) sets a per-project floor of AED 500,000. Both are decisions you take when you scope the project, not when you file the return nine months after it ends.
A worked example in AED
Kalyx Systems FZ-LLC develops industrial control software in a UAE free zone. It has elected to be subject to corporate tax at 9% under Article 19, so Article 3(2)(a) of Cabinet Decision No. 215 of 2025 is satisfied. It runs one R&D project in the tax period ending 31 December 2026, with qualifying expenditure of AED 3,600,000 and an average of 15 R&D staff.
| Band | Expenditure | Staff test | Rate | Credit |
|---|---|---|---|---|
| First AED 1,000,000 | 1,000,000 | ≥2, met (15) | 15% | AED 150,000 |
| Above 1,000,000 to 2,000,000 | 1,000,000 | ≥6, met (15) | 35% | AED 350,000 |
| Above 2,000,000 to 5,000,000 | 1,600,000 | ≥14, met (15) | 50% | AED 800,000 |
| Total | 3,600,000 | AED 1,300,000 |
The project clears the AED 500,000 per-project floor in Article 5(3)(b) comfortably. Assume Kalyx has a corporate tax liability of AED 940,000 for the period. Article 6(1) of Cabinet Decision No. 215 of 2025 requires the credit to be used against that liability first, reducing it to nil, and Article 6(3) carries the remaining AED 360,000 forward.
Now change one fact. Kalyx averages 5 R&D staff rather than 15. Article 2(7) of Ministerial Decision No. 24 of 2026 drops the rate to the highest band where both thresholds are satisfied — 15%, because the 35% band needs at least 6. The credit on the same AED 3,600,000 becomes AED 540,000 instead of AED 1,300,000. Headcount, not spending, is what moved AED 760,000.
Claw-back and record keeping
Article 8(1) of Cabinet Decision No. 215 of 2025 provides for claw-back where an entity did not continuously meet the conditions for a particular R&D project, whether in whole or in part. Any credit refunded or utilised in respect of that project must be repaid to the FTA within the period specified, and Article 8(2) forfeits the remaining credit from the date the failure occurred.
Article 7(3) leaves the record-keeping requirements to a Ministerial Decision — specifically, the records a qualifying entity must keep to demonstrate that the activities undertaken constitute qualifying R&D activities. Article 5(1) of Ministerial Decision No. 24 of 2026 then adds an ownership continuity test modelled on Article 39 of the Corporate Tax Law, requiring continuous 50% ownership or continuation of the same or a similar business, with an exemption in Article 5(2) for listed entities.
The practical reading is that the R&D credit carries a higher evidential burden than an ordinary deduction. A documented internal controls review covering project scoping, timesheets, subcontractor agreements and Council pre-approvals is not optional housekeeping — it is what survives a claw-back challenge.
A refundable credit for high-value jobs
The Ministry of Finance has publicly signalled an intention to introduce a refundable tax credit for high-value employment activities, calculated as a percentage of eligible salary costs for senior personnel performing core business functions.
As at 4 August 2026 we could not locate an enacted Cabinet Decision or Ministerial Decision implementing that incentive on tax.gov.ae, mof.gov.ae or u.ae, and the Ministry’s own framing describes the proposal as subject to legislative approvals.
We are therefore leaving it unquantified. Treat it as a direction of travel rather than a relief you can model, and re-verify the position against the Ministry of Finance before assuming any entitlement. An honest gap here is worth more than a number we cannot source.
The reliefs that already reward capital
Beyond depreciation and the R&D credit, three parts of the regime lower the cost of holding and financing investment.
| Relief | Source | Effect |
|---|---|---|
| Domestic dividends | Art 22(1) | Dividends and profit distributions from a resident juridical person are not taken into account |
| Participation exemption | Art 22(2), 22(3), Art 23 | Dividends and gains on a 5%+ holding meeting the Article 23(2) conditions are exempt |
| Foreign PE exemption | Art 22(4), Art 24 | Income of a qualifying foreign permanent establishment is exempt |
| Interest headroom | Art 30(1) and 30(3); MD 126/2023 | Net interest deductible up to the higher of 30% of EBITDA and AED 12,000,000 |
| Interest carry-forward | Art 30(4) | Disallowed net interest carried forward for the subsequent 10 tax periods |
| Tax loss carry-forward | Art 37(1) and 37(2) | Losses offset future income, capped at 75% of taxable income before relief |
Article 22 also removes the related expenditure, and Article 28(2)(b) blocks a deduction for expenditure incurred in deriving exempt income. That symmetry is easy to miss and is one of the most common errors we see — the full picture sits in our guide to taxable income and deductions under UAE corporate tax.
Structuring investment sensibly, without an allowance
The absence of an investment tax allowance changes what good planning looks like. Four things do most of the work.
Get the classification right at purchase. Capital or revenue is a tax decision under Article 28(1), and it is far cheaper to decide it with the invoice in front of you than in a year-end review.
Make the elections deliberately. The Article 20(3) realisation-basis election gates the Ministerial Decision No. 173 of 2025 depreciation election, and the latter is irrevocable. Neither should be made by default.
Scope R&D projects to the thresholds. Article 5(3)(b) sets an AED 500,000 per-project floor and Article 2(1) of the Ministerial Decision keys the rate to headcount. Consolidating three small projects into one may change the answer entirely.
Keep the evidence for seven years. Article 56(1) of Federal Decree-Law No. 47 of 2022 sets the retention period, and every relief above is only as good as the file behind it.
Bringing it together
The UAE does not have an investment tax allowance and is unlikely to need one in the form other jurisdictions use. A 0% band to AED 375,000, a 9% rate above it, ordinary depreciation flowing through Article 20(1), and the Article 22 exemptions already keep the cost of investing low without a bolt-on schedule.
What has changed is that the country now has one genuine, targeted investment incentive. The R&D tax credit under Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026 runs from 1 January 2026 at 15%, 35% and 50% across expenditure bands up to AED 5,000,000, non-refundable, carried forward, and conditional on pre-approval from the Emirates Research and Development Council.
If you genuinely develop products or processes in the UAE, that credit is worth designing your projects around. If you do not, the honest answer is that your investment relief is your depreciation policy — and it is worth making sure the fixed asset register behind it would survive an FTA request.
Velmont Crest is a DED-licensed UAE accounting firm providing advisory and preparation support on Corporate Tax computations, fixed asset and depreciation policy, R&D documentation and FTA filings for SMEs across the mainland and free zones. Read more on our insights hub, see our corporate tax services, or get in touch via our contact page.
Disclaimer: Velmont Crest is a DED-licensed accounting firm providing advisory, preparation and compliance support services. We are not a law firm, the Federal Tax Authority, or an FTA-registered tax agent representing clients before the FTA. UAE Corporate Tax incentives are set and updated by the Ministry of Finance, the Cabinet and the Federal Tax Authority — verify your specific position against current legislation and official guidance, and take professional advice tailored to your circumstances before acting.
References
- Cabinet Decision No. 215 of 2025 on the R&D Tax Credit — UAE Ministry of Finance
- Ministerial Decision No. 24 of 2026 implementing Cabinet Decision No. 215 of 2025 — UAE Ministry of Finance
- Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses — UAE Ministry of Finance
- Ministerial Decision No. 173 of 2025 on Depreciation Adjustments for Investment Properties Held at Fair Value — Federal Tax Authority
- Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule — UAE Ministry of Finance
- Tax incentives for innovation-driven businesses — The Official Portal of the UAE Government
Frequently asked questions
- Does the UAE have an investment tax allowance?
- Not under that name. Some countries run schemes literally called an investment tax allowance, giving a business an extra deduction — a percentage of what it spends on qualifying assets — on top of the normal depreciation it already claims. Federal Decree-Law No. 47 of 2022 does not contain that mechanism. Capital spending is recovered through ordinary depreciation and amortisation in the financial statements, which feed Article 20(1) accounting income, and the system layers targeted incentives on top of an already low rate rather than adding a statutory allowance schedule.
- How do I get tax relief for money I invest in equipment or property?
- Through depreciation, not a one-off allowance. Article 28(1) of Federal Decree-Law No. 47 of 2022 makes expenditure deductible only where it is not capital in nature, so a capital asset reaches taxable income gradually as depreciation reduces accounting profit. Article 20(1) then builds taxable income from those financial statements. The practical requirement is a proper fixed asset register and a consistent depreciation policy, because the tax deduction is whatever the accounts recognise.
- What is the UAE R&D tax credit and when does it start?
- Cabinet Decision No. 215 of 2025, issued 31 December 2025, introduced it. Article 13 applies it to tax periods or fiscal years commencing on or after 1 January 2026. Ministerial Decision No. 24 of 2026, issued 18 March 2026, supplies the operating rules. Article 2(1) of that decision sets tiered rates of 15%, 35% and 50% by expenditure band and R&D headcount, and Article 2(2) makes the credit non-refundable, usable against corporate tax and top-up tax liability.
- What are the UAE R&D tax credit rates?
- Article 2(1) of Ministerial Decision No. 24 of 2026 sets three bands, each requiring both an expenditure threshold and a minimum average R&D staff count. The first AED 1,000,000 of qualifying expenditure earns 15% with at least 2 R&D staff. The portion exceeding AED 1,000,000 and up to AED 2,000,000 earns 35% with at least 6 staff. The portion exceeding AED 2,000,000 and up to AED 5,000,000 earns 50% with at least 14 staff. Article 2(7) drops the rate to the highest band where both thresholds are met.
- Is the AED 5 million figure a cap on the R&D credit or on the spending?
- On the spending. The column heading in Article 2(1) of Ministerial Decision No. 24 of 2026 reads 'Maximum Qualifying R&D Expenditure per Qualifying Entity or Tax Group in each Tax Period or Fiscal Year (AED)', and the bands run up to AED 5,000,000. Applying the tiered rates across the full AED 5,000,000 produces a maximum credit of AED 2,000,000 per period. Public summaries that describe the incentive as capped at AED 5 million are describing the expenditure ceiling, not the credit.
- What is the minimum spend to claim the UAE R&D tax credit?
- Article 5(3)(b) of Cabinet Decision No. 215 of 2025 requires the qualifying R&D expenditure to amount to at least AED 500,000 for each R&D project in the relevant tax period or fiscal year, excluding any uplift to staff costs the Minister determines. That threshold is per project, not per company, so a business running several small projects may fail it on each one while spending more than AED 500,000 in total.
- Do I need pre-approval to claim the R&D tax credit?
- Yes. Article 3(1)(b) of Cabinet Decision No. 215 of 2025 requires the qualifying entity to obtain the necessary pre-approvals from the Council — defined in Article 1 as the Emirates Research and Development Council — and to comply with ongoing compliance requirements. Article 12(2) gives the Council power to set the rules, timelines and procedures for submitting, reviewing and determining pre-approval requests, and the grievance procedure against its decisions.
- Which businesses cannot claim the UAE R&D tax credit?
- Article 4 of Cabinet Decision No. 215 of 2025 excludes three categories. An entity that is neither subject to corporate tax nor top-up tax cannot be a qualifying entity. Nor can an entity that has elected to apply Article 21 of the Corporate Tax Law, which is Small Business Relief. And the Minister may specify further exclusions. A qualifying free zone person can claim, but Article 3(2) requires it to be subject to corporate tax at 9% on income from the R&D activities, or subject to top-up tax.
- What counts as qualifying R&D expenditure?
- Article 5(1) of Cabinet Decision No. 215 of 2025 lists staff costs, consumable costs, subcontracting fees, an arm's length share of contributions under cost contribution arrangements, any further category the Minister specifies, and any of those costs capitalised under the applicable accounting standards for internally generated intangibles. Article 5(3) then adds five conditions, including that the expenditure is deductible, is not funded by a grant, and is not already subject to another incentive or relief.
- Is there a tax credit for hiring senior or high-value staff?
- The UAE announced an intention to introduce a refundable tax credit for high-value employment activities, calculated as a percentage of eligible salary costs. As at 4 August 2026 we could not locate an enacted Cabinet or Ministerial Decision implementing it on tax.gov.ae, mof.gov.ae or u.ae, and the Ministry of Finance has described the proposal as subject to legislative approvals. Treat it as a direction of travel rather than a claimable relief, and verify before relying on it.
- Do free zone companies get a better deal on investment?
- In a sense, through the qualifying free zone regime rather than an allowance. Article 3(2)(a) of Federal Decree-Law No. 47 of 2022 applies 0% to a qualifying free zone person's qualifying income and 9% to the rest. Article 18(1) sets the conditions, including adequate substance and compliance with Articles 34 and 55. Article 5(2) of Ministerial Decision No. 229 of 2025 removes the status from the start of the period and for the following four tax periods where a condition fails.
- Can investment property held at fair value get a depreciation deduction?
- Yes, by irrevocable election. Article 2(1) of Ministerial Decision No. 173 of 2025 applies where a taxable person prepares accrual-basis statements and has elected the realisation basis under Article 20(3). The deduction is the lower of 4% of original cost for each 12-month tax period, prorated for shorter periods or part-year holdings, and the tax written down value at the start of the period. Original cost takes its meaning from IAS 40 and includes subsequent capitalised costs.
- What are tax allowances?
- In most tax systems an allowance is an amount you may subtract before the tax is worked out — either a slice of income that escapes tax, or an extra deduction for a particular kind of spending. The UAE keeps this deliberately simple. There is a 0% band on taxable income up to AED 375,000 under Cabinet Decision No. 116 of 2022, ordinary depreciation flowing through the accounts, exempt income under Article 22, and an elective Small Business Relief. There is no schedule of statutory capital allowances sitting outside the financial statements.
Filed under: investment tax allowance, uae corporate tax, capital allowances, R&D tax credit, depreciation, tax incentives, Federal Decree-Law 47, SME
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