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

Since the UAE’s R&D Tax Credit came into force for tax periods beginning on or after 1 January 2026, one question comes up from founders more than any other: “We are two engineers building something genuinely new. Can we claim?”

On staffing alone, a two-person team can reach the first band of the credit. In practice, three other tests usually decide the answer: who counts as R&D staff, whether the project spends enough, and whether the company has a tax bill to use the credit against. This article walks through each one, with references to the two decisions that set the rules: Cabinet Decision No. 215 of 2025 (CD 215) and Ministerial Decision No. 24 of 2026 (MD 24).

The 2-6-14 rule in one table

The credit is calculated in bands. Each band has a spending range and a minimum average number of R&D staff (MD 24, Article 2(1)):

Qualifying R&D expenditure	Minimum average R&D staff	Credit rate
First AED 1 million	At least 2	15%
Above AED 1 million, up to AED 2 million	At least 6	35%
Above AED 2 million, up to AED 5 million	At least 14	50%

Both tests must be met for a band to apply. If a company misses the staff threshold for a band, the rate falls to the highest band where both the spending and the staffing tests are met (MD 24, Article 2(7)). Qualifying expenditure is capped at AED 5 million, so the maximum credit is AED 2 million.

For most early-stage startups, the relevant line is the first one: at least two R&D staff on average, earning a 15% credit on up to AED 1 million of qualifying spend.

How the average is counted, and why hiring dates matter

The average is worked out month by month. You add up the number of R&D staff in each month (anyone who worked any part of the month counts for that month) and divide by the number of months in which R&D was carried out (MD 24, Article 2(4)).

That makes timing important for a two-person team. Suppose R&D runs for all twelve months of the year, one engineer is there from the start and the second joins in month four:

Months 1 to 3: one person each month, a total of 3
Months 4 to 12: two people each month, a total of 18
Average: 21 divided by 12 months = 1.75

At 1.75, the team is below the minimum of two for the first band. Because there is no lower band to fall back to, no credit arises for that year. If the R&D itself only began in month four, when both engineers were in place, the average would be two and the first band would be available. Founders who plan to claim should keep a simple monthly record of who worked on R&D from day one.

Do founders count as R&D staff?

R&D staff are full-time or full-time equivalent employees, or externally provided workers, who are directly and actively engaged in qualifying R&D (MD 24, Article 1). The definitions are specific:

An employee is someone with a contract of employment with the company, or someone seconded to it whose costs the company bears (MD 24, Article 8(8)).
An externally provided worker is a contractor engaged through a staff provider or as an independent contractor. A director of the company cannot fall into this category (MD 24, Article 8(9)(a)).

On a literal reading, then, a founder who is a director counts as R&D staff if they have a contract of employment with the company, and does not count if they have no such contract. Founders who work without a salary or an employment contract should take advice before assuming they are part of the headcount.

Location matters too. Staff costs qualify only for R&D staff located in the UAE while doing the work and under the company’s supervision, direction and control (MD 24, Article 8(2)). A remote developer working from abroad does not help the claim.

The test that stops most small teams: AED 500,000 per project

Each R&D project must have at least AED 500,000 of qualifying expenditure in the tax period, measured before the 30% uplift on staff costs (CD 215, Article 5(3)(b)).

For a two-person team, staff costs are usually most of the spend. Staff costs include salaries, allowances, medical insurance, pension contributions, end-of-service gratuity, bonuses and benefits in kind (MD 24, Article 8(4)), but not employee stock option plans (MD 24, Article 8(5)). That last point matters for startups that pay partly in equity: the equity element does not count.

Two worked examples, both for a single project running all year with two employed engineers:

Staff costs of AED 480,000. This is below the AED 500,000 minimum, so the project does not qualify, even though the uplift would take it above that figure.
Staff costs of AED 600,000. The project passes the minimum. The 30% uplift (MD 24, Article 8(3)) takes qualifying expenditure to AED 780,000. With an average of two R&D staff, the 15% rate applies: a credit of AED 117,000.

What the credit is worth to a loss-making startup

In this first phase the credit is non-refundable. It reduces Corporate Tax and, for companies within its scope, Top-up Tax, but it does not produce a cash payment (MD 24, Article 2(2)). Many startups have no tax bill in their early years, so the credit is carried forward to be used against future tax (CD 215, Article 6(3)).

Carried-forward credit can be used only if the same owners keep at least 50% of the company from the year the credit arose to the year it is used, or, after a change of more than 50% ownership, the company continues the same or a similar business (MD 24, Article 5(1)). Founders raising significant funding should check this condition before a round closes. The legislation states no time limit on carry-forward.

The UAE government has signalled a later phase that may introduce refundability. That phase has not been legislated and no timeline has been confirmed, so a business plan should not count on it.

The Small Business Relief trade-off

Small companies can elect Small Business Relief, which removes their Corporate Tax liability where it is available. A company that elects it cannot claim the R&D credit for that period (CD 215, Article 4(2)).

Applying Small Business Relief within five years of the end of the tax period in which the credit was last claimed is also one of five events that claw the credit back (MD 24, Article 16(2)). The full list is: ceasing to be a taxable person, becoming a Qualifying Free Zone Person, applying Small Business Relief, entering liquidation, or redomiciling outside the UAE. On any of these, credit already used is repaid as tax and unused credit is forfeited. A business restructuring that meets the conditions of MD 24, Article 7 is excepted (MD 24, Article 16(3)).

For a founder expecting profits within a few years, the choice between relief now and a growing credit balance is worth modelling before the first return is filed.

And before any of this: pre-approval

Every R&D project needs pre-approval from the Emirates Research and Development Council, and proof of it must accompany the claim (CD 215, Article 3(1)(b) and Article 9(1)(a); MD 24, Article 4(1)). As at 13 October 2026, the Council has not published its application rules, including whether a project already under way can be approved. Until it does, spending incurred before approval is best treated as at risk.

A founder’s checklist

Keep a monthly record of who works on R&D, and plan hiring dates with the two-person average in mind.
Put R&D team members on employment contracts with the UAE company.
Define each R&D project and check it against the AED 500,000 minimum before the uplift.
Model Small Business Relief against the credit before making the election.
Keep technical records of what was uncertain, what was tried and what was learned.

We have set out the staffing thresholds in more detail, with further worked examples, in our guide to the 2-6-14 headcount rule.

Shoayb Patel is an ICAEW Chartered Accountant with an electrical engineering background and more than 15 years in R&D tax. He founded RDvault, an R&D tax credit practice working in the UK and the UAE. This article is general information, not tax advice.