From enhanced carbon capture at gas processing plants to grid modernisation and renewable energy storage, the technology reshaping the UAE’s oil and gas industry, has acquired a new dimension. As of the 2026, a significant portion of the research and development (R&D) behind it can be converted into a corporate tax credit of up to 50 percent under the country’s first dedicated R&D Tax Credit regime. According to Dhruva, a Ryan Affiliate, the opportunity for the energy sector is substantial, but the design of the regime rewards companies that act early and penalises those that treat it as a year-end exercise.
The regime was established by Cabinet Decision No. 215 of 2025 and made operational by Ministerial Decision No. 24 of 2026, issued on 18 March 2026. It applies to tax periods and fiscal years beginning on or after 1 January 2026, with the first claims expected in 2027. Credits are calculated on a tiered basis, rising from 15 percent to a headline 50 percent. Qualifying expenditure is capped at AED 5 million per qualifying entity or tax group per year, which produces a maximum credit of AED 2 million.
“The UAE’s energy transition has been told as a sustainability story and an investment story. From this year it is also a tax story. The work being undertaken to decarbonise hydrocarbon production, including enhanced oil recovery, carbon capture and storage, methane abatement, and the development of digital twins for processing plants, exemplifies the systematic, uncertainty-driven R&D that this regime is designed to reward. The catch is that the value sits in the documentation, and the documentation has to be built in real time. You cannot retrospectively reconstruct a year’s worth of R&D evidence in 2027,” said Nimish Goel, Leader, Middle East, Dhruva, Ryan LLC Affiliate.
For an industry as engineering-intensive as oil and gas, the central question is not whether qualifying activity exists. It is whether companies can tell the difference between routine engineering and genuine R&D, and prove it. Applying an established recovery method to a new reservoir does not, in itself, qualify. By contrast, systematically resolving technical uncertainty, whether relating to reservoir behaviour, materials performance under high-pressure conditions, the capture of CO₂ from sulphur recovery flue gas, or the integration of new digital control systems, may qualify, provided the systematic experimentation and its outcomes are documented as the work is carried out.
“Two features will catch international energy companies off guard. Only R&D performed inside the UAE qualifies, and subcontracted R&D counts only when it is carried out by UAE-based third parties. Much of the sector’s historical R&D has run through global technology centres and group affiliates abroad. Companies will need to look hard at where their R&D actually physically takes place, before they assume they qualify,” said Fran Wilhelm, Associate Partner, Dhruva, Ryan LLC Affiliate.
The regime’s defining feature is a dual threshold that links the credit rate to both qualifying spend and headcount. The first AED 1 million of qualifying spend earns 15 percent and requires at least two R&D staff on average; spend between AED 1 million and AED 2 million earns 35 percent and requires at least six; and spend between AED 2 million and AED 5 million earns the top 50 percent rate and requires at least fourteen. Both conditions must be met for each band. Where the headcount falls short, the claim drops back to the highest band where both the spend and the staffing tests are satisfied. A minimum of AED 500,000 of qualifying expenditure applies to each R&D project.
This is where oil and gas companies face a structural choice that other sectors may not. R&D in the industry is often capital-intensive rather than people-intensive: a single carbon capture or enhanced oil recovery pilot can absorb millions in equipment and consumables while employing only a handful of dedicated researchers. Under the dual threshold, that profile caps the credit at the lowest band regardless of how much is spent. Reaching the higher rates means building R&D headcount physically in the UAE.
Pre-approval from the Emirates Research and Development Council is mandatory before any credit can be claimed, with no exceptions. No pre-approval means no credit, however strong the underlying scientific or technological uncertainty. Businesses must keep detailed technical records of objectives, methods, experiments and outcomes for at least seven years. The credit is also currently non-refundable, so it benefits companies that have a corporate tax or top-up tax liability to offset, which describes most established producers and service contractors in the sector. That said, it has been suggested that Phase 2 may include a refundable credit and an increase in both application and generosity, meaning all businesses should start planning ahead, irrespective of their tax position.
“Companies that map their qualifying projects now, secure pre-approval and build the evidence trail through the 2026 financial year will capture real value when claims open in 2027. Those that wait will find that the spend was eligible but the proof was never created. In this regime, the documentation is the asset,” concluded Nimish Goel.
