Technology and software companies in the UAE pay 9% corporate tax on taxable income above AED 375,000, can reach 0% on qualifying income in a free zone, and — from tax periods starting 1 January 2026 — can claim a research and development tax credit. The rules that decide what a tech business actually pays are specific to the sector: software development alone is not on the free zone qualifying-activities list, and income from copyrighted software follows separate intellectual property rules. This guide explains each rule and where the law says so.
The baseline: rates and thresholds in 2026
Under Federal Decree-Law No. 47 of 2022 and its amendments, UAE companies pay 9% on taxable income above AED 375,000 and 0% below it. Revenue of AED 3 million or below qualifies for Small Business Relief (extended until 31 December 2029), treating the period as having no taxable income — a simplified return is still required. Technology freelancers and sole owners should note the separate natural-person rule: registration is required only when total turnover exceeds AED 1 million in a calendar year, with registration by 31 March of the following year.
Free zone tech companies: the software trap
Software development and IT consulting are not listed among the qualifying activities in Ministerial Decision No. 229 of 2025, which replaced MD 265 of 2023. The qualifying activities cover manufacturing, processing, commodity trading, share holding, shipping, reinsurance, fund and wealth management, headquarters and treasury services, aircraft financing, distribution from a designated zone and logistics.
A free zone tech business can still reach qualifying income through two other routes in Cabinet Decision No. 100 of 2023:
- Qualifying Intellectual Property income — income from patents and copyrighted software the company owns and exploits, calculated under the nexus method: qualifying R&D expenditure uplifted by 30%, capped at overall expenditure.
- Qualifying activities that genuinely fit the business — for example headquarter or treasury services to related parties, or distribution of goods from a designated zone, where the substance exists.
Service income from writing custom software for clients does not automatically qualify. To keep the 0% rate, the business must also meet the general conditions: adequate substance in the free zone, non-qualifying revenue within the de minimis (the lower of 5% of total revenue or AED 5 million), and audited financial statements. Failing a condition costs the 0% rate for the current and four subsequent tax periods.
The R&D tax credit (tax periods starting 1 January 2026)
Under Cabinet Decision No. 215 of 2025 and Ministerial Decision No. 24 of 2026, qualifying R&D conducted in the UAE earns a credit against corporate tax:
- 15% on the first AED 1 million of qualifying expenditure, 35% on the portion up to AED 2 million, and 50% on the portion up to AED 5 million — subject to minimum UAE employee thresholds (2, 6 and 14 respectively).
- Qualifying expenditure is uplifted by 30% for attributable overheads.
- Activities must align with OECD Frascati Manual definitions; unutilised credit carries forward.
For a software company doing genuine product R&D in the UAE, this is the first direct tax credit of its kind — but claims must be documented project by project.
Other deductions tech companies miss
- Tax losses carried forward for up to 10 years against future profits, subject to continuity conditions.
- Group relief where 75% ownership conditions are met.
- Interest deduction limit — net interest expense is deductible up to 30% of EBITDA.
- Transfer pricing — cross-border charges to a foreign parent for IP, licensing or shared services must be at arm's length and documented.
Which category is your tech business in?
| Situation | Likely treatment | Condition to check | Source |
|---|---|---|---|
| Mainland software house serving UAE clients | 9% above AED 375,000 | Deductions and reliefs claimed in full | Federal Decree-Law No. 47 of 2022 |
| Free zone SaaS with owned, copyrighted software | Income from Qualifying IP may qualify for 0% | Nexus calculation, ownership records, audited accounts | Cabinet Decision No. 100 of 2023 |
| Free zone IT consultancy billing clients | Service income generally non-qualifying | De minimis headroom; mainland tax on non-qualifying income | MD 229 of 2025 |
| Startup with product R&D in the UAE | R&D tax credit from 2026 periods | Frascati alignment, employee thresholds | MD 24 of 2026 |
| Tech freelancer / sole owner | No CT until turnover exceeds AED 1m; register by 31 March after | Annual revenue tracking | Federal Decree-Law No. 47 of 2022 |
Frequently asked questions
Is software development a qualifying activity for free zone 0% tax?
No. The qualifying activities list in Ministerial Decision No. 229 of 2025 does not include software development. A free zone tech company's route to qualifying income is through ownership and exploitation of Qualifying Intellectual Property such as copyrighted software, or through another listed activity with real substance.
Does a small software startup pay corporate tax?
Companies pay 0% on taxable income up to AED 375,000 and can elect Small Business Relief with revenue at or below AED 3 million — but registration and filing obligations still apply. Natural persons doing business pay tax only once total turnover exceeds AED 1 million.
Can a tech company claim both the free zone 0% and the R&D credit?
The R&D credit reduces corporate tax payable. Where qualifying income is already taxed at 0%, the credit has no immediate effect — but credits can matter on the non-qualifying, mainland-taxed portion of income. Structure and claim position should be reviewed case by case.
Finanshels registers, files and structures corporate tax for UAE tech companies — talk to our tax team before your filing deadline.
