UAE Clarifies Tax Depreciation Rules on Fair‑Valued Properties

The UAE Ministry of Finance has introduced Ministerial Decision No. 173 of 2025, establishing clear rules for applying depreciation adjustments to investment properties held at fair value under the corporate tax regime. The decision allows businesses that choose the realisation basis to deduct tax depreciation, addressing a long-standing ambiguity in the treatment of such assets.

Under the new rules, eligible taxpayers may deduct whichever is lower: the tax written-down value of the property, or 4 per cent of the property’s original cost for each 12-month tax period. In cases where the tax period differs from a full year, the deduction is prorated accordingly. This provision applies to properties held both before and after the introduction of corporate tax, beginning with tax periods from 1 January 2025.

The decision requires taxpayers to make an irrevocable election for the realisation basis in their first tax period starting on or after 1 January 2025 in which they hold an investment property; once selected, the choice applies to all future such properties. To accommodate those yet to make the election, the Ministry has granted an exceptional opt-in window enabling taxpayers to secure these depreciation benefits.

Tax practitioners describe the move as enhancing fairness and aligning the UAE with international best practices. It establishes parity between owners of properties under historical cost accounting—already entitled to depreciation—and those adopting fair value accounting.

According to the official announcement, the decision offers comprehensive guidance on various scenarios, including transfers between related and unrelated parties, development projects, and claw-back situations. This ensures clarity in calculating tax obligations and supports accurate return forecasts from investment assets.

Industry reactions underline the practical benefits and strategic implications of the decision. Aldar Properties, Abu Dhabi’s leading listed developer, welcomed the changes. Faisal Falaknaz, Group Chief Financial and Sustainability Officer, described the measure as a “progressive and well-calibrated step” that affirms equity and supports long-term capital planning under the corporate tax law.

He added that the decision will reinforce investor confidence and enhance the UAE’s competitiveness as a global real estate destination. Aldar’s investment arm holds a property portfolio valued at Dh25.8 billion as of 31 December 2024, and this clarification could affect similar entities across the sector.

Financial and tax advisory firms emphasised the immediate cash flow advantages from the depreciation allowance. Anurag Chaturvedi, CEO of Andersen UAE, noted that the absence of depreciation claims on fair-valued properties previously led to higher taxable profits and increased tax liabilities. Now, with the new decision, firms opting for the realisation basis may reduce their taxable income by as much as 4 per cent of the original purchase cost per year.

Thomas Vanhee, founding partner of Aurifer, described the decision as harmonising tax treatment with common economic lifespans of properties. He explained that businesses using fair value accounting now gain access to depreciation benefits comparable to those using historical cost without requiring an asset sale.

Industry analysts have drawn attention to important caveats. Businesses should note that once they elect the realisation basis, they cannot reverse the decision. Moreover, property disposals or transfers—especially within corporate groups—could trigger claw-back provisions, meaning previously claimed deductions might be recouped by tax authorities.

Gaurav Keswani, managing director of JSB in Dubai, urged companies to exercise caution, emphasising the importance of long-term strategic planning. He warned that misjudging the choice between realisation and fair value methods could lead to unintended tax liabilities.

The backdrop to the decision lies in the UAE’s broader roll-out of federal corporate taxation. Introduced on 1 June 2023, the regime charges a 9 per cent rate on profits exceeding Dh375,000, with a threshold of Dh1 million in annual turnover for applicability. The depreciation clarification forms part of the government’s continued efforts to refine and operationalise the tax framework for transparent business operations.

Financial experts are awaiting further interpretative guidance from the Ministry of Finance and the Federal Tax Authority. This guidance is expected to cover nuances in depreciation calculations, accounting treatment, claw-back events, and interactions with wider tax provisions.