Ministerial Decision No. 173 of 2025 introduces corporate tax relief for businesses that hold investment properties measured at fair value under IAS 40. Effective 1 January 2025, this change aligns accounting and tax treatment for real estate investors in the UAE.
What the Change Means
Under the fair value model, companies record property value changes without recognising annual depreciation. This created higher taxable income. The new rule allows eligible businesses to claim depreciation for tax purposes, ensuring fairness between fair value and cost models.
Who Can Elect This Option
A taxable person must hold investment properties measured at fair value, apply the accrual basis of accounting, and use the realisation basis for taxation. The election must apply to all fair value properties and is made once.
How the Deduction Works
The allowable annual depreciation is the lower of four percent of the property’s original cost or the tax written down value. If the period is shorter or longer than 12 months, the deduction is adjusted proportionally.
When to Make the Election
The election must be made in the corporate tax return for the relevant year, including the first year after small business relief no longer applies. Missing the election permanently removes eligibility.
When Adjustments Must Be Made
If a property is sold, transferred, or written off, any depreciation claimed must be added back in that period’s return. The same applies if the business changes accounting policy or ceases activity.
Exceptions and Anti Abuse Rule
Depreciation does not need to be added back for group transfers, qualifying ownership transfers, or restructurings. However, the FTA may deny deductions if a transaction lacks commercial purpose.
Key Takeaways
The new measure ensures equal treatment for fair value and cost model users, reduces distortions, and provides clarity to real estate businesses. Investors should identify eligible properties and make the election in their first tax return after 1 January 2025.
For more details, download MCA Gulf’s full guide on Depreciation Relief for Investment Properties.
Please feel free to contact us for any further clarifications.
Contact Details
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