New UAE Tax Rule: Firms Can Now Deduct Depreciation on Investment Properties Held at Fair Value
In a significant move aimed at creating tax parity and clarity, the UAE Ministry of Finance has announced a new rule allowing companies to deduct depreciation on investment properties that are measured at fair value under their accounting policies. This decision marks a key step toward building a more equitable and globally aligned tax framework in the UAE.
What’s the Change?
Under the Ministerial Decision issued pursuant to Federal Decree-Law No. 47 of 2022 (UAE Corporate Tax Law), businesses can now claim depreciation deductions on investment properties held at fair value—an option previously unavailable to such entities.
This rule takes effect for tax periods beginning on or after January 1, 2025.
Why It Matters
Historically, only companies using the historical cost method were able to deduct depreciation on real estate assets. Businesses valuing their properties at fair value (in line with international accounting standards like IFRS) were at a disadvantage, as they couldn’t recognize such tax deductions.
The new rule addresses this disparity, ensuring equal treatment for all taxpayers, regardless of the accounting method used.
Key Features of the Rule
Here’s what businesses need to know:
1. Eligibility
Applies to all taxpayers owning investment properties, whether acquired before or after the introduction of Corporate Tax.
Must adopt the realization basis for property income and gains taxation.
2. One-Time Irrevocable Election
Businesses must make an irrevocable election to use the realization basis in their first eligible tax period (starting on or after Jan 1, 2025).
A limited-time opportunity is available for businesses that have not yet opted in.
3. Depreciation Deduction Formula
Businesses can deduct the lower of:
4% of the original cost, or
The written-down value of the property
Deduction is calculated annually, or prorated for partial-year periods.
4. Clawback Guidance
In cases other than disposals, where depreciation previously deducted may need to be reversed, the Ministry has provided clear “clawback” provisions to guide taxpayers.
What Should Businesses Do Now?
This new rule opens the door for substantial tax savings, but also requires timely decisions and accurate documentation. Here’s how your business can prepare:
🔸 Review Your Current Accounting Treatment
Are your investment properties measured at fair value?
Would a switch to the realization basis be beneficial?
🔸 Evaluate the Tax Impact
Run projections on depreciation deductions and potential clawbacks.
🔸 Act Within the First Tax Period
Missing the window to elect the realization basis means forfeiting the deduction opportunity.
🔸 Consult with Experts
Work with a tax advisor to ensure compliance and optimize your position.
How Zyla Accountants Can Help
At Zyla Accountants, we specialize in helping UAE businesses navigate the evolving corporate tax landscape. Our team can:
Assess the impact of this new rule on your tax liabilities
Assist with the realization basis election process
Ensure your accounting and tax reporting are aligned
Support you in dealing with any potential clawback scenarios
Ready to Take Advantage of This New Deduction?
Don't wait until the tax deadline. Contact Zyla Accountants today to schedule a consultation and ensure you're maximising your tax efficiency under the new UAE Corporate Tax rules.
📧 info@zylaaccountants.ae
📞 +971 4 123 4567
🌐 www.zylaaccountants.ae