UAE Corporate Tax Update: Property Owners to Benefit from New 4% Depreciation Rule

The UAE’s recent update to its corporate tax framework offers significant relief for companies holding investment properties. A ministerial decision now permits a 4% annual depreciation deduction on investment properties measured at fair value, providing a welcomed tax advantage to real estate investors, especially those with long-held assets appreciating substantially over time.

Key Change: 4% Depreciation Now Deductible

Under the new rule, property owners can deduct up to 4% of the original cost of an investment property each year as a depreciation expense—but only if the property is accounted for at fair value and if the taxpayer opts for the realisation basis of taxation.

This option must be elected in the first tax period beginning on or after 1 January 2025, meaning businesses must act swiftly and strategically ahead of their first corporate tax filing due by September 2026.

Historical Cost vs Fair Value: What's the Impact?

This policy introduces a clear choice for property owners:

  • Hold at Historical Cost:
    Tax is paid on the entire gain at the time of sale. There’s no interim depreciation benefit.

  • Hold at Fair Value with Realisation Basis:
    Enables 4% annual depreciation on the original cost, reducing taxable income each year. Tax on gains is deferred until actual disposal.

Choosing the fair value method can substantially reduce taxable profits if your property has significantly appreciated over time. For example, a property bought at AED 1 million and now worth AED 3 million can generate AED 200,000 in cumulative depreciation deductions over five years—potentially saving AED 18,000 in corporate tax (at 9%).

However, if the property value has decreased since purchase, retaining the historical cost basis may be more advantageous to avoid recognising a loss for tax purposes.

Strategic Decision-Making Required

This new rule empowers taxpayers to align their property accounting with commercial realities. Investors can now:

  • Claim depreciation on fair-valued properties, enhancing tax efficiency.

  • Defer tax on unrealised gains until sale, improving cash flow.

  • Select their basis (cost vs market) across all properties, but must do so consistently and upfront for their first tax period.

The decision is irrevocable for each taxpayer once made, so it is vital to evaluate the long-term implications, especially for those with a diverse or high-value property portfolio.

Example in Practice

Consider a company that purchased a commercial unit in 2010 for AED 400,000. It is now valued at AED 3.3 million. If the company opts for fair value and elects the realisation basis, it can deduct 4% of AED 400,000 annually (i.e., AED 16,000 per year), lowering its annual taxable income. Tax on the full capital gain is only paid when the property is eventually sold.

Alternatively, holding it at cost means the entire AED 2.9 million gain would be taxable upon disposal, with no depreciation benefit along the way.

Planning Ahead: Zyla’s Guidance

At Zyla Accountants, we advise businesses to:

  • Review their property portfolio and evaluate fair value vs historical cost benefits.

  • Model future disposal scenarios to estimate tax impact under both options.

  • Elect the realisation basis where strategically sound, before the first tax period deadline.

This regulatory update marks a pivotal shift in the UAE's corporate tax regime, helping create a level playing field between different accounting methods and offering real estate-heavy businesses greater flexibility in managing their tax exposure.

Need help deciding your depreciation and valuation strategy?
Zyla’s Corporate Tax specialists are on hand to guide your business through the decision-making and compliance process, ensuring optimal tax outcomes.

📞 Contact us today for a consultation.

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New UAE Tax Rule: Firms Can Now Deduct Depreciation on Investment Properties Held at Fair Value