On July 17, the UAE Ministry of Finance introduced a significant update impacting companies holding investment properties at fair value. As per the new Ministerial Decision issued under Federal Decree-Law No. (47) of 2022 on Corporate Taxation, eligible businesses can now claim tax depreciation on such properties, providing much-needed clarity and relief.
This new adjustment allows taxpayers who have chosen the realisation basis to deduct depreciation on their fair-valued investment properties. The allowable deduction will be calculated as the lower of either the property's tax written down value or four percent of its original cost, applicable per 12-month tax period or prorated if held for a shorter time.
This policy ensures fairness between taxpayers who follow historical cost accounting (and already claim accounting depreciation) and those who measure their investment properties using fair value standards. It applies to properties acquired both before and after the corporate tax regime was introduced.
To benefit from this provision, taxpayers must make an irrevocable election in the first tax period beginning on or after January 1, 2025, in which they own an investment property. Once made, this election will apply to all investment properties going forward. An exceptional window is also being provided for those who need to opt into the realisation basis to qualify.
The decision further clarifies how depreciation should be calculated in scenarios involving related party transactions, third-party transfers, or properties developed by the taxpayer. It also outlines situations where a claw-back of tax depreciation might be required, helping businesses understand their compliance responsibilities and plan their financial strategies accordingly.
This move reinforces the Ministry’s commitment to tax neutrality and equitable treatment across the corporate landscape, aligning the UAE’s tax framework with international practices.
