A New Incentive for Property-Holding Businesses

In a significant development under the UAE’s corporate tax regime, the Ministry of Finance has announced that businesses can now deduct depreciation on investment properties recorded at fair value. This change, effective for tax periods beginning on or after January 1, 2025, aims to ensure fair treatment between firms using different accounting standards.

Leveling the Tax Playing Field

Until now, only entities using the historical cost model could claim depreciation as part of their tax deductions. The new directive extends this benefit to companies that value properties at fair market rates—helping to balance the tax advantages across accounting methods. Businesses opting for this depreciation relief must adopt the “realization basis” and make a one-time, irrevocable election in their first qualifying tax year.

How the Deduction Works

Under the revised rule, the depreciation deduction will be the lower of 4% of the property's original cost or its written-down value. This is calculated over a 12-month tax period and can be prorated for shorter financial years. Importantly, this benefit applies whether the property was acquired before or after the corporate tax law came into force.

One-Time Election Window for Eligible Firms

For companies that haven't yet selected the realization basis, the Ministry is offering a one-time window to opt in. This allows a broader group of taxpayers to access the depreciation deduction, reinforcing transparency and inclusivity within the tax system.

Clear Guidance on Reversals and Exceptions

The update also includes rules on claw-back scenarios—where depreciation deductions may need to be reversed in cases other than property disposals. This ensures accountability while preventing tax mismatches in the long term.

Part of the UAE’s Broader Tax Vision

This reform is part of the UAE’s ongoing efforts to create a globally aligned, neutral, and modern corporate tax environment. With over 576,000 entities now registered under the Corporate Tax Law, this step is another move toward clarity and fairness in the business taxation framework.