Depreciation Adjustments for Investment Properties held at Fair Value for the Purposes of the UAE Corporate Tax
The UAE Ministry of Finance has issued a new Ministerial Decision the Ministerial Decision No. 173 of 2025 regarding Depreciation Adjustments for Investment Properties held at Fair Value for the Purposes of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.
This reflects the Ministry’s commitment to ensuring a level playing field for all taxpayers, thereby reinforcing the principles of tax neutrality and equity within the UAE Corporate Tax regime, and ensuring that such deductions are aligned with international best practices.
The Ministerial Decision outlines the depreciation adjustments for investment properties held at fair value under the corporate taxation.
Key Point:
The Ministerial Decision establishes rules for depreciation adjustments for investment properties held at fair value under the Federal Decree-Law No. 47 of 2022 on corporate and business taxation. Below is an overview:
Depreciation Deduction: A 4% annual deduction based on the original cost or tax written-down value of the property.
Overview:
- The decision provides guidelines for adjusting taxable income by applying depreciation deductions to investment properties held at fair value, aligning with corporate tax regulations.
- Investment Property: Buildings held for rental income or capital appreciation, excluding land and other exclusions under International Accounting Standard No. 40.
- Realisation: Events such as sale, disposal, derecognition, or change in accounting policy trigger adjustments to taxable income.
- Election to Apply Depreciation:
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- Taxable persons can make an irrevocable election to apply depreciation deductions to investment properties held at fair value.
- The election applies to all such properties and must be made within specified timelines in the tax return for the relevant tax period.
- Realisation Adjustments:
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- Upon realisation of an investment property, taxable income is adjusted to account for depreciation deductions previously claimed.
- Adjustments are made in the tax period when the realisation event occurs.
- Transfers:
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- Special rules apply to transfers of investment properties within tax groups or under specific articles of the Corporate Tax Law.
- Depreciation deductions claimed by the transferor may be attributed to the transferee.
- Anti-Abuse Rule:
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- The authority may disallow depreciation deductions for transfers between related parties if the transaction lacks valid commercial or economic reasons.
- Effective Date:
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- The decision applies to tax periods starting on or after 01 January 2025 and comes into effect upon issuance.
In further details:
This decision impacts investment properties in the following ways:
1. Depreciation Adjustments:
- Taxable persons holding investment properties at fair value can elect to apply a depreciation deduction to reduce their taxable income.
- The deduction is calculated as the lower of:
- 4% of the Original Cost per year (or prorated for shorter periods).
- The Tax Written Down Value at the start of the tax period.
2. Election Requirement:
- Taxable persons must make an irrevocable election to apply depreciation adjustments in their tax return for the relevant tax period.
- If the election is not made within the specified timeline, the right to apply depreciation adjustments is forfeited.
3. Realisation Events:
- When an investment property is sold, disposed of, derecognized, or its accounting policy changes, taxable income is adjusted to account for previously claimed depreciation deductions.
- Realisation adjustments are made in the tax period when the event occurs.
4. Transfers:
- Special rules apply to transfers of investment properties within tax groups or under specific articles of the Corporate Tax Law.
- Depreciation deductions claimed by the transferor may be attributed to the transferee, ensuring continuity in tax treatment.
5. Anti-Abuse Measures:
- Transfers between related parties may be scrutinised, and depreciation deductions may be disallowed if the transaction lacks valid commercial or economic reasons.
6. Uniform Application:
- The election applies to all investment properties held at fair value under applicable accounting standards, ensuring consistency in tax treatment.
It is crucial that Taxpayers assess the application of this decision to their investment properties and the related CT elections.
If you have any questions or wish to discuss and understand the tax implications and compliance requirements for investment properties held at fair value, ensuring alignment with the UAE Corporate Tax regime, please do not hesitate to contact us.
