UAE Ministry Introduces Tax Depreciation for Fair Value Properties

Dubai, UAE – September 8, 2025 - The UAE Ministry of Finance has announced a significant change to corporate tax regulations, allowing tax depreciation on investment properties held at fair value. The move is expected to deliver a boost to the real estate sector while addressing a long-standing concern among businesses that follow the fair value accounting model.

Ministerial Decision No. 173 of 2025 will take effect from January 1, 2025, enabling companies to claim tax depreciation on eligible properties.

Sandeep Kumar, Corporate Tax Partner at UAE-based tax advisory firm Dhruva, welcomed the decision: "This decision is a welcome step towards aligning accounting and tax principles in the UAE. It provides optionality for businesses and creates consistency in how investment properties are treated for tax purposes."

How Depreciation Will Work

Under the new provisions, companies can claim depreciation at 4 percent per annum, calculated on the original cost of the investment property. The amount will be prorated based on the holding period of the property within a tax year.

To qualify, businesses must elect the realisation basis of taxation within the timeframe specified by the Ministry of Finance. This election:

• Must be made at the taxpayer level.
• Is irrevocable once submitted.
• If missed, permanently forfeits the right to claim depreciation on fair-valued properties.

"Taxpayers should not view this as a routine compliance update," added Kumar. "It is a strategic opportunity to align their tax positions with business realities."

Additional Provisions and Implications

The decision also applies to properties transferred under Qualifying Group Relief, Business Restructuring Relief, or within tax groups, ensuring continuity of tax treatment across related entities.

Since depreciation under the fair value model does not appear in financial statements, claiming it for tax purposes may create temporary differences and deferred tax liabilities under international accounting standards. The Ministry has clarified that adjustments will be required upon the eventual sale or transfer of such properties, reflecting any previously claimed depreciation.

Special rules have also been introduced for intra-group transfers, corporate restructurings, and entities within tax groups to maintain consistent tax treatment.

Kumar emphasized the importance of acting early: "Early elections in upcoming tax filings are critical, as this choice may affect not only real estate but also other fair-valued assets and unrealized gains or losses."

Impact on the Real Estate Sector

Industry experts believe this move will enhance transparency and reduce uncertainty for developers, investors, and corporate taxpayers. It also signals the UAE’s commitment to strengthening its tax framework to support business growth and align with international practices.

By offering a structured mechanism for depreciation, the Ministry aims to improve investor confidence while providing companies with a clearer view of their long-term tax planning strategies.

This decision is expected to have a positive ripple effect across the UAE’s real estate sector, encouraging new investments and supporting the country’s position as a leading global business hub.