06 May 2026
Depreciation plays a crucial role in UAE corporate tax for real estate, as it allows investors to reduce taxable income based on the consumption of investment property value over time. With the introduction of specific tax adjustment rules under Federal Decree-Law No. 47 of 2022, applicable for tax periods starting on or after 1 January 2025 and further clarified through Ministerial Decision No. 173 of 2025, taxpayers now have a defined mechanism for depreciation adjustments UAE.
Importantly, this is not a general depreciation regime, but a targeted tax mechanism applicable to investment properties measured at fair value, allowing taxpayers to account for deemed depreciation for corporate tax purposes.
These rules are particularly relevant for investors seeking tax planning for investment property depreciation UAE, as they determine the timing, amount, and eligibility for depreciation deductions under UAE corporate tax law 2026. Correct application ensures corporate tax compliance UAE 2026 and avoids disputes with the UAE Ministry of Finance tax guidelines.
What Is Depreciation Adjustments UAE Under the New Tax Law?
In the context of UAE Corporate Tax (CT), depreciation adjustments UAE apply specifically to investment properties where both conditions are met: the property is measured under the fair value model in accordance with International Accounting Standards (IAS) and the taxpayer has made a valid election for the realization basis under the UAE Corporate Tax Law. In such cases, the tax framework allows for a specific adjustment mechanism to account for depreciation for corporate tax purposes. This was clarified by the UAE Ministry of Finance through Ministerial Decision No. 173 of 2025 in alignment with Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the Corporate Tax Law).
This adjustment helps align UAE real estate taxation with economic use and equitable tax outcomes between fair value and cost model accounting treatment.
How Does Investment Property Tax UAE Treat Fair Value Assets?
Under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, investment properties are generally accounted for under IAS 40 – Investment Property. Where an entity uses the fair value model (i.e., no accounting depreciation), the new depreciation election allows a tax depreciation deduction — but only if the taxpayer elects to recognize gains and losses on a realization basis, as per Article 20(3) of the Corporate Tax Law.
This effectively extends the traditional UAE corporate tax depreciation framework to fair-value properties, making the tax treatment equitable for all investment-holding structures.
What Are the UAE Corporate Tax Depreciation Rules for Investment Properties?
Under Ministerial Decision No. 173 of 2025, the rules for depreciation adjustments UAE for investment properties held at fair value are clearly defined:
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A taxable person who prepares financial statements on an accrual basis and elects the realization basis under Article 20(3) of Federal Decree-Law No. 47 of 2022 may make an irrevocable election to claim depreciation for tax purposes.
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The allowable depreciation deduction for each tax period is the lower of:
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4 % of the Original Cost of the property, or
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Tax Written Down Value (TWDV) at the start of the tax period.
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This rule applies to full 12-month tax periods or is prorated if the property was held for a shorter period.
Key Takeaway: Article 2 of Ministerial Decision No. 173 of 2025 establishes the framework for claiming depreciation deductions under UAE corporate tax for investment properties measured at fair value.
How to Adjust Depreciation for Investment Properties Under UAE Tax?
Step-by-Step Guide to Depreciation Adjustments for UAE Investment Properties
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Prepare Financial Statements
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As per Article 20(3) of Federal Decree-Law No. 47 of 2022, a taxable person must prepare financial statements on an accrual basis and designate properties as investment properties under IAS 40.
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Only such properties are eligible for depreciation adjustments UAE.
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Elect Realization Basis
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As per Article 2 of Ministerial Decision No. 173 of 2025, a taxable person may make an irrevocable election to apply a realization basis for fair value investment properties in the first applicable Corporate Tax Return.
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Missing this election results in forfeiture of depreciation deductions.
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Calculate Depreciation
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Depreciation is calculated as the lower of 4 % of Original Cost or TWDV at the start of the tax period.
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Applies to a full 12-month tax period or prorated for shorter periods.
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Apply on Taxable Income
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Eligible depreciation deduction is deducted from taxable income for the period in which the property is held, per Article 20 of Federal Decree-Law No. 47 of 2022.
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Adjust Upon Realization
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If the property is sold or transferred outside a Tax Group, the previously claimed depreciation must be added back to taxable income. Articles 26/27 apply only when the transfer occurs within a Tax Group, potentially preserving the depreciation
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This ensures tax neutrality and prevents over-deduction.
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What Is the Depreciation Calculation UAE Tax Method?
The depreciation calculation UAE tax methodology for investment properties is straightforward:
How Does UAE Corporate Tax for Real Estate Interact with Accounting for Depreciation?
Investors often face a mismatch between accounting treatment and tax treatment of investment properties:
- Under IAS 40 (fair value model), no accounting depreciation is recorded, and changes in fair value are recognized in profit or loss.
- Under UAE Corporate Tax rules, taxpayers can claim depreciation for corporate tax purposes where they elect the realization basis, even though no depreciation is recognized in the accounting books under the fair value model.
This ensures equitable tax treatment for companies using fair value accounting, aligning tax depreciation with economic usage.
Conclusion: About AMCA — Expert Guidance for UAE Investment Property Tax
Understanding depreciation adjustments UAE under the UAE corporate tax regime is essential for real estate investors, corporate tax advisors, and corporate taxpayers. The introduction of structured depreciation rules ensures fairness and compliance for properties measured at fair value, bringing long-term clarity and tax neutrality.
For businesses seeking expert support on tax planning for investment property depreciation UAE, corporate tax compliance UAE 2026, and implementing depreciation deductions accurately, AMCA Auditing & Advisory Services provides specialized tax advisory for UAE real estate investments. AMCA’s team combines deep local regulatory expertise with practical guidance tailored to your business, ensuring optimized depreciation treatments and adherence to all applicable UAE Ministry of Finance tax guidelines.
Frequently Asked Questions
1. What is depreciation under UAE corporate tax?
Depreciation under UAE corporate tax refers to deductions allowed for investment properties to reduce taxable income. The rules are set under Federal Decree-Law No. 47 of 2022 and clarified in Ministerial Decision No. 173 of 2025.
- Deduction is the lower of 4% original cost or Tax Written Down Value (TWDV).
- Applies when the realization basis election is made.
- Only eligible for investment properties under IAS 40 fair value or cost model.
2. Who can claim depreciation deductions for investment properties?
Taxable persons preparing financial statements on an accrual basis, holding investment properties measured at fair value, can claim depreciation deductions only if they elect the realization basis under Article 20(3) of the Corporate Tax Law. Once the irrevocable election is made in the first applicable tax period, the depreciation deduction is valid for all qualifying properties.
3. When must the depreciation election be made?
The election must be submitted in the first Corporate Tax Return for the period in which the property is held.
- Failure to elect = no depreciation deduction for that property.
- Specified in Article 2, Ministerial Decision No. 173 of 2025.
4. How is depreciation calculated for investment properties?
Depreciation is calculated as the lower of:
- 4% of the original cost, or
- Tax Written Down Value (TWDV) at the start of the tax period.
- Prorated for partial-year holdings.
- Ensures consistency between accounting and tax depreciation.
5. Does depreciation apply if property is sold?
Yes. For tax purposes, when a property is sold or otherwise realized (like derecognition), the aggregate depreciation previously claimed must be added back to taxable income in that tax period, unless the transfer qualifies under Articles 26 or 27 of the Corporate Tax Law or is between Tax Group members.
6. Can depreciation be claimed if property is measured under cost model?
Yes. Properties measured under the cost model (IAS 40 cost model) naturally have accounting depreciation and qualify for tax depreciation via the usual accounting process. The special decision in 2025 specifically addresses properties measured at fair value to ensure equity between cost and fair value models.
7. What happens if depreciation is claimed incorrectly?
If depreciation is claimed without making a proper realization basis election or outside the prescribed timeline, the taxpayer may lose the deduction and face compliance issues with the Federal Tax Authority (FTA). Disallowed depreciation may result in higher taxable income and potential penalties.
8. Do these depreciation rules apply to all entities?
Yes. The depreciation framework under Ministerial Decision No. 173 applies to all taxable persons subject to UAE Corporate Tax who hold qualifying investment properties accounted at fair value and elect the realization basis. Free zone entities and those eligible for small business relief should consider when regular tax periods begin.
9. How does this affect real estate investors?
Real estate investors benefit from tax relief via depreciation deductions, which reduce taxable income on qualifying investment properties. This aligned approach to investment property accounting UAE creates parity between cost model and fair value investors and reinforces transparent corporate tax compliance.
10. Where can I find official UAE tax guidelines?
Official guidelines on depreciation and corporate tax compliance are available on the UAE Ministry of Finance website, including Ministerial Decision No. 173 of 2025 on depreciation adjustments, and Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. Always refer to MOF documents for compliance accuracy.
