The UAE Ministry of Finance has recently introduced Ministerial Decision No. 173 of 2025, on Depreciation Adjustments for Investment Properties Held at Fair Value- a critical update under Federal Decree-Law No. (47) of 2022 on Corporate Tax. The update brings consistency to the treatment of investment properties.
Why this matters?
Previously, only property owners using the historical cost method could claim tax depreciation, while those valuing at fair market value often could not. Under the new decision, both groups- cost based and fair value investors can deduct depreciation from their taxable income, as long as they opt for what’s known as the “realization basis”.
How the Depreciation Works?
Under the new rule, eligible taxpayers can elect to deduct depreciation if their investment property is held at fair value.
The deduction will be the lower of:
- 4% of the property’s original cost, or
- The written-down value of the property
Deductions are applied annually to each 12-month tax period or are prorated for part of the year accordingly. The rule applies to properties held both before and after the introduction of UAE corporate tax.
Election Process and Important Deadlines
To take advantage of this benefit, taxpayers must make an irrevocable election for the realization basis in their first tax period beginning on or after January 1, 2025, in which they hold investment property. The election applies to all properties owned going forward.
Recognizing that not everyone might have selected this approach previously, the Ministry is providing an exceptional window for taxpayers to opt in and claim these deductions in the first relevant tax period.
Guidance on Tax Depreciation Claw-backs
The Ministry also addressed situations where depreciation may need to be reversed—such as property disposal, transfers between related and unrelated parties, and development projects. This ensures taxpayers can make informed decisions, accurate forecasts and avoid unexpected tax liabilities.
A few key benefits
- Fairer treatment: Investors using different accounting methods are now taxed more equally.
- More neutrality: The decision no longer pushes taxpayers to prefer one valuation method merely for tax reasons.
- Promote international standards: Aligning the UAE with global practices helps attract international investors. It establishes parity between owners.
Impact on Real Estate
REITs and large property investment holders that follow fair value accounting under IFRS standards can now align their tax planning more effectively, helping them improve long-term financial performance.
Conclusion
The UAE’s new depreciation update on investment property reflects a strong commitment toward fairness, transparency, and alignment with international standards. This decision eliminates biases between accounting methods, ensuring a level playing field for all investors and businesses.
