UAE Introduces New Investment Property Tax Deduction

Tax Changes in UAE: Depreciation Now Deductible for Investment Properties

The United Arab Emirates has taken another step in clarifying corporate tax details: From January 1, 2025, companies can deduct depreciation from the tax base of their investment properties registered at fair value. This decision is linked to the 2022 Federal Law No. 47 concerning corporate taxes affecting companies and business activities.

What is the essence of the change?

Previously, only companies that kept their investment properties at historical cost basis could benefit from depreciation deductions. The new regulation opens this opportunity for those who register their properties at market (fair) value, provided they opt for the application of the "realization basis."

How much deduction can companies claim?

The deductible tax base will be the lower of the following two values:

The tax written down value of the given investment property or 4% annually of the property's original acquisition cost, which can be proportionally reduced if the tax period is less than a full year.

Who can utilize this opportunity?

The regulation is available to those who own investment property either before or after the introduction of corporate tax. Importantly, the taxpayer must irrevocably choose this option in the first tax year starting after January 1, 2025, in which they own property. This decision will also apply to all subsequently acquired investment properties.

Transparency and Equal Treatment

The decision aims to ensure equal treatment for all businesses holding investment properties, regardless of the accounting method chosen. Additionally, it provides clear guidance on when a claw-back of previously deducted depreciation might occur—such as situations where the property is not sold, but an event affects the accounting.

Transitional Opportunity to Make a Decision

The tax authority is also providing a one-time opportunity for those who previously did not choose the realization principle to do so now, thereby becoming eligible for tax depreciation deduction.

This new regulation could significantly impact companies holding investment properties, especially those who have solely relied on market valuation for accounting. The new system offers an opportunity for tax burden optimization, while also requiring accurate administration and timely decision-making.

(Source of the article: Ministry of Finance announcement.)