As the UAE corporate tax regime continues to evolve, the UAE Ministry of Finance has issued a significant new policy, Ministerial Decision No. 173 of 2025, on depreciation adjustments for investment properties held at fair value for Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.
Pursuant to this Decision, taxpayers who elect the realisation basis are entitled to claim an annual depreciation deduction on investment properties accounted for at fair value. This ministerial decision brings clarity and tax consistency to how businesses can claim depreciation on investment properties measured at fair value, addressing a long-standing gap between accounting practices and tax law.
What the Ministerial Decision Covers
Ministerial Decision No. 173 of 2025 was issued on 23 June 2025 and applies to tax periods beginning on or after January 1, 2025, under the UAE Corporate Tax regime.
The decision specifically addresses depreciation adjustments for investment properties held at fair value, as defined under International Accounting Standard (IAS) 40, ensuring these assets are treated fairly for corporate tax purposes.
Key Highlights of the Depreciation Adjustments
Irrevocable Election for Depreciation
Taxable persons must make an irrevocable election to apply the depreciation adjustments. Once made, this election applies to all investment properties held at fair value and cannot be changed later.
Eligibility Requirements
To qualify for this benefit:
- The entity must prepare financial statements on an accrual basis; and
- Eligible Taxable Persons may choose to claim depreciation on Investment Properties that are recorded at fair value under the relevant Accounting Standards.
- Investment Property refers to a building, or part of a building, held to earn rental income or for capital appreciation, as defined under IAS 40. Land and other IAS 40 exclusions are not included.
- Once this option is elected, it cannot be reversed and must be applied to all Investment Properties held at fair value, without selective application.
Depreciation Mechanics
Under the Ministerial Decision:
- Tax depreciation is calculated annually as the lower of:
4% of the original cost of the investment property; or
the Tax Written Down Value (TWDV) at the start of the tax period. - The deduction is prorated if the asset is held for part of a tax period.
- The depreciation continues until the TWDV is nil, the property is disposed of, or fair value accounting ceases.
Determining Original Cost and Opening Value
The decision clearly defines terms such as
- Original Cost: the cost as specified under IAS 40, including capitalised additions.
- Opening Value: original cost reduced by accumulated depreciation of 4% per year held before corporate tax.
Tax Written Down Value: the opening value less depreciation previously applied.
Tax Planning and Compliance Considerations
Election Timing
Taxpayers must make the irrevocable depreciation election on the tax return for the first period in which they either hold investment property or the election applies. Failure to do so will forfeit the opportunity to claim depreciation.
| Scenario | Deadline for the sub-election |
|---|---|
| 1. Taxable person holds investment property during first tax period to which this MD applies | Sub-election to be made whilst filing the CT return for that period. |
| 2. Taxable person does not hold investment property during first tax period to which this MD applies | Election to be made in the CT return for the tax period in which the first investment property is held. |
| 3. Taxable person has elected for Small Business Relief in the prior tax period | Election to be made in the CT return for the first tax period in which the relief does not apply. |
Tax Planning and Compliance Considerations
- Realisation happens when an asset is sold, disposed of, derecognised, becomes fully worthless, or when the entity changes from the fair value to the cost model. It also applies if the entity becomes exempt, elects Article 21, or ceases business through dissolution or liquidation.
- When a realisation event occurs, the total depreciation previously claimed must be added back to the Taxable Income. This does not apply if the transfer qualifies for intra-group relief or takes place within the same Tax Group.
- Depreciation add-back is calculated based on the total depreciation claimed, adjusted for any partial disposal. If the transferor is no longer a Taxable Person, the add-back obligation shifts to the transferee.
Anti-abuse Provision
If investment property is transferred between related parties without valid commercial reasons, the tax authority may disallow depreciation deductions to prevent tax avoidance.
Why This Matters for Businesses in the UAE
The Ministerial Decision plays a crucial role in the UAE’s tax landscape by:
- Aligning tax outcomes with accounting practices for fair-valued investment properties;
- Promoting fairness and neutrality for all taxpayers, regardless of the property valuation model;
- Improving reporting transparency and compliance under the corporate tax regime.
By granting a clear depreciation treatment, the decision helps companies better forecast taxable income, optimise tax planning, and enhance financial predictability under Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.
Why Choose MBB Auditing?
At MBB Auditing, we are more than an audit firm – we are your trusted partner in navigating the evolving UAE regulatory landscape with confidence and clarity. Our team of certified auditors and consultants delivers end-to-end solutions, ensuring full compliance with internationally recognised standards such as ISA, IAS, and IFRS. With a personalised approach tailored to your business needs, we provide strategic guidance and dedicated support at every stage.
FAQs:
Eligible taxable persons must:
- Prepare financial statements on an accrual basis.
- Hold investment properties accounted for at fair value under IAS 40.
No. The election is irrevocable and must apply to all investment properties held at fair value; selective application is not allowed.
  Depreciation is calculated annually as the lower of:
- 4% of the original cost of the investment property; or
- The Tax Written Down Value (TWDV) at the start of the tax period.
It is prorated if the property is held for only part of the tax period.
A realisation event occurs when an investment property is:
- Sold, disposed of, or derecognised
- Fully written off
- Changed from fair value to the cost model
- Subject to business cessation, dissolution, or liquidation
- Transferred by an Exempt person.
The total depreciation claimed must be added back to taxable income (depreciation add-back). This is generally required unless intra-group relief applies or the transfer occurs within the same tax group.
Final Thoughts
The issuance of Ministerial Decision No. 173 of 2025 is a pivotal refinement in the UAE’s corporate tax regime. It balances the tax and accounting treatment for investment properties held at fair value. This step reinforces the UAE’s commitment to a transparent, business-friendly, and globally aligned tax system.
Stay proactive: businesses with investment properties should carefully assess their eligibility, election timing, and depreciation strategy to maximise benefits and ensure compliance under this new regime.
Â
