Issuance of Ministerial Decision - Depreciation Adjustment for Investment Properties held at Fair Value

18 July 2025 – On 23 June 2025, the UAE Ministry of Finance (MOF) issued Ministerial Decision No. 173 of 2025 (the "Decision / MD") which prescribes depreciation adjustment for investment properties held at fair value for the purpose of UAE Corporate Tax Law (CT Law).

Summary

The Decision provides an additional benefit for those taxable persons whose investment properties are accounted for at fair value as per IAS 40 and have elected for taxation on realization basis. Specifically, such taxpayers would be entitled for a tax depreciation on these assets at the lower of:

• 4% of original cost; or
• Tax written down value at the start of the respective tax period.

From a UAE CT perspective, this benefit is intended to level the playing field for taxpayers following the fair value model or cost model, as per IAS 40.

To claim such depreciation deduction, taxable persons would be required to make an irrevocable election (referred to as “sub-election”).

Key requirements to avail the depreciation deduction:

• Taxable person must prepare its financial statements as per accrual basis of accounting.
• Taxable person must have elected for a realisation basis of accounting as per Article 20(3) of the CT Law.

Key Provisions

• Sub-election would be relevant for all the investment properties as defined in the Decision and held by the taxable person at fair value (i.e., election is not asset-by-asset).
• Definitions are provided for key attributes relevant for deriving the amount for depreciation deduction (such as - opening value, original cost, tax written down value etc.).
• The Decision also provides timelines for the sub-election, as summarized below:

* Sub-election not made within the specified timeline will result in forfeiture of this right.

** Special window made available to revisit the realisation basis election in case where the same was not made in the first tax period.

• Decision specifically provides events which will be construed as realisation of an investment property in respect of which the sub-election has been made, which includes:
  • Sale, disposal, transfer (excluding transfer where relief is claimed), settlement, complete worthlessness, or other form of derecognition as per IFRS,
  • Change in accounting policy to cost model,
  • Taxable person becomes an exempt person or claims small business relief,
  • Taxable person ceases its business or business activity.
• Tax impact upon realisation of the investment properties:
  • Adjustment to be made for realised gains/losses to be offered to tax, and
  • Adjustment to be made to increase the taxable income by the value of aggregate depreciation deduction claimed as per this MD.
• Specific provisions/ rules provided in case where reliefs have been availed (say, for transfers within a qualifying group, business restructuring relief) under the provisions of the CT law.
• Specific anti abuse rule provided for transfer of investment properties between related parties, which may result in disallowance of such depreciation deduction.
• Decision shall be effective for tax periods starting on or after 1 January 2025.

Key Action Points

Taxable persons to reassess the decision around election for realisation basis of accounting before filing their first CT return considering the benefit of depreciation deduction effective 1 January 2025.In case where CT Return is already filed for the first tax period, the realisation basis of accounting election may be revisited as per the sub-election timelines indicated above.

Conclusion

This is a welcome move especially for the real estate businesses operating in the UAE, as such deduction of depreciation at the time of computing taxable income would provide relief by way of a reduced outflow of taxes until realisation.

Having said the above, such tax depreciation adjustments are likely to create a temporary difference resulting in the requirement to record a potential deferred tax liability.

Decision also states that change in accounting policy will be considered as a realisation event and this interpretation may have broader implications.

Stakeholders are advised to promptly review the implications of the Decision and assess the impact on tax positions taken/ to be taken.

Taxpayers subject to Pillar Two rules should consider the impact of this Decision on their Pillar Two tax profile.

For detailed analysis and assistance, please reach out to your usual Deloitte contact.

Notice

The above is only a brief summary of the current update, is valid at the time of circulation and is based only on information currently available in the public domain which is subject to change. This alert has been written in general terms and does not constitute any form of advice or recommendation by Deloitte and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we highly recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication. Deloitte accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.

Deloitte and Touche Middle East would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances.

Contacts

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