Abu Dhabi:
The UAE Ministry of Finance has introduced a new regulation that allows companies to claim tax deductions on depreciation for investment properties held at fair value. This update brings parity between businesses using fair value accounting and those following the historical cost method.
The announcement is part of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022) and takes effect for tax periods beginning on or after January 1, 2025.
Key Highlights of the New Rule:
Clarity on Reversals:
The Ministry also issued guidance on “claw-back” scenarios — situations where previously claimed depreciation may need to be reversed, such as when the property is not disposed of but circumstances change.
Eligibility:
Taxpayers can now deduct depreciation from their taxable income if they elect to use the “realization basis” method. This choice must be made irrevocably in their first eligible tax period.
Depreciation Limit:
The deductible amount will be the lower of 4% of the original property cost or the written-down value, calculated annually or proportionally for shorter periods.
Applies Broadly:
The rule covers investment properties acquired both before and after the implementation of the corporate tax law.
Fair Value Alignment:
This decision ensures equity between firms using different accounting methods. Businesses using historical cost accounting already benefit from depreciation deductions, and this change offers the same to those using fair value.
One-Time Election Window:
Companies that have not yet opted for the realization basis can do so during a special one-time window, enabling them to benefit from this deduction opportunity.
