Investment Property Depreciation Under UAE Corporate Tax

What Is Ministerial Decision No. 173 of 2025?

Ministerial Decision No. 173 of 2025, issued on 23 June 2025 by the UAE Minister of State for Financial Affairs, introduces a long-awaited depreciation adjustment mechanism for investment properties held at fair value under the UAE Corporate Tax framework (Federal Decree-Law No. 47 of 2022).

The Decision is effective for tax periods commencing on or after 1 January 2025 and addresses a significant gap in the Corporate Tax rules — previously, businesses holding investment properties at fair value under IAS 40 could not claim any depreciation deduction, since fair value accounting does not recognise depreciation through the income statement.

Who Qualifies for This Election?

Not every taxable person qualifies. You must satisfy all three prerequisites simultaneously:

1. Accrual basis of accounting — your financial statements must be prepared on an accrual basis (most UAE businesses already do this).
2. Realisation basis elected — you must have elected to recognise gains and losses on a realisation basis under Article 20(3) of the Corporate Tax Law. This means unrealised fair value movements are excluded from your taxable income.
3. Investment properties at fair value — the properties in question must be classified as Investment Property under IAS 40 and measured using the fair value model (not the cost model).

If you are unsure whether your business meets these conditions, our Corporate Tax advisory team can review your financial statements and CT elections to confirm eligibility.

How the 4% Depreciation Mechanism Works

Once the election is made, the annual depreciation deduction is calculated as the lower of:

1. 4% of the Original Cost — prorated if the tax period is shorter or longer than 12 months, or if the property is held for only part of the period.
2. The Tax Written Down Value (TWDV) at the start of the relevant tax period — this ensures the deduction never exceeds the remaining depreciable base.

What Counts as "Original Cost"?

Original Cost follows the IAS 40 definition of "cost" and includes the initial purchase price plus any subsequent capitalised expenditure (major renovations, structural improvements). Costs from related-party transactions are subject to the arm's length principle under Article 34 of the CT Law.

Understanding the Opening Value

If you held the property before the first applicable tax period (typically before 1 January 2025), the starting point is not the full Original Cost. The Opening Value is the Original Cost reduced by a notional 4% per calendar year (or part-year) you held the property before 2025.

Election Rules & Deadlines

The election under MD 173 is irrevocable and applies to all investment properties held at fair value — you cannot cherry-pick individual properties. Here are the key deadlines:

• Already hold investment property: The election must be made in the Tax Return for the first tax period to which this Decision applies (i.e., the period starting on or after 1 January 2025).
• Acquire investment property later: The election must be made in the Tax Return for the tax period in which the first investment property is acquired.
• Previously under Small Business Relief (Article 21): The election must be made in the first tax period after Small Business Relief ceases to apply.

Need assistance making this election in your Corporate Tax Return? Our team handles the entire filing process, including all MD 173 elections and supporting schedules.

The Disposal Clawback — What Happens on Sale?

This is the most critical point for investors to understand. The depreciation deduction under MD 173 is not a permanent tax saving — it is a timing benefit (deferral).

Upon disposal of an investment property (sale, settlement, derecognition, or change to cost model), the total accumulated depreciation claimed must be added back to taxable income in the disposal year. This applies to arm's length sales to unrelated third parties.

When the Clawback Does NOT Apply

The clawback is deferred (not triggered) if the property is transferred through:

• Qualifying business restructuring under Article 26 or 27 of the CT Law
• Transfers between members of a Tax Group

In these cases, the accumulated depreciation is carried over to the transferee, who inherits the clawback obligation. This is significant for exit planning — structuring the disposal as a qualifying transfer can defer the clawback indefinitely.

Anti-Abuse Rule (Article 6)

The FTA reserves discretion to disallow depreciation claimed by a transferee if a related-party transfer lacks a valid commercial purpose. Transfers between related parties must reflect genuine economic substance.

Practical Impact: Is It Worth Electing?

The answer depends on your holding horizon and exit structure:

Our recommendation: Elect in virtually all cases. The downside is negligible (one additional schedule in your CT return), while the cost of not electing — permanent forfeiture — is irreversible. Our accounting team prepares the depreciation schedule and integrates it into your annual filing workflow.

Step-by-Step: How to Make the Election

1. Confirm eligibility — verify accrual basis accounting, realisation basis election, and fair value measurement of investment properties under IAS 40.
2. Bifurcate land and building costs — if any property includes land, separate the cost components with a professional valuation.
3. Calculate Opening Values — for each property, reduce the Original Cost by 4% per calendar year held before 2025. Use the calculator above for quick estimates.
4. Prepare a depreciation schedule — document the Original Cost, Opening Value, annual 4% deduction, and projected TWDV for each property across all future periods.
5. Make the election in your CT Return — the election must be clearly indicated in the Tax Return for the first applicable period. A simultaneous realisation basis election (under Article 20(3)) may also be made at this stage if not already done.
6. Track clawback obligations — maintain a running register of accumulated depreciation to correctly calculate the add-back upon eventual disposal.

If you prefer to have professionals handle the entire process end-to-end, our Corporate Tax filing service includes election management, depreciation schedules, and ongoing compliance tracking.

Key Definitions at a Glance

Interaction with Other CT Provisions

MD 173 does not operate in isolation. Key interactions include:

• Realisation basis (Article 20(3)): The election under MD 173 requires the realisation basis to be in effect. The Decision also provides a special exception allowing a taxable person to elect the realisation basis at the same time as the MD 173 election, even if they did not elect it earlier (overriding the usual deadline in Ministerial Decision 134/2023).
• Qualifying Group Transfers (Article 26/27): Business restructuring relief applies — disposals through qualifying transfers do not trigger the clawback, and the transferee inherits the depreciable base.
• Tax Groups (Article 40–42): Intra-group transfers are similarly treated, with the clawback following the asset to the transferee.
• Small Business Relief (Article 21): Businesses transitioning out of SBR can make the election in their first non-SBR tax period.
• VAT considerations: While MD 173 is purely a Corporate Tax measure, the underlying property transactions may trigger VAT obligations. Ensure your VAT filings are aligned with any property disposals or transfers.

Frequently Asked Questions