Ministerial Decision No. 173 of 2025

Depreciation on Investment Properties

The Ministry of Finance has issued Ministerial Decision No. 173 of 2025 to allow companies holding investment properties measured at fair value (per IAS 40) to claim tax depreciation deductions. This aims to ensure fair tax treatment between companies using fair value accounting and those using the cost model.

Effective Date

Applies to tax periods starting on or after January 1, 2025

Key Provisions

Topic	Details
Eligibility	Companies holding investment properties measured at fair value under IAS 40 and applying realized basis of taxation under Article 20(3) of UAE Corporate Tax Law
Depreciation Allowance	Lower of:- a) 4% per year of the property's original cost (for each 12 month tax period or on pro-rata basis where property is held for shorter/longer/part of the Tax period) b) Tax written-down value (specifically defined in the decision)
Election	Irrevocable election must be made in the Corporate Tax Return which would apply to all Investment properties held at fair value (i.e. election cannot be made for selective investment properties).
Election Timeline	If Investment property already held – Election to be made in the first tax period after 1 January 2025. If Investment property not held - During first tax period to which this decision applies, election to be made in the first tax return for the tax period in which first investment property is held. If Small Business Relief availed – Election to be made in the year in which the said relief is not availed. *If election is not made within the aforesaid timelines, it shall be deemed that the taxable person has forfeited its right to make the election.*

Determination of Gain/Loss on Realization of Investment Property (on sale, transfer, dissolution, etc.):-

Except in case of Transfer within a Tax Group or transfers within Qualifying Groups or where Business Restructuring Relief is availed:-

Taxable income of the taxable person shall be increased by the aggregate deduction claimed under the said decision.
The aggregate deduction claimed by transferor shall be attributed to the transferee if the transferor ceased to become a taxable person.

Adjustments to Taxable Income:-

If transfer is within tax group, qualifying group or covered under business restructuring relief - Taxable Income of the transferee using the cost model shall be adjusted to exclude any depreciation or other change in the value of the Investment Property, to the extent of the depreciation deduction claimed by the transferor under this decision.
In cases of transfers other than above - The transferee shall adjust its Taxable Income to include any amount that has been previously excluded for Corporate Tax purposes under this decision.

Anti abuse provisions – If investment property is transferred between related parties, the FTA may at its discretion disallow depreciation deduction claimed by the transferee if the transaction is not for a valid commercial reason.

Key Takeaways:-

The decision is a welcome move which would align the tax treatment of investment properties valued at fair value vis-à-vis the tax treatment of valuing at cost. The said decision may have significant impact on certain industries like Real Estate sector and implications should be carefully evaluated.

If the election is made under this decision, the impact on tax computation including deferred tax implications should be analysed. It is important to maintain accurate and appropriate records, ensure timely evaluation of the impact of making election and make timely election as if election is not made timely, the option to make election will be forfeited.

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