Unveiling the recent UAE corporate tax regulations pertaining to real estate
The United Arab Emirates (UAE) has introduced a significant change in its corporate tax rules for property investments, effective from January 1, 2025. The changes, outlined in Ministerial Decision No. 173/2025, offer companies holding investment properties a new tax advantage: the ability to deduct depreciation for tax purposes based on original cost rather than the fair (market) value.
This rule applies only if companies elect the realisation basis for capital gains and losses, an election that is irrevocable once made.
The decision provides clear and consistent guidelines for how to treat depreciation on investment properties, aligning tax accounting more closely with International Financial Reporting Standards (IFRS) applied by many UAE companies, especially in real estate and asset-heavy industries. This reduces ambiguity and complexity in tax reporting, facilitating compliance.
Companies can now plan depreciation deductions more predictably, claiming up to 4% of the original cost or written-down value annually. This offers tax planning tools that were previously unavailable for fair-value accounted assets, potentially resulting in immediate tax and cash flow benefits.
By allowing depreciation deductions for fair-value assets similar to those on cost-accounted assets, the rule ensures more equitable treatment across different accounting practices, removing distortions that might have placed some firms at a disadvantage under the corporate tax framework.
The flexibility to deduct depreciation enhances the attractiveness of real estate investments under UAE corporate tax law, potentially lowering effective tax burdens on asset-heavy firms. This can strengthen UAE-based companies’ competitive position regionally and globally by improving after-tax returns and cash flow stability.
However, entities with a fiscal year ending in February 2025 and filing in May 2025 may need to file an amended return, as they must recalculate their final reported position in light of these changes.
It is advisable to contact the Federal Tax Authority for guidance on these matters.
Regarding a broader property tax, rumors of a possible modest annual property tax in Dubai, designed to be pro-business and predictable, have surfaced but are not yet confirmed. If introduced, such a tax would be crafted to maintain Dubai’s competitiveness and might influence investor behavior by signaling a maturing market rather than deterring investments.
It's important to note that this law does not apply to undeveloped or bare land, and the decision applies specifically to investment properties, not to an entity's headquarters. International Accounting Standard 40 may not include an entity's headquarters, especially if it is an iconic building or in a strategic location.
In summary, the UAE’s corporate tax rules for investment properties allow companies increased depreciation deduction flexibility that can improve tax compliance clarity and provide a competitive advantage by reducing taxable income and optimizing cash flow for property investments.
- The new UAE corporate tax rule allows companies holding investment properties to deduct depreciation for tax purposes based on the original cost, providing a significant advantage in the business and financial sector.
- The decision to enable depreciation deductions based on original cost aligns tax accounting more closely with International Financial Reporting Standards (IFRS), reducing complexity and facilitating compliance in the UAE's real estate and asset-heavy industries.
- The flexibility to deduct depreciation on investment properties can result in immediate tax and cash flow benefits for companies, making property investments more attractive under UAE corporate tax law.
- The equitable treatment of fair-value assets and cost-accounted assets ensures that distortions in the corporate tax framework are removed, providing more balanced tax benefits for companies across different accounting practices.
- A potential annual property tax in Dubai, if introduced, would be designed to be pro-business and predictable, signaling a maturing market and possibly influencing investor behavior without deterring investments.
