Companies in the UAE can now subtract tax depreciation from their investments in fair-valued real estate properties, according to a new regulation.
The United Arab Emirates (UAE) has announced a significant change to its Corporate Tax Law, granting taxpayers the ability to deduct depreciation on investment properties valued at fair market value. This move aims to align the tax framework with those using the historical cost method.
Under the new rule, which is outlined in Federal Decree-Law No. 47 of 2022, taxpayers must adopt the realization basis to claim these deductions. The election to use this method must be irrevocable and made in the first tax period starting on or after January 1, 2025.
The allowed deduction is the lower of 4% of the original cost of the investment property per 12-month period or the written-down value of the property per 12-month period (which can be prorated for shorter periods). This option is available to taxpayers owning investment properties either before or after the corporate tax law took effect.
The UAE Ministry of Finance has stated that this rule is designed to create parity between taxpayers using fair value and those following historical cost accounting, ensuring tax neutrality. Moreover, there's a one-time window for businesses that haven't yet opted for the realization basis to do so, enabling them to benefit from the deductions.
The Ministry has also provided guidance on scenarios where previously claimed depreciation might need to be reversed, such as in cases other than property disposals. This move towards transparency and alignment is part of a wider goal to establish a neutral, transparent, and globally aligned system for businesses.
In essence, this change supports businesses by providing them with clearer tax benefits on investment properties, regardless of their valuation method. The new rule is expected to promote investment and foster a more competitive business environment within the UAE.
The new Corporate Tax Law in the UAE allows taxpayers to claim depreciation deductions on investment properties, which is a significant shift in the finance sector. This move is designed to ensure tax neutrality between taxpayers using fair value and those following historical cost accounting. For businesses that haven't yet opted for the realization basis, there's a one-time window to do so, offering potential tax benefits on investment properties. This change in the business environment is part of the UAE's broader goal to create a neutral, transparent, and globally aligned system for businesses, fostering investment and competition.
