The UAE Ministry of Finance decision to allow tax depreciation on investment properties held at fair value is expected to benefit the real estate sector and address a long-standing concern among taxpayers who follow the fair value model, according to a press statement issued by UAE-based tax advisory firm Dhruva.

Ministerial Decision No. 173 of 2025 allows companies to claim tax depreciation on investment properties held at fair value from January 1, 2025.

"This decision is a welcome step towards aligning accounting and tax principles in the UAE," said Sandeep Kumar, Corporate Tax Partner, Dhruva. "It provides optionality for businesses and creates consistency in how investment properties are treated for tax purposes.”

The new provisions allow a taxable person to claim depreciation at 4 percent per annum on the original cost of the investment property- calculated on a pro-rata basis depending on the holding period

To benefit, a business must choose the realisation basis of taxation within the set timeframe. This choice is made at the taxpayer level, is irrevocable, and if missed, the business permanently loses the right to claim depreciation on investment properties held at fair value.

"Taxpayers should not view this as a routine compliance update,” added Kumar. “It is a strategic opportunity to align their tax positions with business realities."

The new rules also cover properties transferred under Qualifying Group Relief, Business Restructuring Relief, or within tax groups, ensuring continuity of treatment. Since depreciation under the fair value model does not appear in financial accounts, claiming it for tax purposes could create temporary differences and deferred tax liabilities under international accounting standards.

The ministry’s decision clarifies the tax implications upon the realisation of such properties, including adjustments for previously claimed depreciation. Special provisions apply to intra-group transfers, restructurings and tax groups.

According to Kumar, early elections in upcoming tax filings are critical, as the choice may affect not only real estate but other fair-valued assets and unrealised gains or losses.

(Editing by Anoop Menon) (anoop.menon@lseg.com)

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