UAE’s 2025 tax update: How real estate can save you
The UAE Ministry of Finance has introduced Ministerial Decision No. 173 of 2025, a new measure that allows taxable businesses to claim annual depreciation at 4% on investment properties held at fair value.
The change, effective from January 1, 2025, addresses long-standing concerns in the real estate sector where properties valued under international accounting standards could not previously benefit from depreciation deductions. The new rule is expected to boost compliance, enhance planning flexibility, and increase investor confidence across capital-intensive industries such as real estate.
Closing the Gap Between Accounting and Tax
Under the previous regime, companies that adopted the fair value model under IAS 40 were not able to claim depreciation since value changes were reflected as unrealized gains or losses rather than depreciation. This created a gap compared to firms using the cost model. The new measure eliminates that mismatch, bringing greater consistency between accounting and tax treatments. The decision also gives companies a one-time, irrevocable option to elect the realisation basis of taxation. If businesses fail to make this election within the prescribed timeframe, they permanently lose the right to claim depreciation on fair-valued properties.
Eligible companies can now claim 4% annual depreciation on a property’s original cost, prorated for the time they’ve held it. For properties bought before 2025, the starting tax value is the original cost minus 4% for each year already held.
Provisions for Groups and Restructuring
The Ministry also clarified how the new depreciation rules apply in cases of Qualifying Group Relief, Business Restructuring Relief, and Tax Groups. Transfers of properties under these arrangements will maintain continuity of treatment, ensuring that depreciation deductions are not duplicated. The rules also empower the Federal Tax Authority to deny deductions if intra-group transfers lack commercial substance, safeguarding against tax avoidance.
Implications for Businesses
Tax experts note that the new framework should not be treated as a routine compliance update but as a strategic opportunity for real estate businesses. Companies must carefully evaluate whether to elect the realisation basis, since the decision is irrevocable and can impact the treatment of other fair-valued assets and unrealised gains or losses. Furthermore, because depreciation under the fair value model is not recorded in financial accounts, businesses may face temporary differences that give rise to deferred tax liabilities under international accounting standards. This could also have implications for multinationals assessing their effective tax rates under Pillar Two rules.
The introduction of tax depreciation for investment properties held at fair value marks a major step in aligning the UAE’s corporate tax system with global accounting practices. By providing a 4% deduction on fair-valued assets, the rule enhances consistency, improves investor confidence, and strengthens Abu Dhabi and Dubai’s position as attractive destinations for real estate investment. For businesses, early planning and timely elections will be critical to fully benefit from this update.
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