Ministerial Decision No. 173 of 2025 lets UAE businesses claim tax depreciation on investment properties they hold at fair value under IAS 40. Published in July 2025 and applying to tax periods from 1 January 2025, it removes a long-standing disadvantage: taxpayers who elected the realisation basis previously could not deduct depreciation on fair-valued property, unlike those measuring property at historical cost.
Key takeaways
- Ministerial Decision No. 173 of 2025 introduces an elective depreciation deduction for investment properties measured at fair value under IAS 40.
- It is available to taxpayers on the accrual basis who have elected the realisation basis under Article 20(3) of the Corporate Tax Law, and applies to tax periods starting on or after 1 January 2025.
- The annual deduction is the lower of 4% of the property's original cost or its tax written-down value at the start of the relevant tax period.
- The election is irrevocable and must be applied uniformly to all qualifying fair-valued properties — selective application is not allowed, and missing the window forfeits the benefit permanently.
- Only IAS 40 investment properties qualify — buildings held for rental income or capital appreciation; land is excluded.
- Depreciation claimed is clawed back (added to taxable income) on realisation events such as sale, derecognition, cessation, an accounting-policy change or an exempt-status election.
The problem Ministerial Decision No. 173 fixes
Ministerial Decision No. 173 fixes a gap that penalised one group of property owners. Two terms frame it. An IAS 40 investment property is a building held to earn rental income or for capital appreciation. The realisation basis, elected under Article 20(3) of the Corporate Tax Law, is a choice to tax gains and losses only when they are realised — on disposal — rather than as fair-value movements each year.
Taxpayers holding property at fair value were treated unevenly before the Decision. Those who elected the realisation basis deferred their gains until disposal but received no depreciation deduction during the holding period. Those who did not elect it were taxed annually on unrealised gains and losses. By contrast, taxpayers using historical cost could depreciate their property each year and were taxed only on disposal. The realisation-basis electors were therefore the worst placed on depreciation — the gap the Decision closes.
Who can elect and how much depreciation can be deducted
The deduction is available to taxpayers on the accrual basis who have elected the realisation basis under Article 20(3). The amount is the lower of 4% of the property's original cost or its tax written-down value at the start of the relevant tax period, prorated where required. The table below shows how the position now compares across the main scenarios.
| Scenario | Depreciation | Tax on gains |
|---|---|---|
| Fair value, no realisation basis (pre-2025) | Not allowed | Taxed annually on unrealised gains |
| Fair value, with realisation basis (pre-2025) | Not allowed | Taxed on disposal only |
| Fair value, with realisation basis (post-Decision) | 4% / written-down value deductible | Taxed on disposal only |
| Historical cost | Normal depreciation | Taxed on disposal only |
The result is broad parity: a realisation-basis elector can now claim depreciation much as a historical-cost taxpayer does, while retaining disposal-only taxation of gains.
Making the election: timing and irrevocability
The election has strict timing. Where an investment property is already held, it must be made in the first tax period after 1 January 2025; otherwise, it is made in the year the first investment property is held. For taxpayers in Small Business Relief (SBR), it is made in the year SBR is not elected. The election is irrevocable and applies uniformly to all qualifying fair-valued properties — there is no picking and choosing between assets. In practice, SBC advisers run the numbers property by property before recommending it, since one election binds every fair-valued asset at once.
The costliest mistake is inaction: let the first eligible tax period pass without electing, and the deduction is forfeited for good — there is no catch-up claim in a later year.
Claw-back and transfers
The deduction comes with a claw-back. Depreciation previously claimed must be added back to taxable income on a realisation event — sale, derecognition, cessation, an accounting-policy change, or an election into exempt status — either fully or proportionately for a partial realisation. Transfers are handled specifically: on intra-group transfers under Articles 26 and 27, depreciation continuity is required and the transferee adopts the transferor's depreciation base; within a Tax Group, Article 42 ensures alignment. The FTA also retains discretion to disallow depreciation where intra-group or related-party transfers lack commercial substance, an anti-abuse overlay consistent with the General Anti-Abuse Rule.
Action points for finance teams
- Maintain a disciplined asset register: acquisition cost, holding period, prior depreciation claims and fair-value designation for each property.
- Make the election on time and model its effect before filing, given its irrevocable, all-or-nothing nature.
- Factor the timing differences into deferred-tax forecasting, which matters for IFRS preparers.
- Document the commercial rationale for any intra-group or related-party transfers so the position withstands FTA scrutiny — an area where transfer pricing support is valuable alongside the corporate tax analysis.
Frequently asked questions
What does Ministerial Decision No. 173 of 2025 allow?
Ministerial Decision No. 173 of 2025 lets taxpayers who hold investment property at fair value under IAS 40, on the accrual basis and having elected the realisation basis, claim a tax depreciation deduction on that property — a benefit previously unavailable to them.
How much depreciation can be claimed on fair-value investment property?
The annual deduction is the lower of 4% of the property's original cost or its tax written-down value at the start of the relevant tax period, prorated where required. This gives a realisation-basis elector broadly the same depreciation relief a historical-cost taxpayer already receives.
Is the depreciation election reversible?
No. The election is irrevocable once made and must be applied uniformly to all qualifying fair-valued investment properties, with no picking and choosing between assets. Failing to elect in the required tax period permanently forfeits the benefit, so model the impact before filing the first eligible return.
What triggers a claw-back of depreciation under the Decision?
Depreciation previously claimed is added back to taxable income on realisation events — sale, derecognition, cessation, an accounting-policy change or an election into exempt status — either in full or proportionately for a partial realisation.
How SBC Tax Consulting can help
SBC helps real estate and investment groups decide whether to elect under Ministerial Decision No. 173 of 2025, model the depreciation and claw-back impact, and make a timely, well-documented election. We align asset registers, deferred-tax forecasts and corporate tax filings, and document intra-group transfers to withstand review. To assess your investment properties, contact our team.
This publication is for general information only and does not constitute professional advice. Please consult your SBC advisor before acting on any matter covered here.