If your business holds rental buildings at fair value under IAS 40, you may have been paying more UAE Corporate Tax than a competitor who holds identical property at cost. That gap was real, and it was unfair. Ministerial Decision No. 173 of 2025 finally closes it.
In this post, you will learn what the Decision changes, who can elect the new depreciation deduction, how much you can claim, and the traps that can cost you the benefit permanently. We will walk through the IAS 40 accounting choice behind the issue, the relevant Corporate Tax Law articles, a worked example, comparison tables, and a practical FAQ.
Here are the key takeaways:
- The Decision allows an elective tax depreciation deduction on fair-valued investment property.
- The annual deduction is the lower of 4% of original cost or the tax written-down value at the start of the period.
- The election is irrevocable and applies to all qualifying properties.
- Depreciation claimed is clawed back on a realisation event.
The rules sit within Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, administered by the UAE Federal Tax Authority. You can read our summary of the change in the SBC insight on Ministerial Decision 173.
What counts as investment property under IAS 40?
Before you can apply the Decision, you need to know whether your asset qualifies. The starting point is the accounting definition in IAS 40 Investment Property.
Under IAS 40, investment property is land or a building, or part of a building, held to earn rental income or for capital appreciation, or both. It is not owner-occupied, not used to produce or supply goods and services, not used for administration, and not held for sale in the ordinary course of business.
For the purposes of the Decision, the benefit targets buildings held for rental income or capital appreciation. Land is excluded. This matters because a mixed asset, such as land with a building on it, needs the building element identified separately.
Fair value model versus cost model
IAS 40 gives you an accounting policy choice for measuring investment property after initial recognition.
- Fair value model: the property is remeasured at fair value at the end of each reporting period, and changes in fair value go through profit or loss. There is no accounting depreciation charge.
- Cost model: the property is carried at cost less accumulated depreciation and impairment. Fair value is only disclosed, not booked.
This single accounting choice is the root of the tax problem the Decision fixes. A cost-model taxpayer books depreciation each year, while a fair-value taxpayer does not.
Why this issue mattered before the Decision
The tax problem came from how fair value interacts with the Corporate Tax rules on income recognition. To see it clearly, you need three moving parts: the general rules for taxable income, the realisation basis election, and the treatment of assets held on capital account.
The starting point is Article 20 of the Corporate Tax Law, which sets the general rules for determining taxable income. Taxable income begins with accounting income, then adjusts for specific items the law requires.
Article 20(3): the realisation basis election
Article 20(3) lets a taxable person that prepares financial statements on an accrual basis elect to recognise gains and losses on a realisation basis. In plain terms, a realisation basis elector is taxed on gains and losses only when they are realised, usually on disposal, rather than as unrealised fair-value movements each year.
Article 20(4): assets held on capital account
Article 20(4) explains what "assets held on capital account" means. It includes assets that the person does not trade, assets eligible for depreciation, and assets treated under the accounting standards as property, plant and equipment, investment property, intangible assets, or other non-current assets. Investment property sits squarely inside this definition.
The mismatch in practice
Put those pieces together and three groups of property owners were treated very differently before 2025.
| Scenario before the Decision | Depreciation deduction | Tax on gains |
|---|---|---|
| Fair value, no realisation basis | Not allowed | Taxed annually on unrealised gains |
| Fair value, with realisation basis | Not allowed | Taxed on disposal only |
| Historical cost | Normal depreciation | Taxed on disposal only |
The realisation-basis electors were the worst placed. They deferred their gains until disposal, which is sensible, but they received no depreciation relief during the holding period. A historical-cost taxpayer enjoyed both disposal-only taxation and annual depreciation. That is the imbalance the Decision removes.
What Ministerial Decision No. 173 of 2025 changes
Ministerial Decision No. 173 of 2025, published in July 2025 and applying to tax periods starting on or after 1 January 2025, introduces an elective tax depreciation deduction for investment property measured at fair value under IAS 40. It restores broad parity with historical-cost taxpayers.
After the Decision, a realisation-basis elector can claim depreciation while still being taxed on gains only when they dispose of the property. The table below shows the improved position.
| Scenario | Depreciation | Tax on gains |
|---|---|---|
| Fair value, with realisation basis (post-Decision) | 4% or written-down value deductible | Taxed on disposal only |
| Historical cost | Normal depreciation | Taxed on disposal only |
Who can elect, and the conditions
The deduction is available to a taxable person that meets specific conditions. Based on the Decision as published, the core requirements are as follows.
- The taxpayer must prepare financial statements on the accrual basis.
- The taxpayer must have elected the realisation basis under Article 20(3).
- The property must be an IAS 40 investment property measured at fair value.
- The asset must be a qualifying building. Land is excluded.
Because the accrual basis and the realisation basis election are both preconditions, this benefit is aimed at businesses that already defer fair-value movements until disposal. If you have not made the realisation basis election, review that position first with your corporate tax advisors.
How much depreciation can you claim?
The annual deduction is the lower of two amounts:
- 4% of the property's original cost, or
- the tax written-down value of the property at the start of the relevant tax period.
The amount is prorated where the tax period is shorter than a full year. This mirrors the kind of depreciation relief a historical-cost taxpayer already receives.
The tax written-down value concept in practical terms
Tax written-down value is a running tax measure of the property, not the accounting fair value on your balance sheet. In practice, you start with the original cost, then reduce it each year by the depreciation already claimed for tax. The written-down value declines over time as you deduct depreciation, which is why the "lower of" test eventually points to the written-down value rather than the flat 4% figure.
Keeping a separate depreciation register is essential, because your accounts will show fair value while your tax computation tracks cost and cumulative tax depreciation.
A worked example
Assume a company holds a fair-valued office building. The original cost of the building element was AED 50 million. The company is on the accrual basis and has elected the realisation basis. It makes the depreciation election for a 12-month tax period.
- Step 1: Calculate 4% of original cost. 4% of AED 50 million is AED 2 million.
- Step 2: Identify the tax written-down value at the start of the period. In year one this equals the original cost of AED 50 million.
- Step 3: Deduct the lower of the two. The lower of AED 2 million and AED 50 million is AED 2 million, so the company deducts AED 2 million.
- Step 4: Carry the written-down value forward. It becomes AED 48 million at the start of the next period.
If the same building were held for a six-month tax period, the AED 2 million would be prorated to AED 1 million for that period.
Timing and irrevocability of the election
The election carries strict timing, and getting it wrong can forfeit the benefit for good.
- Where an investment property is already held, the election is made in the first tax period on or after 1 January 2025.
- Where the first investment property is acquired later, the election is made in the year that property is first held.
- For a taxpayer in Small Business Relief, the election is made in the year Small Business Relief is not elected.
Two features make the timing unforgiving. First, the election is irrevocable once made. Second, it must be applied uniformly to all qualifying fair-valued investment properties. You cannot pick and choose between assets, and you cannot claim on some buildings while leaving others out.
The costliest mistake is inaction. If you let the first eligible tax period pass without electing, the deduction is lost permanently, and there is no catch-up claim in a later year. Model the impact across your whole portfolio before you commit, because one election binds every qualifying property at once.
Interaction with Small Business Relief
A business that elects Small Business Relief under the Corporate Tax Law is treated as having no taxable income for the period, so deductions do not apply while the relief is in force. The Decision reflects this by fixing the election point to the year Small Business Relief is not elected. If you move in and out of Small Business Relief, plan the depreciation election timing carefully.
Claw-back: when depreciation is added back
The deduction comes with a claw-back. Depreciation you previously claimed is added back to taxable income when a realisation event occurs. Based on the Decision, the realisation events include:
- Sale of the property.
- Derecognition of the property.
- Cessation of the business.
- A change in accounting policy.
- An election into an exempt status.
On a full realisation, the whole of the depreciation claimed is added back. On a partial realisation, the add-back is applied proportionately to the part realised. In effect, the depreciation gives you relief during the holding period, and the claw-back settles up when you exit or change status.
This design keeps the benefit as a timing advantage rather than a permanent reduction, which is why deferred-tax forecasting matters for IFRS preparers.
Transfers, tax groups, and anti-abuse
Group transactions need extra care, because depreciation continuity and the underlying tax base can move with the asset.
Articles 26 and 27: qualifying group and restructuring relief
Where property moves under the qualifying group relief in Article 26 or the business restructuring relief in Article 27, depreciation continuity is expected. The transferee generally adopts the transferor's depreciation base rather than resetting it, which prevents a step-up that would inflate future deductions. Document these transfers carefully, ideally with support from an audit and dispute resolution perspective.
Article 42: tax group relevance
Within a tax group, Article 42 requires the parent to consolidate results and eliminate intra-group transactions. This keeps depreciation treatment aligned across the group and stops a transfer between members from creating an artificial adjustment.
Article 50: general anti-abuse rule
The general anti-abuse rule in Article 50 sits over the whole regime. The FTA retains discretion to disallow depreciation where an intra-group or related-party transfer lacks genuine commercial substance and is designed mainly to obtain a tax advantage. Where related parties are involved, aligning the arrangement with the arm's length standard is important, and our transfer pricing team and intercompany agreements guidance can help keep the contract and the conduct consistent.
Filing, financial statements, and record keeping
The Decision has practical compliance implications that run through three articles of the Corporate Tax Law.
- Article 53 (tax returns): your return must reflect the depreciation deduction and any claw-back for the period, with taxable income calculated after these adjustments.
- Article 54 (financial statements): the FTA can request the financial statements used to determine taxable income, so your fair-value accounts and your tax depreciation workings must reconcile cleanly.
- Article 56 (record keeping): you must keep records that let the FTA verify taxable income, generally for seven years. For this election, that means retaining acquisition cost, holding period, fair-value designation, and the full depreciation and written-down value history for each property.
Returns are filed through the EmaraTax platform, and filing and payment are due within nine months of the tax period end, as confirmed on the Ministry of Finance corporate tax page and the UAE government corporate tax overview. For the latest instruments, monitor the FTA legislation page and the FTA general corporate tax guidance.
Practical business implications
For real estate and investment groups, the Decision can materially improve after-tax cash flow during the holding period. Here is how to turn it into a clean position.
- Build a disciplined asset register. Record acquisition cost, the building versus land split, holding period, fair-value designation, and prior tax depreciation for each property.
- Model before you elect. Because the election is irrevocable and all-or-nothing, run the numbers property by property first, then decide at portfolio level.
- Update deferred-tax forecasts. The timing difference between accounting fair value and the tax written-down value affects deferred tax for IFRS preparers.
- Document group transfers. Keep contemporaneous evidence of the commercial rationale for any intra-group or related-party transfer so it survives review.
Common mistakes and how to avoid them
- Missing the first eligible period. There is no catch-up claim. If you are already holding fair-valued property, the window is the first tax period on or after 1 January 2025.
- Trying to cherry-pick assets. The election applies uniformly to all qualifying fair-valued properties. Selective application is not allowed.
- Claiming on land. Only qualifying buildings are eligible. Separate the land element from the building.
- Confusing fair value with written-down value. Depreciation is based on original cost and tax written-down value, not the fair value in your accounts.
- Forgetting the claw-back. Depreciation claimed is added back on sale, derecognition, cessation, an accounting-policy change, or an exempt-status election.
- Overlooking Small Business Relief timing. If you use the relief, the election point is the year the relief is not elected.
Frequently asked questions
What does Ministerial Decision No. 173 of 2025 allow?
It lets a taxable person that holds 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. This benefit was not previously available to fair-value realisation-basis taxpayers.
How much depreciation can be claimed?
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 the period is shorter than a full year.
Is the election reversible?
No. The election is irrevocable once made and must be applied uniformly to all qualifying fair-valued investment properties. Failing to elect in the required period forfeits the benefit permanently.
Does the deduction apply to land?
No. Only qualifying buildings held to earn rental income or for capital appreciation are eligible. Land is excluded, so a mixed asset needs the building element identified.
What triggers a claw-back?
Depreciation previously claimed is added back to taxable income on a realisation event, which includes sale, derecognition, cessation, a change in accounting policy, or an election into an exempt status. A partial realisation triggers a proportionate add-back.
When does the Decision take effect?
It applies to tax periods starting on or after 1 January 2025. For property already held, the election is made in the first tax period on or after that date.
Conclusion
Ministerial Decision No. 173 of 2025 gives fair-value investment property owners the depreciation relief that historical-cost taxpayers already enjoyed, while preserving disposal-only taxation of gains. The benefit is valuable, but it is an irrevocable, all-or-nothing, time-limited election with a built-in claw-back, so the modelling and the paperwork have to be right before you file.
Your next step is clear: identify every fair-valued building in your portfolio, split out land, model the 4% and written-down value positions, and confirm the election timing before your first eligible return. If you want a second opinion on your investment property position, talk to the SBC team or explore our corporate tax and international tax services, with more analysis available across our insights and full service range.
This publication is for general information only and does not constitute professional advice. Please consult a qualified advisor before acting on any matter covered here.
16/7/25 FTA Decision 7 of 2025
Page Title: FTA Decision No. 7 of 2025: Aggregated Financial Statements for UAE Tax Groups
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