The Ministry of Finance in the UAE has released Ministerial Decision No. 173 of 2025, which permits tax deductions for investment properties (IP) held at fair market value. This decision aims to promote equity and consistency in the UAE’s evolving corporate tax environment.
Effective January 1, 2025, the amendment is expected to benefit a wide range of businesses in the real estate and capital-intensive sectors, enhancing compliance, planning flexibility, and investor confidence, according to tax experts.
Dhruva, a leading tax advisory firm in the Middle East, welcomed the UAE government’s move, as it addresses a long-standing issue for taxpayers using the fair value model, who have been unable to claim depreciation deductions for their investment properties.
“This decision is a welcome step towards aligning accounting and tax principles in the UAE. It offers businesses more options and creates consistency in the treatment of investment properties for tax purposes. Importantly, it provides companies with a one-time opportunity to elect the realisation basis of taxation — a choice that is irrevocable and requires careful evaluation,” said Sandeep Kumar, Corporate Tax Partner at Dhruva.
Following the implementation of the new amendment, a taxable person can claim depreciation at an annual rate of 4% on the investment property’s original cost. However, to take advantage of this, the entity must elect the realisation basis of taxation, a permanent decision that must be made within a specified time frame. Additionally, once the election is made, it is final and must be made at the taxable person level. Businesses that fail to elect within the allotted time will permanently lose the ability to claim depreciation on investment properties held at fair value.
The Ministry of Finance has also outlined specific provisions for properties transferred under Business Restructuring Relief (BRR), Qualifying Group Relief (QGR), or within Tax Groups (TG), to ensure consistency and clarity in such arrangements. Furthermore, since depreciation under the fair value model does not appear in financial accounts, claiming it for tax purposes may create a temporary difference, leading to a deferred tax liability under international accounting standards.
Importantly, according to Dhruva, the decision also clarifies the tax implications upon the realisation of such properties, including adjustments for previously claimed depreciation. Special provisions have been established for intra-group transfers, business restructurings, and tax groups when realising such properties.