UAE Ministry Of Finance Clarifies Depreciation Adjustments For Investment Properties Held At Fair Value

The UAE Ministry of Finance has introduced a new Ministerial Decision concerning Depreciation Adjustments for Investment Properties held at Fair Value. This decision is linked to Federal Decree-Law No. (47) of 2022, which addresses the Taxation of Corporations and Businesses. It allows taxpayers using the realisation basis to deduct depreciation from their taxable income for investment properties valued at fair market rates.

Taxpayers can choose to deduct tax depreciation, which will be the lesser of the property's tax written down value or 4% of its original cost. This deduction applies for each 12-month tax period or is prorated if the property is held for part of the period. The deduction is available to those holding investment properties both before and after corporate tax implementation.

The decision clarifies how tax depreciation claims are calculated based on whether an investment property is transferred between related or third parties, or constructed by the taxpayer. This ensures consistency in valuing properties for tax purposes. The aim is to provide equal treatment for taxpayers holding properties on a historical cost basis and those using fair value.

To benefit from this decision, taxpayers must make an irrevocable election in their first Tax Period starting on or after 1 January 2025 when they hold an investment property. This election will then apply to all future investment properties they hold.

Taxpayers wishing to benefit from this depreciation must have elected the realisation basis, typically done in their first Tax Period. An exceptional window allows them to opt into this basis to access the tax depreciation deduction. This flexibility ensures taxpayers can align with their compliance obligations effectively.

The decision also outlines when a claw-back of tax depreciation might occur outside of property disposal scenarios. This guidance helps taxpayers understand their compliance duties and accurately evaluate returns on investment properties.

Ensuring Tax Neutrality

This initiative underscores the Ministry's dedication to maintaining fairness among taxpayers, promoting principles of tax neutrality and equity within the UAE Corporate Tax framework. It aligns these deductions with international standards, ensuring a balanced approach across different taxpayer categories.

With inputs from WAM