Today's Edition
ISIDORA CIRIC (ABU DHABI)
A new corporate tax decision by the UAE government is giving businesses a chance to deduct depreciation on investment properties held at fair value, closing a long-standing gap in the tax code. The change is expected to ease the long-standing tension between financial transparency and tax efficiency – a move that many tax and finance professionals see as a practical recalibration.
The Ministry of Finance announced on Thursday that companies can now deduct depreciation on investment properties valued at fair market rates. The change applies only to companies that opt for what's known as the "realisation basis" - a method where taxes on property gains are paid only when the asset is sold.
The new rule caps the depreciation deduction at 4% of a property's original cost or tax written-down value, whichever is lower. To access the benefit, companies must make an irrevocable election in their first eligible tax period, and the rule will apply to all their fair-valued investment properties going forward.
The government has also offered an exceptional window for those looking to adopt it retroactively to make use of the new depreciation deduction.
For years, companies that reported the value of their real estate based on regular market revaluations – common among developers, logistics groups, and holding firms – could not deduct depreciation from their taxable income. By contrast, firms using historical cost accounting were already allowed to do so, leading to uneven tax treatment of similar assets.
That imbalance created what Akshay Sardana, Vice President of Strategy and International Development at The Continental Group, called a "structural disadvantage" for firms prioritising fair-value reporting.
"If you chose to report investment properties at fair value, you couldn't claim depreciation. That penalised transparent financial reporting in favour of tax positioning," he told Aletihad.
Sardana said the policy introduces "a clear, rules-based mechanism" that gives CFOs a framework they can plan around more efficiently.
"You're no longer forced to choose between accounting clarity and tax efficiency. For companies with property-heavy balance sheets, that opens up room for smarter structuring, better forecasting, and a healthier alignment between reported earnings and real-world cash flows," he added.
Gaurav Keswani, Founder and Managing Director of JSB Incorporation, sees the rule as a prompt for companies to reconsider how they hold and structure real estate.
"For many businesses, this could encourage a re-evaluation of how real estate assets are held. Companies may now be more inclined to consider fair value reporting, especially where property is a key part of the balance sheet," he told Aletihad.
"It also highlights the potential value of structuring assets through a dedicated entity, such as a holding company or special purpose vehicle, particularly when planning for long-term ownership or future transactions."
The election, however, is irrevocable and applies to all fair-valued properties within the same entity. That makes upfront structuring decisions even more important.
"For example, if an asset is held under the main operating company but is later transferred to another entity, there may be implications for previously claimed tax benefits," Keswani explained.
He illustrated the impact through a hypothetical case: a business acquires a Dh6 million warehouse and opts to depreciate it under the new rule. The 4% deduction equates to Dh240,000 annually. If the firm posts Dh2 million in annual profit, this brings its taxable income down to Dh1.76 million, lowering its corporate tax burden while maintaining fair value reporting.
While the measure is technical in nature, its effects could be far-reaching for sectors with long-term property holdings, including logistics, warehousing, hospitality, and family offices, Keswani said. These firms often favour fair value accounting for internal and external reporting, and until now, doing so came at a cost.
The new rule closes that gap, supporting what Keswani called a more "mature and stable" tax system. Beyond the immediate benefit, he added that the measure also reflects the UAE's broader policy direction.
"By aligning financial reporting with fair and predictable tax rules, the UAE continues to strengthen its position as a competitive, transparent and business-friendly environment. This contributes to a more stable and mature tax system that supports real economic activity."
