MoF issues Decision on Depreciation Adjustments for Investment Properties held at Fair Value

The UAE Ministry of Finance (MoF) has issued a new Ministerial Decision regarding Depreciation Adjustments for Investment Properties held at Fair Value for the Purposes of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.

 Under this decision, taxpayers (who elect for the realisation basis) can elect to deduct depreciation from their taxable income (hereafter known as ‘tax depreciation’) for investment properties that are held on a fair value basis.

 The tax depreciation deduction available will be the lower of the tax written down value of the investment property or 4 percent of the original cost of the investment property, for each 12-month tax period or otherwise prorated for part of the tax period, during which the relevant investment property is held, and will be available to taxpayers who hold investment properties prior to and/or after the introduction of corporate tax.

 The decision provides clarity as to the value upon which tax depreciation can be claimed depending on whether the investment property is transferred between related parties or third parties or has been constructed/developed by the taxpayer.

 The decision provides parity between taxpayers who hold investment properties on a historical cost basis, who can already benefit from a deduction for accounting depreciation, with those who hold investment properties on a fair value basis.

 To avail this benefit, this decision therefore requires taxpayers to make this irrevocable election in their first Tax Period beginning on or after 1 January 2025 in which they hold an investment property and such election will apply to all investment properties going forward.

 Given the realisation basis must have been elected for by taxpayers wanting to benefit from the tax depreciation election, and that the realisation basis election is generally made in the first Tax Period, the decision also allows for an exceptional window for taxpayers to opt in to elect for the realisation basis to avail the tax depreciation deduction.

 Finally, the decision provides guidance on when the claw-back of tax depreciation may occur in instances outside of a disposal of an investment property such that taxpayers are aware of their tax compliance obligations and are able to accurately assess their returns on investment property.

 The release of this decision reflects the Ministry’s commitment in ensuring a level playing field for all taxpayers, thus enhancing the principles of tax neutrality and equity in the UAE Corporate Tax regime and ensuring such deductions are aligned with international best practice.

WAM