Ministerial Decision No. 173 of 2025 on Depreciation Adjustments for Investment Properties Held at Fair Value

The UAE Ministry of Finance has issued Ministerial Decision No. 173 of 2025, effective for tax periods starting 1 January 2025, allowing taxpayers to claim depreciation deductions on investment properties held at fair value, provided they elect the realization basis under Article 20(3) of the Corporate Tax Law.

This decision provides parity between taxpayers using the fair value model and those using the cost model under IAS 40, ensuring tax neutrality and equity.

The decision applies to investment properties, commonly held to generate rental income or for capital appreciation. These may include right-of-use assets under lease arrangements. Taxpayers using the fair value model for financial reporting can now claim depreciation for tax purposes, provided specific conditions are met.

To benefit from the depreciation deduction, a taxpayer must:

• Prepare financial statements using the accrual basis of accounting
• Elect to apply the realization basis for gains and losses under Article 20(3) of the Corporate Tax Law

Once made, the election is irrevocable and applies to all qualifying investment properties held at fair value.

The allowable depreciation for each 12-month tax period is the lower of:

• 4% of the Original Cost, prorated for shorter periods
• The Tax Written Down Value at the beginning of the tax period

The election must be made in the Tax Return for:

• The first applicable tax period if the property is already held
• The tax period in which the property is first acquired
• The first tax period after exiting Small Business Relief under Article 21

Failure to elect within the prescribed timeframe results in loss of eligibility to claim depreciation.

Notwithstanding Ministerial Decision No. 134, an exception has been granted whereby a Taxable Person applying the accrual basis of accounting may elect to use the realization method for gains and losses within the same Tax Return in which the depreciation election under this Decision is made.

Upon realization of the property (i.e. sale, derecognition, or cessation of business), the taxpayer must add back the aggregate depreciation claimed under the election to its taxable income, unless the transfer is within a Tax Group or under Articles 26 or 27 of the Corporate Tax Law.

Additionally, the following changes will be seen as occurrences of realization:

• Change of accounting policy in respect of the Investment Property from the fair value model to the cost 
• The Taxable Person becomes an Exempt Person or elects Small Business Relief

With the introduction of MD No. 173 of 2025, taxpayers holding investment properties at fair value face a critical opportunity and responsibility to align their tax position with the new depreciation framework. The implications are far-reaching, and timely action is essential.

It is recommended that taxpayers take the following steps without delay:

• Prioritize the selection of the realization basis: If a company holds investment properties in its first fiscal year under Corporate Tax, the election to apply the realization basis and consequently claim depreciation, must be made in the first Tax Return. Missing this deadline may result in a permanent loss of the deduction.
• Review the investment property portfolio: Identify all assets measured at fair value and assess whether they qualify under the new depreciation framework.
• Model the tax impact: Evaluate how the depreciation deduction and realization basis will affect the organization’s taxable income, both immediately and over time.
• Prepare robust documentation: Ensure that the Original Cost, Opening Value, and Tax Written Down Value are well-supported and audit-ready.

This is a time-sensitive decision with long-term tax consequences. To navigate this change effectively, we encourage you to connect with our seasoned tax advisory team. At KPMG, we bring deep expertise in UAE Corporate Tax and can help you assess your position, model scenarios, and ensure your elections are made accurately and on time.