Dear Reader,
A key clarification from the UAE’s Federal Tax Authority (FTA) just made tax planning easier for real estate investors and businesses.
If your company owns investment properties like rental buildings, warehouses, or commercial units, you can now claim a 4% depreciation deduction, even if those assets are valued using the fair value model in your books.
Let’s break this down clearly.
What’s the Core Change?
Earlier, UAE tax laws said you could only claim depreciation if your investment properties were recorded using the cost model (i.e., their original purchase price minus wear and tear).
But many companies prefer the fair value model, where assets are revalued regularly at market prices: a more realistic way to reflect current value.
Problem was:
If you used fair value accounting, the FTA didn’t allow you to claim depreciation deductions which led to higher taxable profits and more tax payable.
Now:
The FTA has clarified that even if you record properties at fair value, you can still deduct 4% annually as depreciation for corporate tax purposes.
What Is Investment Property?
According to international accounting standards (and UAE’s tax guidance), investment property refers to:
- Property held to earn rental income,
- Property held for capital appreciation,
- Or both.
It doesn’t include properties used for your own business operations (like your office HQ). It also doesn’t include properties held for sale (like inventory for developers).
Why Is This Important?
1. Lower Tax Bills
You now get a 4% yearly deduction on the property’s original cost, even if your books show its fair value.
For example, if you bought a building for AED 10 million, you can deduct AED 400,000 annually from your taxable income, regardless of what the building is currently worth.
2. Flexibility in Accounting
Businesses can now choose the fair value model for more accurate reporting without sacrificing tax benefits.
3. Improved Financial Planning
This clarity allows CFOs, tax advisors, and real estate investors to make smarter, more confident decisions.
Key Conditions to Know
- The 4% deduction is on the historical cost (not the current market value).
- You must still maintain records of the original cost and acquisition date.
- The property must meet the definition of investment property: not personal or owner-used.
Who Benefits Most?
- Real estate holding companies.
- Businesses renting out commercial assets.
- High-net-worth individuals who’ve set up property SPVs (special purpose vehicles).
- Family offices with long-term real estate assets.
This small but powerful change means less tax stress and more financial efficiency for UAE-based property investors.
If you’re unsure whether your property qualifies or how to update your tax treatment, feel free to get in touch. We’ll continue bringing you updates that keep your investments one step ahead.
