The UAE Ministry of Finance has introduced a significant tax update for 2025, allowing real estate companies to deduct depreciation on investment properties held at fair value. This move aligns with international accounting standards and aims to create tax neutrality between firms using fair value and historical cost methods.
Key Highlights:
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Eligibility: Taxpayers must elect the “realisation basis” method, where taxes on property gains are paid only upon sale. This election is irrevocable and must be made in the first tax period starting on or after January 1, 2025.
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Depreciation Deduction: Companies can deduct the lower of:
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4% of the original cost of the investment property, or
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The tax written-down value of the property.
This deduction applies to each 12-month tax period or is prorated for shorter periods.
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Transitional Window: An exceptional one-time window is available for businesses to opt into the realisation basis, even if they missed the initial election deadline.
Implications for Real Estate Firms:
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Tax Efficiency: This update allows companies to claim depreciation on fair-valued assets, reducing taxable income and potentially lowering tax liabilities.
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Strategic Planning: Firms can now align their financial reporting with tax strategies, enhancing transparency and planning capabilities.
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Compliance: It’s crucial for businesses to make the election in the first eligible tax period and maintain consistent application across all fair-valued investment properties.
This tax update reflects the UAE’s commitment to aligning its corporate tax framework with international best practices, promoting fairness and transparency in the real estate sector.
