Real Estate Tax Shifts in the UAE: A New Era for Investment Property Accounting

Disclaimer: This article is for general informational purposes only and does not constitute financial advice under UAE legislation governing financial publications and advertisements.

The UAE has introduced a significant change to the taxation of investment real estate, creating new planning opportunities for companies holding commercial and income-generating property. The Ministry of Finance has clarified that corporate taxpayers may now claim annual depreciation of up to 4% of the fair value of commercial and investment real estate — even when the assets are accounted for under the fair-value model. This marks a notable expansion of allowable deductions and aligns tax treatment more closely with economic reality.

A Major Shift From Historic-Cost Limitations

Previously, depreciation deductions were permitted only for assets measured at historical cost. Entities that opted for fair-value accounting — common in real-estate holding structures, asset-management groups and investment funds — were unable to claim ongoing depreciation, which created a structural tax disadvantage.

The new rules eliminate this asymmetry by allowing a yearly deduction based on the property’s fair value. This effectively recognises the economic wear-and-tear of real estate, regardless of the accounting model used.

Why the Change Matters

The reform supports a more balanced corporate-tax environment. Allowing depreciation on fair-valued property may reduce taxable income for companies with large investment portfolios, long-term lease assets or mixed-use commercial developments. This is especially relevant as corporate tax applies for financial years starting on or after 1 June 2023, making the rule highly relevant for 2025 tax computations and beyond.

Who Benefits Most

• Real-estate holding companies with significant fair-value portfolios

• Developers and asset managers who retain properties for rental income

• Family offices and investment structures with long-term commercial real estate

• REIT-style or quasi-REIT structures using periodic revaluation

For many organizations, this may offer a meaningful reduction in taxable profit and support more predictable tax planning.

Final Thoughts

The UAE continues to refine its corporate tax framework with investor-friendly adjustments that reflect the practical realities of real-estate markets. The ability to deduct fair-value-based depreciation represents a strategic shift, enhancing neutrality between accounting models and providing businesses with clearer, more consistent tax outcomes. As always, entities should ensure proper documentation and professional review to align with evolving requirements while maintaining compliance.

Photo by Nisha Vastu