UAE Eases Corporate Tax Burden for Property Owners with New 4% Depreciation Rule

Property investors in the UAE are facing a critical decision under the newly introduced UAE Corporate Tax regime, as they prepare for the first tax period beginning January 1, 2025. Investors must choose whether to record their properties in tax filings at their original purchase price or current market value—a choice that will directly impact how much tax they pay when they sell.

This decision must be applied consistently across all properties owned, and investors will need to file the associated returns by September 2026.

As part of a recent ministerial decision, property owners will now benefit from a 4% annual depreciation on investment properties if they choose to report them at fair market value. This tax break can significantly reduce taxable gains when selling a property.

For instance, if a property was originally bought for AED 1 million and is now worth AED 3 million, the owner can claim 4% depreciation annually on the current market value for five years, thereby reducing the taxable amount and paying 9% corporate tax only on the adjusted gain. However, if the property is declared at its original cost, no depreciation can be claimed, and the tax applies to the full capital gain.

However, this option must be exercised upfront and within the first assessment year. Failing to do so will automatically default the tax calculation to the original cost basis, potentially resulting in higher tax exposure upon sale.

The UAE Ministry of Finance clarified that the annual depreciation allowance will be calculated as the lower of the tax written-down value or 4% of the original cost. This will apply for each 12-month tax period in which the property is held, and is applicable to both existing and new investment property portfolios.

Experts believe the revised corporate tax treatment of real estate strikes a fair balance, especially for long-term investors who have seen property values appreciate dramatically over the years. The choice of valuation method—market or historical—will play a pivotal role in determining tax outcomes under the 9% corporate tax rate.

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