UAE Introduces New Corporate Tax Rules: A Game-Changer for Real Estate

Dubai Market Trends & News

The UAE has taken a significant step forward in refining its corporate tax regime with the introduction of a 4% annual depreciation allowance on investment properties held at fair value. Effective from January 1, 2025, this change marks a milestone in aligning accounting practices with taxation, directly benefiting the real estate industry and other capital-intensive sectors.

A Strategic Update for the Real Estate Sector

The new UAE property tax rule allows companies to claim tax depreciation of 4% per annum on the original cost of their investment properties.

Previously, businesses that followed the fair value model could not claim depreciation deductions, creating a gap between accounting and taxation. With this update, companies gain greater compliance flexibility, financial clarity, and investor confidence, strengthening the foundation of property tax in the UAE.

Tax advisory firm Dhruva welcomed the move, calling it a strategic opportunity for businesses. According to Sandeep Kumar, Corporate Tax Partner at Dhruva, the decision creates consistency and provides optionality in how businesses treat properties for tax purposes.

Key Provisions of the New Rule

Under the revised UAE real estate tax framework, businesses can:

• Elect for the realisation basis of taxation – a one-time, irrevocable choice.
• Claim 4% annual depreciation on the original cost of the property (pro-rata based on holding period).
• Benefit from continuity under Qualifying Group Relief (QGR), Business Restructuring Relief (BRR), and Tax Groups (TG) when properties are transferred.

⚠️ Companies that fail to elect the realisation basis will permanently lose the right to claim depreciation on properties held at fair value. Timely planning and accurate filing are essential.

Impact on Businesses

The amendment is more than just a compliance adjustment. Since depreciation under the fair value model is not reflected in financial accounts, businesses could face temporary differences and deferred tax liabilities under international accounting standards.

Companies should carefully evaluate the implications of electing the realisation basis, especially in relation to other fair-valued assets and unrealised gains or losses.

As Kumar highlighted, this is not just about compliance—it’s a long-term tax planning opportunity. By aligning taxation with business realities, the UAE is providing greater transparency and stability to the real estate market.

What Does This Mean for Investors?

For companies holding real estate at fair value, the updated UAE tax rules highlight the importance of early decision-making. The ability to claim depreciation:

• Reduces taxable income
• Improves overall profitability
• Boosts investor confidence through transparency and consistency

This move will also reinforce Dubai’s position as a global real estate hub, keeping the UAE’s taxation policies competitive and aligned with international best practices.

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