UAE Tax Depreciation 2026: The MD 173/2025 Election

• 07 September, 2026
• By Safwan, Managing Partner
• Corporate Tax

Last reviewed 7 September 2026 by the Exiloz tax team against the UAE legislation in force on that date. Tax law moves — confirm any figure against tax.gov.ae before you act on it.

The fair-value gap the UAE just closed for property owners

Under IFRS, an investment property carried at fair value records no depreciation. The accounts revalue it to market each year and book a gain or loss instead. For years that left a gap: the tax base ignored a real cost the business bears. Ministerial Decision No. 173 of 2025 (issued July 2025, under Federal Decree-Law No. 47 of 2022) closes it. Taxpayers who elected the realisation basis under Article 20(3) can now deduct a deemed depreciation charge on fair-valued investment property: the lower of 4% of original cost or the tax written-down value (TWDV) each 12-month tax period, available from 1 January 2025. The catch is that the election is irrevocable, and every dirham claimed is added back on realisation. If you would rather not handle this in house, this is what our corporate tax losses and adjustments covers.

Here is the mistake we see most on Dubai property books: the finance team assumes fair-value accounting and the tax return move together. They do not. IAS 40 tells you to carry an investment property at fair value and skip depreciation entirely. The corporate tax law, until mid-2025, gave those owners no depreciation deduction to match. So a landlord holding a rising asset paid tax on rental profit with no relief for the capital cost of the building. Ministerial Decision 173 of 2025 is the fix, and it is optional, conditional, and one-way.

The book-versus-tax gap this fixes

Two numbers describe the same building and rarely agree. The accounting number follows IAS 40: fair value at each reporting date, with the change running through profit or loss. No depreciation line appears. The tax number follows Federal Decree-Law No. 47 of 2022 and its decisions, which decide what you can actually deduct. Before MD 173, an owner electing the realisation basis carried the property at cost for tax and got no periodic depreciation. The building wore down in reality; the tax base did not reflect it. That is the gap Article 20(3) taxpayers lived with, and it is the gap this decision targets.

What Ministerial Decision 173 of 2025 actually allows

The decision, issued in July 2025 under the corporate tax law, gives one specific group a new option. If you elected the realisation basis under Article 20(3), you may elect to claim a deemed depreciation deduction on investment property you carry at fair value. The amount is the lower of 4% of the property’s original cost or its tax written-down value, per 12-month tax period, running from 1 January 2025. Two conditions matter. First, the election is irrevocable: choose it once and it binds every qualifying property and every future period. Second, it is a timing benefit, not a free one. The reason sits in the section after next.

The deduction: lower of 4% or tax written-down value

The formula reads worse than it works. For most of a property’s life the 4% figure is the binding number, because 4% of original cost is small next to a written-down value that starts at full cost. The TWDV cap only bites at the very end, once accumulated deductions have run the tax base down toward zero. In plain terms: you get a straight 4% of original cost each year for about 25 years, then it tapers to nothing. The table shows the shape on a property that cost AED 25,000,000.

A worked example: a Business Bay tower

A Dubai real estate company holds a commercial tower in Business Bay as an investment property. It cost AED 25,000,000 and is now fair-valued at AED 31,000,000 under IAS 40, so the accounts carry a revaluation gain and, as always, zero depreciation. The company already elected the realisation basis under Article 20(3), then elected the MD 173 depreciation adjustment. Each 12-month period it deducts the lower of 4% of cost (AED 1,000,000) or the TWDV. In period one that is AED 1,000,000 off taxable income, worth AED 90,000 in cash at the 9% corporate tax rate, even though the books recorded a gain. Now the twist. In period six the company sells the tower for AED 34,000,000. By then it has claimed six periods of AED 1,000,000, a total of AED 6,000,000 in deemed depreciation, and on that sale the full AED 6,000,000 is added back to taxable income. The deduction was real, but it was a loan against the exit, not a gift. What the company banked was the time value of deferring roughly AED 540,000 of tax across those six years.

The realisation clawback

This is the part that changes how you plan a disposal. On realisation — a sale, a derecognition, or the property ceasing to be used in the business — the aggregate deemed depreciation you claimed is added back to taxable income. The benefit reverses. There are exceptions: the add-back does not trigger where the transfer happens within a Tax Group, or where it qualifies under Article 26 (transfers within a qualifying group) or Article 27 (business restructuring relief). Outside those reliefs, treat every dirham of deemed depreciation as deferred, not saved. That framing keeps the decision honest on your forecasts.

Common mistakes

What this means for your fixed-asset register

The election is only as good as the records behind it. To claim it you need, per property, the original cost, the date it entered service, the deemed depreciation taken each period, and the running tax written-down value. That is a proper fixed-asset register kept on a tax basis, sitting alongside the fair-value figures your IAS 40 accounts carry. It also forces an accounting-to-tax depreciation reconciliation: book depreciation of zero on one side, deemed tax depreciation on the other, with the difference explained line by line. PwC, KPMG, and Deloitte each flagged the same practical point in their 2025 alerts: the relief is straightforward to claim and easy to lose if your asset records are not clean.

Official sources

Where this leaves you

If you hold fair-valued investment property and elected the realisation basis, MD 173 is worth real cash flow, provided you go in with the disposal add-back already modelled. Run it alongside the wider realisation basis election decision, and make sure your accounting team keeps the fixed-asset register and the reconciliation that back it up. Our corporate tax consultants model the timing benefit against your exit plan before you make an irrevocable choice.

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