26 August 2026 · Capital Costs
Capital Allowances in the UAE
UAE corporate tax does not expense capital spend in one go. The cost of a long-life asset is deducted over time through depreciation that follows the tax rules, not a single headline allowance rate. For most assets the accounting depreciation is the starting point, adjusted where the law differs. Fair-valued investment property is the special case, where Ministerial Decision 173 of 2025 supplies a deemed 4%-or-TWDV deduction the accounts do not provide.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
Capital spend is a classification decision before it is a deduction
The FTA Accounting Standards Guide treats capital expenditure through the accounting standards used by the taxpayer. The capital spend itself is not deducted as a current expense, while associated depreciation, amortisation, or similar changes may be deductible where the underlying expenditure qualifies. There is no useful one-line allowance answer until the business identifies the asset, its accounting treatment, and the tax rule that fits it.
Example: a business buys production equipment for AED 900,000 and its accounting policy records AED 180,000 of depreciation for the period. If the tax working paper accepts that same amount, the current deduction is AED 180,000 and the remaining cost is AED 900,000 - AED 180,000 = AED 720,000. This shows a book-to-tax match. It is not a statutory rate or a promise that every asset follows it.
Fair-valued investment property is the clear special case. IAS 40 accounts do not provide the ordinary depreciation line, while MD 173 can provide a separate deemed deduction for a taxpayer that meets its accrual, realisation-basis, and fair-value conditions. Test that rule asset by asset. A 4% property adjustment is not a general allowance for machinery, vehicles, software, or every capital purchase.
- Start with the accounting record.
- Classify the capital item.
- Apply the matching tax rule.
- Keep the calculation with the return.
The invoice and intended use decide where the work starts
A capital-cost review starts with the purchase invoice, contract, delivery or handover record, and intended business use. The accounting policy then shows whether the item was expensed, capitalised, depreciated, amortised, or included in a property balance. Those objects are more useful than a label such as capital allowance because they show what was acquired and why the accounting entry was made.
If an item has more than one use, record the facts that support the allocation: who uses it, where it is used, which activity it supports, and how the split was measured. A private-use vehicle, mixed-use premises, or shared equipment cannot be cleared by copying the full invoice into the tax schedule. The file needs a stated basis and source records for the part treated as business expenditure.
If you are deciding how to treat a new purchase, do not start with the percentage you hope to claim. Start with the invoice and business purpose. Then ask whether the item is an asset, a period expense, a fair-valued property item, or a mixed-use cost. That sequence keeps the tax treatment attached to the actual object and makes a later review possible.
- Read the purchase invoice.
- Check the business purpose.
- Document mixed-use amounts.
- Match the accounting policy.
A capital-cost review shows what the return can carry
The working paper should classify the spend, tie it to the general ledger, identify the asset or expense account, and show the book charge and tax adjustment separately. For investment property, add original cost, fair-value policy, realisation-basis status, and the MD 173 calculation where the conditions are met. A reviewer should see the route from invoice to return without opening five unrelated files or reconstructing the classification from email.
The review should state what it does not do. It does not rewrite signed financial statements, decide a disputed IFRS policy without the finance team, or certify an audit. Exiloz does not perform statutory audits, is not a registered Tax Agent, and is not an FTA-accredited e-invoicing Service Provider. The useful deliverable is a tax-computation support file, with assumptions, exclusions, and source records visible.
The evidence has an unsettled boundary. The FTA guide gives the general treatment of capital expenditure, while MD 173 gives the special property formula. Neither source decides every mixed-use invoice or unusual asset classification without the facts. Where the invoice, contract, and use do not align, name the uncertainty and escalate it for a specific tax view instead of turning an unknown into a full deduction.
- Classify before calculating.
- Tie the item to the ledger.
- Record exclusions and assumptions.
- Escalate fact-sensitive cases.
A short sequence prevents a long reconstruction
Collect the invoice, contract, delivery record, and ledger entry. Decide whether the amount is an operating expense, a capital asset, a fair-valued investment property item, or a mixed-use amount. Apply the accounting and tax treatment that fits that classification. Record the result in the fixed-asset register or tax adjustment schedule, then tie it to the Tax Return and source pack.
We would not start with a percentage or a pre-filled allowance column. We would start with the invoice and intended use because classification drives the deduction, and a rate applied to the wrong object produces a neat but unsupported answer. The reason for each tax adjustment belongs beside the amount. It should not depend on a later email that may not survive the filing cycle.
If the Tax Return is due and the capital file is incomplete, identify the lines that change taxable income first. Pull the source document for each one, mark the lines needing a tax decision, and record what remains unsettled. Do not convert an unknown classification into a full deduction merely because the ledger has a balance. A supported partial file is safer than a complete-looking guess.
- Collect source documents.
- Classify the transaction.
- Apply the fitting rule.
- Tie the result to the return.
The workload follows classification and evidence
The work is driven by the number of entities, invoices, asset classes, mixed-use items, property balances, prior periods, and missing records. A small set of clearly documented purchases may be quick to classify. A group with pooled invoices, old capital projects, fair-value property, and incomplete registers needs more tracing and judgement. Those are the facts that should drive a price discussion, because each one adds a different evidence task.
The table belongs here because capital-cost decisions branch by object. It shows the question to ask, the tax route to test, and the record that makes the result defensible. It is not a promise that every row produces a deduction. It is a guard against using the investment-property rule as a shortcut for ordinary capital spend or treating an accounting label as a tax conclusion.
Exiloz can review capital expenditure, map the accounting treatment to the corporate tax computation, and prepare the supporting register. That is advisory and return-support work. It is not a statutory audit. Exiloz does not perform statutory audits, is not an FTA-accredited e-invoicing Service Provider, and is not a registered Tax Agent.
- Invoice volume affects tracing.
- Mixed use adds allocation work.
- Property needs a separate test.
- Missing records increase judgement time.
| Asset or spend | Question to answer | Record that proves it |
|---|---|---|
| Ordinary capital asset | What accounting and tax treatment applies? | Invoice, policy, register, and computation |
| Fair-valued investment property | Does the MD 173 route fit? | IAS 40 policy, cost file, and Tax Return |
| Mixed-use item | What facts support the business allocation? | Use records, allocation basis, and invoice |
| Capitalised addition | Was original cost updated and supported? | Supplier invoice, approval, and register |
Frequently Asked Questions
For understanding capital cost deductions.
Are capital costs deductible under UAE corporate tax?
Yes, but generally over time rather than all at once. The cost of a long-life asset is deducted through depreciation recognised under IFRS, adjusted where the corporate tax law provides a different treatment.
Is there a fixed capital allowance rate in the UAE?
There is no single statutory allowance schedule for most assets. Depreciation broadly follows the accounts, with adjustments under the law. The clear exception is fair-valued investment property, where Ministerial Decision 173 of 2025 sets a 4%-of-cost or written-down-value deduction.
How is investment property treated?
If it is held at fair value under IAS 40, the accounts record no depreciation. Realisation-basis taxpayers can instead claim a deemed deduction under Ministerial Decision 173 of 2025, at the lower of 4% of original cost or the tax written-down value.
Can I deduct the full cost of an asset in year one?
Generally not for long-life capital assets, which are deducted over time. Some smaller items may be expensed under your accounting policy, but the treatment must be consistent and supportable.
What records support a capital deduction?
A fixed-asset register showing original cost, in-service date, depreciation claimed and the tax written-down value per asset. It is the evidence the FTA expects for any capital cost deduction.
Can Exiloz review our capital cost treatment?
Yes. We check how your capital spend is being deducted, apply the correct treatment for investment property, and make sure the records support it.
Deduct capital costs correctly
Exiloz applies the right depreciation and capital treatment across your assets and documents each claim.