26 August 2026 · Reconciliation
The Accounting-to-Tax Depreciation Reconciliation
A depreciation reconciliation bridges the depreciation in your IFRS accounts and the deduction allowed for UAE corporate tax, explaining every difference line by line. For fair-valued investment property the book figure is zero while the tax deduction under Ministerial Decision 173 of 2025 is not, so the reconciliation makes the deduction visible and defensible. It is the working paper that ties your fixed-asset register to the figure on the return.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
The reconciliation shows what changed between book and tax
A depreciation reconciliation is the working paper that bridges the depreciation charge in the financial statements and the amount carried into the UAE corporate tax computation. It starts with the accounting record, identifies the tax treatment for each asset or property, and explains the adjustment. The result should agree to the fixed-asset register and to the line used in the Tax Return.
Example: the accounts show AED 0 depreciation for a fair-valued investment property. The MD 173 schedule calculates AED 240,000, so the tax-only adjustment is AED 0 + AED 240,000 = AED 240,000. If the same amount is claimed for four periods, the tracked total is AED 240,000 x 4 = AED 960,000, which becomes relevant when realisation occurs.
The paper should keep book and tax visible rather than netting them into one number. Book depreciation may be zero under IAS 40, while the tax schedule may contain a deemed deduction. On a non-exempt realisation, MD 173 requires the aggregate claimed deduction to increase taxable income. The reconciliation is where that future movement is recorded before it is forgotten.
- Start with the book figure.
- Calculate the tax adjustment.
- Track the cumulative claim.
- Tie the total to the return.
The right reconciliation starts with the right asset list
The population should come from the period-end financial statements, general ledger, fixed-asset register, and property schedule. Mark ordinary depreciating assets separately from investment property carried at fair value. For the latter, confirm whether the taxpayer uses the realisation basis under Article 20(3) and whether the MD 173 election has been made in the appropriate Tax Return.
A reconciliation is not only for buildings. It can explain an ordinary book-to-tax difference, a capitalised addition, a disposal, a transfer, or a change in accounting model. Each line needs the treatment that fits its source record. A copied total from the prior period is not a control when the asset list has changed.
If you are preparing the return and do not know which assets belong in the schedule, stop before calculating the total. Pull the signed financial statements and the current register, then trace additions and disposals to their documents. The decision is not whether a spreadsheet cell is blank. It is whether the population is complete enough to support the return.
- Start from period-end records.
- Flag fair-value property.
- Trace additions and disposals.
- Confirm the election status.
Each line needs an amount and a reason
A useful schedule contains the asset reference, book depreciation, tax depreciation or deemed deduction, opening TWDV where relevant, current-period adjustment, closing TWDV, and source reference. Add a note for the accounting policy, tax decision, or document that explains the difference. The file should allow another preparer to reproduce the total without asking what a column was meant to mean.
For MD 173 property, attach the original-cost support, the fair-value accounting policy, the applicable Tax Return, the period calculation, and any realisation record. The source may be an invoice, contract, register, return, sale agreement, transfer record, or policy note. A valuation report helps explain fair value, but it does not prove original cost or the aggregate deduction claimed.
The evidence has a real boundary. MD 173 specifies the deduction and realisation adjustments, and the FTA's Tax Returns Guide identifies return schedules for realisation-basis adjustments, but the FTA guide does not specify a statutory depreciation-reconciliation template. The layout is a control designed around the taxpayer's records. It should be clear about that, rather than presented as an official FTA form.
- Show book and tax separately.
- Attach the source reference.
- Record opening and closing TWDV.
- Label the schedule as working paper.
Four steps take the schedule into the return
First, lock the asset population to the period-end ledger and register. Second, verify the accounting treatment and book amount for each line. Third, apply the tax rule, including the MD 173 formula where the property and election qualify. Fourth, agree the adjustment total to the corporate tax computation and retain the source pack with the Tax Return. The order matters because a correct formula on an incomplete list is still wrong.
We would close the reconciliation before the return is drafted, not after the tax figure has already been typed into the form. That timing earns its place because the schedule is where missing disposals, duplicated additions, and unsupported property elections are easiest to see. A late check tends to become a confirmation exercise instead of a control.
If the deadline is close, resolve the lines that change the tax result first. Mark items waiting for a purchase invoice or disposal agreement, quantify only what the record supports, and state what remains open. Then ask the preparer to approve the treatment before the return total is carried forward. The unresolved list is part of the handoff, not a hidden footnote.
- Lock the asset population.
- Verify the book treatment.
- Apply the tax rule.
- Agree the return total.
The workload follows the number of lines and exceptions
The main cost drivers are the number of assets, entities, periods, capitalised additions, disposals, transfers, and missing source documents. Fair-valued property adds election and realisation checks. Pooled ledger balances add allocation work. A small, current register may need only a targeted tie-out. A historic file with several accounting models needs reconstruction before the arithmetic can be trusted.
The table is the right form here because a reconciliation is a set of line states. It shows the book entry, the tax action, and the evidence that closes the line. It also makes a useful distinction: a zero book charge is not the same as a zero tax adjustment, and a tax-only deduction is not the same as a change to the financial statements.
Exiloz can prepare the working paper, tie it to the register, and carry the supported result into the corporate tax computation. This is not a statutory audit, and Exiloz does not perform statutory audits or act as a registered Tax Agent. The schedule should state its source and scope so the return preparer knows what was checked.
- Line count sets review time.
- Exceptions add judgement work.
- Missing documents delay closure.
- Transfers need separate support.
| Reconciliation line | Book record | Tax action and proof |
|---|---|---|
| Ordinary asset depreciation | Charge under the accounting policy | Test the tax treatment and retain the register |
| Fair-valued investment property | No depreciation under the fair-value model | Apply MD 173 only if the return and property qualify |
| Capitalised addition | Added to the book asset balance | Trace original cost and update TWDV where relevant |
| Realisation or transfer | Disposal, policy, or transfer entry | Check the MD 173 adjustment and attach the event record |
Frequently Asked Questions
For preparers of the corporate tax return.
What is a depreciation reconciliation?
It is a working paper that bridges the depreciation in your accounts and the depreciation allowed for tax, explaining each difference. It ensures the deduction on the corporate tax return ties back to your fixed-asset register.
Why is it needed for investment property?
Because IAS 40 fair-value accounting records no depreciation, while Ministerial Decision 173 of 2025 allows a deemed tax deduction. The reconciliation is what makes that tax-only deduction visible and supportable.
What does the reconciliation start from?
Usually the book depreciation per asset, which is then adjusted for the tax treatment. For fair-valued property the book figure is zero, so the tax deduction is added in full and explained.
How often should it be done?
Every tax period, as part of preparing the return. Keeping it current avoids reconstructing the position at filing time and keeps the fixed-asset register and accounts aligned.
Who should prepare it?
Whoever prepares the corporate tax computation, working from the fixed-asset register and the accounts. In practice it sits between the accounting team and the tax preparer, which is why the register must be clean.
Can Exiloz run the reconciliation for us?
Yes. We build the accounting-to-tax depreciation reconciliation, tie it to your register, and carry the result into your corporate tax return.
Reconcile book to tax
Exiloz builds the depreciation reconciliation that ties your register to the corporate tax return.