26 August 2026 · The Election
The Investment Property 4% Depreciation Election
Ministerial Decision 173 of 2025 lets taxpayers on the realisation basis claim a deemed depreciation deduction on investment property held at fair value under IAS 40. The amount is the lower of 4% of the property's original cost or its tax written-down value, per 12-month period, from 1 January 2025. The election is irrevocable, and the total claimed is added back when the property is sold or derecognised.
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The election gives a deduction, then records the exit
Ministerial Decision No. 173 of 2025 lets a qualifying taxpayer claim a deemed depreciation adjustment for an investment property held at fair value. The taxpayer must use the accrual basis, have elected the realisation basis under Article 20(3), and make the MD 173 election. The deduction is the lower of 4% of original cost for each 12-month Tax Period, with proration where required, or the TWDV at the start of that period.
Example: a qualifying property has original cost of AED 15,000,000. AED 15,000,000 x 4% = AED 600,000. With opening TWDV of AED 13,800,000, the lower deduction is AED 600,000. Three full claim periods produce AED 600,000 + AED 600,000 + AED 600,000 = AED 1,800,000. On a non-exempt realisation, that aggregate amount increases taxable income under the decision.
Treat this as timing relief, not a permanent saving. The property owner gets a tax adjustment during ownership, then records the aggregate claimed amount when the specified realisation event occurs unless an identified transfer exception applies. The Tax Return and its working paper must show the election, the period calculation, and the running amount. A journal entry alone cannot prove the tax position.
- Use original cost, not fair value.
- Apply the lower of two amounts.
- Track every claim by period.
- Model the realisation adjustment.
Only one type of property owner reaches this route
The route is limited to a Taxable Person that prepares financial statements on the accrual basis and has elected to take gains and losses on a realisation basis under Article 20(3) of the Corporate Tax Law. The property must be held at fair value under the applicable accounting standards. Once made, the MD 173 election applies to all of that taxpayer's fair-valued investment properties, not just the asset that first caught attention.
MD 173 uses a specific property definition. It covers a building or part of a building held by the owner, or held as a right-of-use asset by a lessee, to earn rental income, for capital appreciation, or both, as specified in IAS 40. Land and IAS 40 exclusions are outside it. A cost-model property, trading stock, or non-qualifying owner needs a different tax analysis.
If a return is being prepared now, read the accounting policy note and the prior Tax Return before asking for the 4% calculation. Confirm the accounting model, the realisation-basis election, the property's classification, and the period of ownership. The formula comes after those facts. Starting with a percentage is how an owner claims the right number on the wrong property.
- Confirm accrual-basis accounts.
- Read the IAS 40 classification.
- Check the Article 20(3) election.
- Include every qualifying property.
The election needs more than a property valuation
Keep the signed financial statements, the accounting policy showing the fair-value model, the purchase agreement or invoice establishing original cost, and the register of capitalised costs. Add the Tax Return in which the realisation-basis and MD 173 elections are made, the period calculation, and any disposal or transfer record. The file should let a reviewer move from the property balance to the tax adjustment without guessing which document controls the amount.
The purchase price is only the start. MD 173 defines original cost by reference to IAS 40 and includes subsequent capitalised costs subject to the arm's-length principle in Article 34 of the Corporate Tax Law. Each addition therefore needs an invoice, approval, and accounting treatment. A valuation report explains fair value. It does not replace the evidence for original cost or a later capitalised addition.
There is an unsettled point in the evidence. The English PDF hosted by the FTA says it is not an official translation. It is useful for the formula and process, but an edge case that turns on wording should be checked against the Arabic decision and the underlying Corporate Tax Law. The working file can map the route. It cannot settle a disputed interpretation without the authoritative text and facts.
- Retain the signed policy note.
- Trace original cost to source.
- Record capitalised additions separately.
- Keep the election with the return.
The return deadline is part of the election
MD 173 requires the election in the Tax Return for the first Tax Period to which the decision applies when the taxpayer holds an investment property in that period. If no investment property is held in that first period, the election belongs in the Tax Return for the period in which the first property is held. If the taxpayer misses the stated timeline, the decision says the right to make the election is forfeited.
We would not elect because one current deduction looks attractive. We would model the holding period, the portfolio, and the realisation adjustment first. The election is irrevocable and applies across the taxpayer's fair-valued investment properties. This is a portfolio decision with an exit consequence. It is not a line item to add at the end of a return because the spreadsheet has room for it.
Compare the period calculation with planned disposals, accounting-policy changes, and any Tax Group or qualifying-group transfer. The decision treats some transfers differently from an ordinary sale, and the legal route must be identified before the event. Put the Tax Return, the election analysis, and the commercial timetable beside each other. That is the point at which a missed filing choice becomes visible.
- Identify the first applicable period.
- Put the election in the return.
- Model all fair-valued properties.
- Check transfer relief before exit.
The work grows with the property history
The main cost drivers are the number of properties, the quality of original-cost records, the volume of capitalised additions, the periods already affected, and any transfer or accounting-policy change. A clean register supports a short computation. A portfolio reconstructed from old ledgers needs more tracing because each opening value must be supportable before the current deduction or exit adjustment can be signed off.
The table is useful because it separates the condition that permits the election from the calculation and the event that reverses the timing benefit. Those are different questions. Treating them as one 4% exercise is how a property owner reaches correct arithmetic on the wrong asset. The review should test eligibility first, calculation second, election evidence third, and realisation treatment when an event occurs.
Exiloz can check the qualification file, compute the deduction, and model the realisation adjustment. That work is tax support, not a statutory audit. Exiloz does not perform statutory audits, is not a registered Tax Agent, and is not an FTA-accredited e-invoicing Service Provider. The deliverable is a documented position for the return, with property, cost, period, election, and exit event tied to named records.
- Property count sets tracing time.
- Old records increase reconstruction work.
- Transfers change the evidence path.
- Exit modelling drives the review.
| Decision point | Question to answer | Evidence to retain |
|---|---|---|
| Eligibility | Does the owner and property fit MD 173? | Financial statements and Tax Return |
| Calculation | Which lower amount applies? | Cost register and period schedule |
| Election | Was it made in the applicable return? | Filed return and election workpaper |
| Realisation | Does the event increase taxable income? | Sale, transfer, policy, or closure record |
Frequently Asked Questions
For property-holding companies.
What does Ministerial Decision 173 of 2025 allow?
It allows taxpayers who elected the realisation basis to claim a deemed depreciation deduction on investment property held at fair value under IAS 40. The deduction is the lower of 4% of original cost or the tax written-down value per tax period.
Is it 4% of cost or 4% of market value?
Of original cost, not the fair value shown in the accounts. The written-down value acts as a cap, so the deduction is the lower of 4% of cost or the remaining tax base for that period.
When can I start claiming?
From 1 January 2025, for each 12-month tax period, once you have elected both the realisation basis and the depreciation adjustment. The deduction runs while you hold the property, subject to the written-down value cap.
Is the election reversible?
No. The depreciation election under Ministerial Decision 173 of 2025 is irrevocable. Once made it applies to your qualifying investment property for all future periods, so model the outcome before you commit.
What happens to the deduction when I sell?
The total deemed depreciation claimed is added back to taxable income on realisation, which includes a sale, derecognition or the property ceasing to be used. Transfers within a Tax Group or under Article 26 or 27 relief are the exceptions.
Can Exiloz set up the election?
Yes. We confirm you qualify, compute the deduction, keep the supporting register, and model the disposal add-back so the irrevocable choice is made on the numbers.
Claim the 4% deduction right
Exiloz confirms you qualify, computes the deduction, and models the add-back before the irrevocable election.