26 August 2026 · The Gap
Tax vs Accounting Depreciation in the UAE
Accounting depreciation spreads an asset's cost over its useful life under IFRS, while tax depreciation is what UAE corporate tax law actually lets you deduct. They rarely match. IAS 40 investment property records no depreciation at all, yet Ministerial Decision 173 of 2025 now allows a deemed tax deduction for some owners. The difference between the two is a temporary difference you track, reconcile, and explain on the corporate tax return.
Exiloz Management & Tax Consultant · Dubai-based FTA-focused advisory · VAT, corporate tax & accounting
The accounting charge is not the tax deduction
The FTA starts the corporate tax calculation with accounting income, then requires adjustments under the Corporate Tax Law and its decisions. Book depreciation belongs to the financial statements. A tax deduction belongs to the tax computation. The two amounts can differ lawfully, but a difference without a reason is a control failure. Your working paper should show the asset, the book treatment, the tax treatment, and the source for both.
Example: a qualifying fair-valued investment property has original cost of AED 12,000,000. Under Ministerial Decision No. 173 of 2025, AED 12,000,000 x 4% = AED 480,000. If the opening tax written-down value is AED 9,600,000, the lower amount is AED 480,000. The accounts show AED 0 depreciation under the fair-value model, so the tax-only difference for that period is AED 480,000.
That calculation is not a general allowance for every asset. It depends on the taxpayer using the accrual basis, having elected the realisation basis under Article 20(3), holding the investment property at fair value, and making the MD 173 election. After reading this page, you should be able to label each asset before deciding which number belongs in the return.
- Start with the accounting record.
- Keep the tax basis separate.
- Explain every difference.
- Tie the result to the return.
The same word can hide different tax treatment
An investment property is not simply any building on the balance sheet. MD 173 describes a building or part of a building held to earn rental income, for capital appreciation, or for both, under IAS 40. Land and the exclusions in IAS 40 are outside that definition. A property carried at cost, a machine, and a software asset therefore cannot be pushed through the same 4% calculation because they share a capital-assets heading.
The FTA Accounting Standards Guide says capital expenditure is identified by the accounting standards used by the taxpayer. The direct capital spend is not automatically deducted, while associated depreciation, amortisation, or similar changes may be deductible where the underlying expenditure qualifies. That makes the accounting policy relevant evidence, not a formality. The tax review begins with the object acquired and its business use.
The mistake we see most is copying the net book value column into the tax schedule and calling the result depreciation. Net book value answers an accounting question. It may not show original cost, opening TWDV, a disposal, or a property election. Mark each line as an ordinary asset, fair-valued investment property, capitalised addition, disposal, or transfer before applying a tax adjustment.
- Read the accounting policy.
- Separate property from equipment.
- Check the realisation-basis election.
- Classify before calculating.
A reconciliation makes the difference explainable
Begin with the signed financial statements, the general-ledger depreciation report, and the current fixed-asset register. For each line, record original cost, opening tax written-down value where relevant, current book depreciation, current tax depreciation or deemed deduction, disposals, and closing value. The final total should agree with the corporate tax computation. If it does not, the mismatch needs a named cause rather than a balancing entry.
Keep the source beside the line. That can be a purchase invoice, handover record, capitalisation schedule, accounting policy note, valuation support, disposal agreement, transfer record, or prior Tax Return. A fair-valued property can have a balance-sheet value that differs from its tax cost, so the register must preserve the original cost even after a valuation changes the amount shown in the accounts.
There is an unsettled boundary worth stating plainly. MD 173 gives a special formula for qualifying investment property, while the FTA guide explains how accounting standards interact with tax. Neither source publishes one tax depreciation schedule for every equipment class or one mandatory reconciliation layout. For plant, vehicles, and software, the answer must be built from the asset's accounting treatment, the applicable tax rule, and its records.
- Start from the period-end records.
- Record original cost and TWDV.
- Attach a source to each line.
- Name any unresolved treatment.
Four checks keep the tax number separate
Freeze the asset population used for the financial statements. Mark the book treatment for each line. Apply the tax rule that fits the classification, placing any deemed deduction in its own column. Then agree the adjustment total to the corporate tax computation before the Tax Return is completed. Keep the invoice, register, policy note, and calculation together so the result can be rebuilt without relying on memory.
We would reconcile before the return is drafted, not after a tax number has already been typed into the form. Changing the accounting policy simply to make book and tax match can damage the signed financial statements. Leaving the tax adjustment undocumented creates a different problem. A visible difference with a named source is easier to review than a clean-looking total with no trail.
When the numbers disagree, open the source documents before changing a rate. Check whether an addition was capitalised, an asset was disposed of, a property changed accounting model, or a prior claim reduced TWDV. The practical failure is often a copied prior-period total. The register needs a current event history because a disposal or transfer can change the tax answer even when the ledger balance looks familiar.
- Freeze the asset population.
- Mark the book treatment.
- Apply the matching tax rule.
- Agree the return total.
The cost follows the number of differences to prove
The review workload follows the number of entities, asset classes, periods, additions, disposals, transfers, and fair-valued properties. Clean ledgers and indexed source records shorten the work. Missing invoices, pooled balances, inherited registers, and a property sale increase it because the opening tax basis has to be rebuilt before the current deduction can be trusted. The label reconciliation says little about that effort.
A table is useful here because the same visible mismatch can have four different causes. One may be a normal accounting difference. Another may be an MD 173 election. A third may be missing evidence. A fourth may be a transfer that changes the realisation analysis. The next action depends on the cause, so the schedule should direct the reviewer to the record that can prove it.
Exiloz can prepare the accounting-to-tax schedule and supporting register. The work is tax computation support. Exiloz does not perform statutory audits, is not a registered Tax Agent, and is not an FTA-accredited e-invoicing Service Provider. The deliverable should state its assumptions and exclusions, then leave the return preparer with a line-by-line file that supports the amount claimed.
- Entity count sets tracing time.
- Asset history changes the work.
- Disposals need event evidence.
- Missing records require reconstruction.
| Visible difference | Likely question | Record to inspect |
|---|---|---|
| Book and tax depreciation match | Is the asset population complete? | Ledger, register, and computation |
| Book depreciation is zero | Is fair value and MD 173 relevant? | Accounting policy and Tax Return |
| Opening TWDV is lower | Were earlier claims or disposals recorded? | Prior schedules and asset history |
| Difference follows a transfer | Does a transfer rule change the result? | Transfer agreement and group records |
Frequently Asked Questions
For finance teams new to the split.
What is the difference between tax and accounting depreciation?
Accounting depreciation spreads an asset's cost over its useful life under IFRS. Tax depreciation is the deduction UAE corporate tax law actually allows. The two are computed differently and rarely produce the same figure, which creates a temporary difference on the return.
Why does IAS 40 record no depreciation?
Investment property under IAS 40 is carried at fair value, with the change each period booked as a gain or loss. Because the asset is remeasured to market, the standard does not also charge depreciation, so the accounts show none.
Does the accounting figure decide my tax deduction?
No. The tax deduction follows the corporate tax law and its decisions, not the accounting policy. For fair-valued investment property, Ministerial Decision 173 of 2025 provides a separate deemed depreciation deduction you must claim yourself.
What is a temporary difference?
It is a gap between the accounting treatment and the tax treatment that reverses over time. Depreciation differences are a common example: the total deducted is the same eventually, but the timing differs between the books and the return.
Do I need to track both numbers?
Yes. You keep book values for the accounts and a separate tax written-down value for the return, then reconcile the two. Without both, you cannot support the tax position in an FTA review.
Can Exiloz explain the gap for our assets?
Yes. We map your accounting depreciation against the tax treatment asset by asset and show where the differences arise and how they reverse.
Close the book-tax gap
Exiloz maps accounting depreciation against the tax treatment so your return is right and defensible.