UAE Real Estate Tax Rules Explained

Effective since January 1, 2025, the new rule supports real estate and capital-intensive sectors by boosting compliance, flexibility, and investor confidence.

The UAE Ministry of Finance issued Ministerial Decision No. 173 of 2025, introducing tax depreciation on investment properties (IP) held at fair value.

UAE real estate tax rules

Effective January 1, 2025, the amendment is designed to enhance consistency in the corporate tax regime, benefiting businesses in the real estate and capital-intensive sectors by improving compliance, planning flexibility, and investor confidence.

Tax advisory firm Dhruva welcomed the decision, which resolved long-standing concerns among companies using the fair value model but unable to claim depreciation deductions.

Sandeep Kumar, Corporate Tax Partner at Dhruva, said: “This decision is a welcome step towards aligning accounting and tax principles in the UAE. It provides optionality for businesses and creates consistency in how investment properties are treated for tax purposes. Importantly, it gives companies a one-time opportunity to elect the realisation basis of taxation — a choice that is irrevocable and requires careful evaluation.”

Under the new rules, taxable entities may claim depreciation at 4 per cent per annum on the original cost of the property, calculated on a pro-rata basis depending on the holding period.

To benefit, businesses must opt for the realisation basis of taxation, an irrevocable election that must be made within a prescribed timeframe in the UAE.

Companies that fail to elect will permanently forfeit the right to claim depreciation on properties held at fair value.

The Ministry also clarified provisions covering Qualifying Group Relief (QGR), Business Restructuring Relief (BRR), and Tax Groups (TG), ensuring continuity where properties are transferred under such arrangements.

Since depreciation under the fair value model is not reflected in financial accounts, companies may face temporary differences, giving rise to deferred tax liabilities under international accounting standards.

The decision further clarifies the tax treatment upon the realisation of such properties, including adjustments for previously claimed depreciation, with detailed provisions for intra-group transfers, restructurings, and tax groups.

Kumar said: “Taxpayers should not view this as a routine compliance update. It is a strategic opportunity to align their tax positions with business realities. At Dhruva, we’re committed to helping businesses make informed decisions under the new corporate tax regime.”

For businesses holding real estate at fair value, the update underscores the importance of early planning and timely elections in tax filings.

Dhruva noted that electing the realisation basis may also impact the treatment of other fair-valued assets and unrealised gains or losses, highlighting the need for careful long-term evaluation.