In brief
The UAE Ministry of Finance has issued Ministerial Decision No. 173 of 2025, introducing a specific UAE Corporate Tax depreciation adjustment for certain Investment Properties held at fair value.
This is an important development for businesses that own commercial buildings, rental properties or property-holding structures where investment properties are accounted for under IAS 40 using the fair value model.
Under the fair value model, investment property is generally measured at fair value in the financial statements, and fair value gains or losses may be recorded for accounting purposes. However, where a taxpayer has elected to recognise gains and losses on a realisation basis for UAE Corporate Tax purposes, unrealised fair value movements may not be immediately taxed or deducted.
MD 173 addresses this issue by allowing eligible taxpayers to claim a tax depreciation deduction on qualifying investment property held at fair value, subject to strict conditions, election timelines and recapture rules.
The Decision applies to Tax Periods starting on or after 1 January 2025.
Key takeaway
The new UAE Corporate Tax Investment Property Depreciation regime under MD 173 may provide a valuable deduction for eligible real estate companies, landlords, property investors, family businesses and property holding companies in the UAE.
However, the election is irrevocable, applies to all investment properties held at fair value, and may result in a future taxable adjustment when the property is sold, transferred, derecognised, or when certain other realisation events occur.
Taxpayers should assess the impact before filing the relevant Corporate Tax Return UAE, as missing the election timeline may result in losing the right to claim the depreciation deduction.
What is MD 173 of 2025?
Ministerial Decision No. 173 of 2025 sets out the rules for claiming a depreciation adjustment for Investment Properties held at fair value for UAE Corporate Tax purposes.
In simple terms, MD 173 allows an eligible Taxable Person to deduct a notional tax depreciation amount even though the investment property may not be depreciated in the same way in the financial statements under the fair value model.
The Decision is especially relevant for taxpayers that:
- hold investment property under IAS 40;
- apply the fair value model in their financial statements;
- have elected or are eligible to elect for realisation basis treatment under UAE Corporate Tax;
- own buildings or parts of buildings used for rental income or capital appreciation;
- need to prepare accurate Corporate Tax return adjustments; and
- require proper tax depreciation schedules for investment property.
Why UAE Corporate Tax Investment Property Depreciation matters
For many UAE businesses, investment property represents one of the largest assets on the balance sheet. This may include commercial buildings, offices, warehouses, retail units, staff accommodation buildings, rental properties and other real estate assets held for rental income or capital appreciation.
Where investment property is measured at fair value, accounting profit may include fair value gains or losses. However, under UAE Corporate Tax, taxpayers may elect to recognise gains and losses on a realisation basis. This means that certain unrealised accounting movements may be excluded from taxable income until a realisation event occurs.
Without a specific tax depreciation mechanism, taxpayers holding fair value investment properties could be in a different tax position compared with taxpayers applying the cost model, where depreciation may be recorded in the financial statements.
MD 173 provides a specific UAE tax depreciation mechanism to address this difference.
How does IAS 40 affect UAE Corporate Tax?
IAS 40 deals with Investment Property. In broad terms, investment property means property held to earn rental income, for capital appreciation, or both.
Under IAS 40, investment property may be measured using either:
| Accounting model | General accounting treatment |
|---|---|
| Fair value model | Property is measured at fair value, with fair value changes generally recognised in profit or loss |
| Cost model | Property is measured at cost less accumulated depreciation and impairment |
For UAE Corporate Tax purposes, the accounting treatment is important because taxable income generally starts from accounting net profit or loss, subject to adjustments under the UAE Corporate Tax Law and relevant decisions.
MD 173 is designed for investment properties held at fair value, where a specific tax depreciation adjustment may be available if the conditions are met.
What is Investment Property under MD 173?
For MD 173 purposes, Investment Property generally refers to:
- a building; or
- part of a building;
held by the owner, or by a lessee as a right-of-use asset, to earn rental income, for capital appreciation, or both, as specified under IAS 40.
A very important point is that land is excluded for the purposes of MD 173.
This means that where a property includes both land and building elements, the taxpayer should carefully identify and support the qualifying building component. The land element should not be included in the MD 173 tax depreciation base.
Can land be depreciated under MD 173?
No. Land is not included in the definition of Investment Property for the purposes of MD 173.
Only a building or part of a building may qualify, provided the other conditions are met.
Where a taxpayer owns a mixed land and building asset, proper allocation between land and building should be maintained through accounting records, valuation reports, purchase documents, asset registers and supporting tax working papers.
Who qualifies for the depreciation election?
The depreciation adjustment under MD 173 is not automatic. A taxpayer must satisfy the relevant conditions.
Broadly, the election may be available where the Taxable Person:
- prepares financial statements on an accrual basis of accounting;
- holds Investment Property at fair value under applicable Accounting Standards;
- applies or elects to apply the realisation basis for gains and losses under the UAE Corporate Tax Law;
- makes the MD 173 election within the prescribed timeline; and
- maintains proper documentation to support the Original Cost, Opening Value and Tax Written Down Value.
The election should be considered carefully because it is irrevocable.
Is the MD 173 election mandatory?
No. The MD 173 election is optional.
However, once made, the election is irrevocable and applies to all Investment Properties held at fair value by the Taxable Person under the applicable Accounting Standards.
The taxpayer cannot generally choose to apply the election to only selected investment properties while excluding others.
How is tax depreciation calculated under MD 173?
Where the conditions are satisfied and the election is made, the taxpayer may claim a depreciation deduction equal to the lower of:
| Basis | Depreciation deduction |
| 4% of Original Cost | 4% of the Original Cost for each 12-month Tax Period |
| Tax Written Down Value | The Tax Written Down Value at the start of the relevant Tax Period |
The 4% deduction is prorated where:
- the Tax Period is shorter or longer than 12 months; or
- the Investment Property is held for only part of the Tax Period.
This means the annual deduction is generally capped at 4% of Original Cost, subject to the available Tax Written Down Value.
What is Original Cost under MD 173?
Original Cost generally refers to the cost of the Investment Property as specified under IAS 40.
It may include subsequent capitalised costs, subject to the arm’s length principle under the UAE Corporate Tax Law.
Examples of supporting documents may include:
- purchase agreement;
- title deed or ownership documents;
- completion certificate;
- capitalised improvement invoices;
- fixed asset register;
- accounting policy note;
- audited financial statements;
- valuation report;
- land and building allocation schedule; and
- related party transfer documentation, where applicable.
What is Opening Value?
Opening Value is a tax concept introduced under MD 173.
In broad terms, Opening Value is calculated by reducing the Original Cost by a deemed depreciation deduction of 4% for each Gregorian calendar year, or prorated part-year, during which the taxpayer held the Investment Property before the relevant first Tax Period.
This is important because it prevents a taxpayer from claiming tax depreciation on the full historical cost where the property was already held for a number of years before the MD 173 regime became relevant.
What is Tax Written Down Value?
Tax Written Down Value means the Opening Value less the aggregate depreciation deduction already claimed under MD 173.
Tax Written Down Value should be tracked at an asset level. This is essential because the figure may be needed for:
- annual Corporate Tax return adjustments;
- future disposal or sale of the property;
- transfers between related parties;
- Tax Group transactions;
- qualifying group relief;
- business restructuring relief;
- change from fair value model to cost model; and
- realisation or recapture calculations.
Example 1: Basic UAE tax depreciation calculation
Assume a UAE company owns a qualifying commercial building held as Investment Property at fair value.
| Item | Amount |
| Original Cost of building | AED 10,000,000 |
| Tax Period | 12 months |
| Annual MD 173 rate | 4% |
| 4% tax depreciation | AED 400,000 |
If the Tax Written Down Value at the start of the Tax Period is more than AED 400,000, the taxpayer may claim a tax depreciation deduction of AED 400,000, subject to satisfying all MD 173 conditions.
This deduction would reduce Taxable Income for UAE Corporate Tax purposes, unless restricted by other provisions.
Example 2: Opening Value calculation
Assume a company acquired a qualifying investment building on 1 January 2020 for AED 10,000,000 and the first relevant Tax Period starts on 1 January 2025.
| Item | Amount |
| Original Cost | AED 10,000,000 |
| Deemed depreciation period before first relevant Tax Period | 5 years |
| Deemed depreciation rate | 4% per year |
| Total deemed depreciation | AED 2,000,000 |
| Opening Value | AED 8,000,000 |
The taxpayer would then calculate the annual MD 173 depreciation deduction using the lower of:
- 4% of Original Cost; or
- Tax Written Down Value at the start of the relevant Tax Period.
In this example, the 2025 depreciation deduction may be AED 400,000, assuming all conditions are satisfied.
Example 3: Partial-year ownership
Assume a taxpayer acquires a qualifying investment building on 1 July 2025 for AED 8,000,000.
| Item | Amount |
| Original Cost | AED 8,000,000 |
| Annual depreciation at 4% | AED 320,000 |
| Period held during the Tax Period | 6 months |
| Prorated deduction | AED 160,000 |
The taxpayer should maintain working papers showing the acquisition date, ownership period, Original Cost and prorated depreciation calculation.
Fair Value Model vs Cost Model for UAE Corporate Tax
| Area | Fair Value Model | Cost Model |
| Accounting treatment | Property is measured at fair value | Property is measured at cost less depreciation and impairment |
| Profit or loss impact | Fair value movements may affect accounting profit | Depreciation affects accounting profit |
| UAE Corporate Tax issue | Unrealised gains/losses may be adjusted under realisation basis | Accounting depreciation may already be included in profit |
| MD 173 relevance | Specific tax depreciation election may be available | MD 173 is focused on investment property held at fair value |
| Documentation need | Fair value reports, election support and tax depreciation schedule | Depreciation policy and asset register |
Election timeline under MD 173
The election must be made within the prescribed timeline.
| Scenario | Election timing |
| Taxpayer holds Investment Property during the first Tax Period to which MD 173 applies | Election must be made in the Tax Return for that Tax Period |
| Taxpayer does not hold Investment Property during the first Tax Period to which MD 173 applies | Election must be made in the Tax Return for the Tax Period in which the first Investment Property is held |
| Taxpayer previously applied Small Business Relief | Election must be made in the Tax Return for the first Tax Period in which Small Business Relief no longer applies |
If the election is not made within the required timeline, the taxpayer is treated as having forfeited the right to make the election.
This makes early tax review critical before filing the Corporate Tax return.
What happens when the investment property is sold?
MD 173 provides a timing benefit, but not always a permanent tax saving.
When an Investment Property is realised, the taxpayer may be required to increase Taxable Income by the aggregate depreciation deduction previously claimed.
A realisation event may include:
- sale of the Investment Property;
- disposal or transfer;
- settlement or derecognition;
- complete worthlessness of the property;
- change in accounting policy from fair value model to cost model;
- taxpayer becoming an Exempt Person;
- election for Small Business Relief;
- cessation of business;
- liquidation or dissolution.
This means that the tax depreciation deduction should be tracked carefully because it may reverse in a future Tax Period.
Is depreciation different from accounting depreciation?
Yes. The MD 173 depreciation deduction is a tax adjustment for UAE Corporate Tax purposes.
It is not necessarily the same as accounting depreciation recorded in the financial statements.
For investment property held at fair value, the financial statements may reflect fair value gains or losses rather than conventional depreciation. MD 173 allows an eligible taxpayer to claim a specific tax depreciation deduction in the Corporate Tax calculation, provided the conditions are met.
This is why taxpayers should maintain a separate UAE Corporate Tax depreciation schedule in addition to their accounting fixed asset register.
Can landlords claim depreciation under MD 173?
Landlords may be able to claim tax depreciation under MD 173 if they hold qualifying Investment Property at fair value and satisfy the relevant conditions.
However, not every landlord automatically qualifies.
A landlord should review:
- whether the property is classified as Investment Property under IAS 40;
- whether the asset is a building or part of a building;
- whether any land element has been excluded;
- whether the fair value model is applied;
- whether realisation basis treatment is available or elected;
- whether the election is made on time; and
- whether supporting documentation is available.
Can property holding companies claim depreciation?
A property holding company in the UAE may be able to claim the MD 173 depreciation deduction if it is a Taxable Person and meets the conditions.
This may be particularly relevant for:
- UAE property holding companies;
- family-owned real estate companies;
- commercial building owners;
- rental property businesses;
- real estate investment structures;
- group companies holding property assets;
- companies with fair value investment property in audited financial statements.
The Corporate Tax impact should be assessed together with the company’s accounting policy, realisation basis election, related party transactions and future disposal plans.
Does MD 173 apply to Free Zone companies?
MD 173 may be relevant to a Free Zone company where the company is a Taxable Person and satisfies the conditions for the election.
However, Free Zone companies should also review the interaction with:
- Qualifying Free Zone Person status;
- Qualifying Income;
- Excluded Activities;
- ownership of immovable property;
- mainland or foreign source income;
- Tax Group eligibility;
- audited financial statement requirements; and
- Corporate Tax return reporting.
Free Zone real estate and investment property cases should be reviewed carefully before taking a filing position.
Does MD 173 apply to family offices and family businesses?
MD 173 may be relevant to family offices, family businesses and family-owned real estate structures where the relevant taxpayer holds Investment Property at fair value.
However, the tax treatment may depend on the structure.
For example, the analysis may differ where property is held through:
- an operating company;
- a property holding company;
- a family foundation;
- a trust or similar arrangement;
- a Tax Group;
- a Free Zone entity;
- individual owners; or
- a transparent or unincorporated structure.
Family offices should obtain proper UAE tax advice before making the election, especially where there are multiple properties, related party transfers or restructuring plans.
Related party transfers and anti-abuse rule
MD 173 includes a specific anti-abuse rule for transfers between Related Parties.
Where an Investment Property is transferred between Related Parties, the Federal Tax Authority may disallow the depreciation deduction claimed by the transferee if the transaction or arrangement is not for a valid commercial or other non-fiscal reason that reflects economic reality.
This means taxpayers should maintain proper documentation for related party property transfers, including:
- commercial rationale;
- valuation support;
- transfer agreement;
- accounting entries;
- board or management approvals;
- tax impact assessment;
- transfer pricing support, where applicable;
- evidence that the arrangement reflects economic reality.
Tax Groups, restructuring and qualifying group transfers
MD 173 includes specific rules for transfers involving:
- Qualifying Group transfers;
- business restructuring relief;
- transfers between members of a Tax Group; and
- transferee adjustments where depreciation has already been claimed.
The purpose of these rules is to prevent duplication of tax depreciation benefits and ensure that depreciation previously claimed is properly tracked by the relevant party.
Groups holding investment property should maintain asset-level tax schedules showing:
- Original Cost;
- Opening Value;
- annual depreciation deduction;
- accumulated depreciation claimed under MD 173;
- Tax Written Down Value;
- transfer history;
- related party details;
- relief applied, if any; and
- future recapture exposure.
Corporate Tax Return UAE reporting considerations
Taxpayers applying MD 173 should ensure that the UAE Corporate Tax return position is clearly reconciled with the audited financial statements and supporting tax schedules.
The Corporate Tax return working paper should show:
- accounting profit before tax;
- fair value gains or losses on Investment Property;
- realisation basis adjustments;
- MD 173 depreciation deduction;
- Tax Written Down Value movement;
- disposal or realisation adjustment;
- related party transfer impact;
- Tax Group impact;
- final taxable income reconciliation.
A clear reconciliation helps support the filing position in case of FTA review, audit or clarification request.
Documentation checklist for MD 173
Taxpayers should maintain the following documents:
| Document | Purpose |
| Audited financial statements | To confirm accounting treatment and fair value classification |
| IAS 40 accounting policy | To support Investment Property classification |
| Asset register | To track property cost and movement |
| Title deed / ownership document | To evidence ownership or right-of-use asset |
| Valuation report | To support fair value treatment |
| Purchase agreement | To support Original Cost |
| Land and building allocation | To exclude land from depreciation base |
| Capitalised cost schedule | To support subsequent capitalised costs |
| Tax depreciation schedule | To calculate Opening Value and Tax Written Down Value |
| Realisation basis election support | To evidence Article 20 treatment |
| Management approval | To support the irrevocable election |
| Corporate Tax return mapping | To reconcile the tax adjustment |
| Related party transfer file | To support commercial rationale and arm’s length basis |
Practical impact for UAE businesses
MD 173 may be highly relevant for UAE taxpayers with material real estate assets.
The Decision may create a Corporate Tax deduction for eligible fair value investment properties, improving the taxpayer’s UAE Corporate Tax position during the holding period.
However, taxpayers should not view the deduction in isolation. The following should be considered:
- whether the election will create a short-term tax saving;
- whether depreciation may be recaptured on disposal;
- whether the taxpayer plans to sell or transfer the property;
- whether related party transfer rules apply;
- whether land has been properly excluded;
- whether the property is part of a Tax Group;
- whether deferred tax accounting is required;
- whether financial statements and tax return positions are aligned;
- whether the taxpayer can support the calculation in an FTA review.
A proper UAE tax planning exercise should be completed before making the election.
Key action points
UAE businesses holding investment property should consider the following steps:
- Review all investment properties recorded in the financial statements.
- Confirm whether the properties are measured under IAS 40 using the fair value model.
- Identify whether each asset includes land, building or mixed components.
- Exclude land from the MD 173 depreciation base.
- Confirm whether the taxpayer has elected or can elect for realisation basis treatment.
- Calculate Original Cost, Opening Value and Tax Written Down Value.
- Prepare a depreciation deduction schedule using the 4% rule.
- Assess future recapture exposure on sale, transfer or change in accounting model.
- Review related party transactions and Tax Group implications.
- Make the election within the prescribed Corporate Tax return timeline.
- Maintain proper documentation for FTA audit readiness.
How PTG Consultant can support
PTG Consultant provides UAE Corporate Tax advisory and compliance support for companies holding investment property, real estate assets and fair value properties under IAS 40.
Our UAE Corporate Tax experts can support with:
- MD 173 eligibility assessment;
- UAE Corporate Tax Investment Property Depreciation calculations;
- Original Cost, Opening Value and Tax Written Down Value schedules;
- IAS 40 and fair value model review;
- Corporate Tax return UAE adjustment mapping;
- realisation basis election review;
- property holding company tax planning;
- related party transfer and transfer pricing support;
- Tax Group and restructuring analysis;
- deferred tax coordination with auditors;
- FTA-ready tax documentation;
- Corporate Tax filing UAE support.
For property holding companies, landlords, real estate groups and family businesses, early review is recommended before filing the Corporate Tax return.
FAQs
1. What is UAE Corporate Tax Investment Property Depreciation?
UAE Corporate Tax Investment Property Depreciation refers to the tax depreciation adjustment available under MD 173 for eligible investment properties held at fair value, subject to specific conditions and election requirements.
2. What is MD 173 of 2025?
MD 173 of 2025 is a UAE Ministerial Decision dealing with depreciation adjustments for investment properties held at fair value for Corporate Tax purposes.
3. What is Investment Property under IAS 40?
Investment Property generally means property held to earn rental income, for capital appreciation, or both. Under MD 173, the qualifying property is a building or part of a building, and land is excluded.
4. Can land be depreciated under MD 173?
No. Land is excluded for the purposes of MD 173. Only qualifying buildings or parts of buildings may be considered.
5. What is the depreciation rate under MD 173?
The deduction is generally the lower of 4% of Original Cost for a 12-month Tax Period or the Tax Written Down Value at the start of the relevant Tax Period.
6. Is the MD 173 election mandatory?
No. The election is optional. However, once made, it is irrevocable.
7. Can a taxpayer choose selected properties only?
No. The election applies to all Investment Properties held at fair value by the Taxable Person under the applicable Accounting Standards.
8. Who can elect tax depreciation under MD 173?
A Taxable Person may elect where it prepares financial statements on an accrual basis, holds Investment Property at fair value, applies or elects realisation basis treatment, and makes the election within the required timeline.
9. What is Tax Written Down Value?
Tax Written Down Value is the Opening Value less the aggregate depreciation deduction already claimed under MD 173.
10. What is Opening Value?
Opening Value is the Original Cost reduced by a deemed depreciation amount of 4% for each Gregorian calendar year, or prorated part-year, before the relevant first Tax Period.
11. What is Original Cost?
Original Cost generally refers to the cost of the Investment Property under IAS 40, including subsequent capitalised costs, subject to the arm’s length principle.
12. What happens when the property is sold?
When the property is realised, the taxpayer may need to increase Taxable Income by the aggregate depreciation deduction previously claimed under MD 173.
13. Does MD 173 apply to Free Zone companies?
It may apply where the Free Zone company is a Taxable Person and satisfies the conditions. However, Free Zone companies should also review Qualifying Free Zone Person rules, immovable property treatment and Corporate Tax return impact.
14. Does MD 173 apply to family offices?
It may be relevant where the family office or related entity holds qualifying Investment Property at fair value and is a Taxable Person. The structure should be reviewed carefully.
15. Is tax depreciation different from accounting depreciation?
Yes. MD 173 depreciation is a Corporate Tax adjustment and may differ from accounting depreciation or fair value accounting treatment in the financial statements.
16. Can landlords claim depreciation?
Landlords may claim the deduction if they hold qualifying Investment Property at fair value and meet the conditions. The claim is not automatic.
17. Can property holding companies claim depreciation?
Yes, property holding companies may be able to claim depreciation if they meet the MD 173 conditions and make the election on time.
18. Is the election revocable?
No. The election is irrevocable once made.
19. How should businesses prepare for MD 173?
Businesses should review IAS 40 classification, fair value accounting, land and building allocation, Original Cost, Opening Value, Tax Written Down Value, realisation basis election and Corporate Tax return mapping.
20. Why is professional advice important?
MD 173 involves accounting, tax election, fair value, realisation basis, recapture, related party and Tax Group considerations. A proper review helps avoid incorrect Corporate Tax filing positions.
Official source links to add
- UAE Ministry of Finance / Federal Tax Authority – Ministerial Decision No. 173 of 2025
- Federal Tax Authority – Corporate Tax Legislation
- IFRS Foundation – IAS 40 Investment Property
- UAE Corporate Tax Law – Federal Decree-Law No. 47 of 2022
Disclaimer
This article is prepared for general information purposes only and does not constitute tax, legal, accounting or professional advice. The application of UAE Corporate Tax rules depends on the specific facts and circumstances of each taxpayer. Businesses should obtain professional advice before making any election or filing position under MD 173 of 2025.