Corporate Tax: Property Depreciation Benefit

UAE property investors face crucial tax decisions regarding their holdings. Starting January 1, 2025, investors must choose whether to record their properties at current market value or the original purchase price for tax purposes. This decision applies to all properties and must be declared in the first tax period, with returns due by September 2026. The choice impacts potential tax liabilities upon sale, whether the property is for personal use or investment.

A key benefit of choosing market value is the ability to depreciate the property annually. The UAE allows a 4% annual depreciation on investment properties. This means investors can deduct a portion of the property's value each year, reducing their taxable gains when they sell. For example, a property bought for Dh1 million and sold for Dh3 million after five years can be depreciated at 4% of the Dh3 million for each of those five years, before paying the 9% corporate tax on the remaining profit.

The decision to use original cost versus market value hinges on the investor's intent to sell and the property's current value. If a property's current value is lower than its purchase price, recording the original cost might be more advantageous. The new tax rules provide flexibility, allowing investors to leverage depreciation benefits from market value if they have significant gains. Experts advise that this approach offers a balanced and equitable tax treatment, enabling investors to benefit from tax relief while deferring tax on unrealized gains until disposal.