The Ministry of Finance has issued a decision regarding amendments to the depreciation of investment properties held at fair value, as per Federal Decree Law No. 47 of 2022 concerning corporate tax. According to the new regulation, taxpayers (who opt for recognizing gains and losses on an accrual basis) can deduct the depreciation on investment properties from their taxable income—a measure known as “tax depreciation”—for properties held at fair value.
The decision stipulates that taxpayers can deduct tax depreciation based on the lesser of the following: the reduced tax value of the investment property or 4% of its original cost, applicable for each 12-month tax period. This depreciation can also be prorated if the tax period is shorter or longer than 12 months or if the property was held for only part of the tax period. This deduction is available to taxpayers owning investment properties, regardless of whether they acquired them before or after the implementation of the corporate tax.
Additionally, the decision clarifies the amount eligible for tax depreciation, taking into account whether the investment property is transferred between related parties or others, or if it was created or developed by the taxpayer themselves. The aim of this regulation is to ensure equitable and fair tax treatment for taxpayers holding investment properties recorded at historical cost—who already benefit from accounting depreciation deductions—compared to those holding them at fair value.
To take advantage of this deduction, taxpayers must elect the accrual basis in their first tax period in which they own an investment property, starting on or after January 1, 2025. Importantly, this choice is irrevocable and will apply to all their future investment properties.
This decision provides a unique opportunity for taxpayers to select the accrual basis when recognizing gains and losses in financial statements to benefit from tax depreciation, provided that this choice is made during the initial tax period.
Furthermore, it offers guidance on situations where tax depreciation recovery is permissible under circumstances unrelated to the transfer of the investment property, which will aid in enhancing taxpayers’ awareness of their tax obligations and enable them to accurately assess their returns on investment properties.
The issuance of this decision reflects the Ministry of Finance’s commitment to enhancing flexibility and providing a fair tax environment that ensures equal opportunities for all taxpayers. It also plays a significant role in promoting balance and neutrality within the corporate tax system, aligning with international best practices.