Businesses used to other tax systems often expect capital allowances or tax depreciation rates under UAE Corporate Tax. There is no such regime. There are no statutory asset classes, no first-year allowances and no tax depreciation rates. Instead, the Corporate Tax Law starts from the accounting profit in the financial statements, and the depreciation charged in those statements is generally deductible. This guide explains how depreciation is treated, where adjustments are needed and which records to keep.
Taxable income starts from accounting income
Article 20 of Federal Decree-Law No. 47 of 2022 (the Corporate Tax Law) requires taxable income to be determined on the basis of standalone financial statements prepared under accounting standards accepted in the State. Taxable income for a tax period is the accounting income for that period, adjusted only for the items the law lists: unrealised gains and losses where an election is made, exempt income, reliefs, deductions, related party transactions, tax losses and any other adjustments specified by decision.
The accounting standards are set by Ministerial Decision No. 114 of 2023. A taxable person applies IFRS, and a business with revenue that does not exceed AED 50,000,000 may apply IFRS for SMEs. Useful lives, residual values and depreciation methods therefore come from the business's accounting policies under these standards, not from tax legislation. Where the law and the accounting standards conflict, the law prevails (Article 20(7)).
In practice there is no separate tax fixed asset register with its own rates and pools, and the depreciation policy in the financial statements should be documented and applied consistently. Our guide to taxable income calculation in the UAE walks through the full set of adjustments.
When accounting depreciation is deductible
Article 28 of the Corporate Tax Law allows a deduction for expenditure incurred wholly and exclusively for the business that is not capital in nature. The cost of buying a machine, a vehicle or software is capital and is not deducted when incurred. The FTA's Determination of Taxable Income guide confirms that the depreciation of the cost of capital assets is a deductible expense for Corporate Tax purposes, because it spreads the cost over the life of the asset.
There are limits, set out in Article 7 of Ministerial Decision No. 134 of 2023 and explained in the FTA guide:
- Capitalised non-deductible costs. No deduction is allowed for depreciation or amortisation of capitalised expenditure that would not have been deductible had it been expensed. The FTA's examples include fines imposed by a government body during construction and related party fees that are not at arm's length. The part of the depreciation charge relating to those costs must be added back.
- Capital costs not otherwise deducted. Capital expenditure that has not been deducted in calculating taxable income is taken into account in calculating the gain or loss when the asset is disposed of.
- Accounting classification decides. Whether expenditure is capital in nature follows the accounting standards applied. If the accounting policy expenses low-value items that do not meet the recognition criteria, the expense is deductible in the period it is incurred, provided it is not otherwise non-deductible.
General rules also apply to the asset itself. Depreciation on an asset used partly for non-business purposes must be apportioned under Article 28(3), and depreciation on assets used to earn exempt income is not deductible under Article 28(2). For real estate, see our guide to Corporate Tax for real estate companies.
Revaluation, impairment and the realisation basis
Because taxable income follows the financial statements, unrealised gains and losses that pass through them, such as fair value movements and impairment losses, are taken into account by default. The FTA guide notes that this includes gains and losses reported outside profit or loss that will not later be recycled to it.
Article 20(3) allows a business that prepares accrual-based financial statements to elect to take gains and losses into account on a realisation basis instead. The election can cover either:
- all assets and liabilities subject to fair value or impairment accounting, or
- all assets and liabilities held on capital account, while unrealised items on revenue account continue to be taxed as they arise.
Under Article 20(4), assets eligible for depreciation and assets treated as property, plant and equipment, investment property or intangible assets are held on capital account. Under either option, an impairment loss on such an asset is not deducted when booked but is reflected when the asset is sold or otherwise realised. According to the FTA guide, the election must be made in the first tax period and is irrevocable except in exceptional circumstances with FTA approval. A business that does not elect is treated as having made an irrevocable choice to follow the accounting figures.
Assets held before Corporate Tax started
Corporate Tax applies to tax periods starting on or after 1 June 2023 (Article 69). Under Article 61, the opening balance sheet for Corporate Tax is the closing balance sheet prepared for financial reporting on the last day of the financial year before the first tax period, prepared with regard to the arm's length principle. Depreciation in the first tax period therefore continues from the existing net book values. There is no reset to market value and no catch-up deduction for earlier years.
Ministerial Decision No. 120 of 2023 gives elective relief so that gains that built up before Corporate Tax are not taxed on a later sale. It applies to assets held before the first tax period and measured on a historical cost basis:
| Asset type | Relief on disposal | Election |
|---|---|---|
| Immovable property | Exclude the gain up to market value at the start of the first tax period, using the higher of original cost and net book value, or a time-apportioned share of the gain | Per property, with the first tax return |
| Intangible assets | Exclude a time-apportioned share of the gain, with pre-tax ownership counted up to a maximum of 10 years unless the FTA approves otherwise | All qualifying intangibles, with the first tax return |
| Financial assets and liabilities | Exclude the gain or loss that would have arisen at market value at the start of the first tax period, compared with net book value | All qualifying items, with the first tax return |
The elections are irrevocable except in exceptional circumstances with FTA approval. They change the gain on disposal, not the depreciation charge.
Interest capitalised into assets and the interest limit
Under IFRS, borrowing costs on a qualifying asset, such as a building under construction, may be capitalised into the cost of the asset and later depreciated. The Corporate Tax Law limits the deduction of net interest expenditure to 30% of EBITDA (Article 30), calculated from taxable income under Ministerial Decision No. 126 of 2023, with an exemption where net interest expenditure does not exceed AED 12,000,000 in the tax period. Disallowed amounts can be carried forward for 10 tax periods.
Ministerial Decision No. 126 of 2023 deals with this directly. Under Article 7, income and expenditure attributable to interest capitalised under the accounting standards is subject to the general interest deduction limitation rule. Under Article 9(3), that capitalised interest is included in the EBITDA calculation when it is amortised over the useful life of the related asset, not when the interest is incurred. Groups financing large projects should track capitalised interest separately in the fixed asset register, so that the amount released through depreciation each year can be identified for the interest limitation calculation. Where financing comes from a related party, arm's length pricing also applies; see our guide to related party transactions.
Small businesses: cash basis and Small Business Relief
Two rules change the depreciation picture for smaller businesses.
- Cash basis of accounting. Under Article 2 of Ministerial Decision No. 114 of 2023, a business with revenue that does not exceed AED 3,000,000 may prepare financial statements on a cash basis, and others may do so in exceptional circumstances on application to the FTA. The FTA guide explains that no depreciation is recorded under the cash basis, so the purchase price of an asset is deducted when it is paid. This replaces the relief that depreciation would otherwise give.
- Small Business Relief. A resident person with revenue of AED 3,000,000 or less in the current and each previous tax period may elect to be treated as having no taxable income (Article 21 and Ministerial Decision No. 73 of 2023). Following Ministerial Decision No. 131 of 2026, the relief is available for tax periods ending on or before 31 December 2029. While it applies, deductions are not calculated, so depreciation has no tax effect, and tax losses from those periods cannot be carried forward. The relief is not available to Qualifying Free Zone Persons or members of multinational groups covered by Cabinet Decision No. 44 of 2020.
A small business should still keep a proper asset register. Once revenue passes AED 3,000,000 or the relief ends, it moves to the standard rules, and the book values at that point become the basis for future depreciation. See our guide to Small Business Relief.
Records for fixed assets
Article 56 of the Corporate Tax Law requires records that support the tax return and allow taxable income to be readily ascertained to be kept for seven years after the end of the tax period to which they relate. For long-lived assets, this means acquisition records may need to be kept well beyond seven years from purchase, because they support depreciation and disposal calculations in later tax periods. A workable file for each asset includes:
- Purchase invoices, contracts and evidence of payment, with the date the asset was available for use.
- The capitalised cost broken down, including any capitalised interest, related party charges and non-deductible items.
- The useful life, residual value and method applied, with the policy approved by management.
- Impairment reviews and revaluation reports.
- For assets held before the first tax period, the opening net book value and any Ministerial Decision 120 of 2023 election and valuation.
- Disposal documents and the gain or loss calculation.
For audit readiness, see our guide to FTA Corporate Tax audit preparation. If you need help with depreciation policies or the transitional elections, you can get matched with verified tax advisors in the UAE.
Frequently asked questions
Does the UAE have capital allowances?
No. UAE Corporate Tax has no capital allowance or tax depreciation regime. Taxable income starts from accounting income under Article 20 of the Corporate Tax Law, and depreciation charged under IFRS or IFRS for SMEs is generally deductible, subject to specific adjustments.
Are there official tax depreciation rates in the UAE?
No. The law does not prescribe rates or useful lives. The business sets them in its accounting policies under the applicable accounting standards, and the depreciation in the financial statements is used for Corporate Tax, subject to adjustments for non-deductible capitalised costs.
Is an impairment loss on equipment deductible?
By default, yes, because it reduces accounting income. If the business elected the realisation basis under Article 20(3) of the Corporate Tax Law, the impairment loss is not deducted when booked and is reflected instead when the asset is disposed of.
How are assets bought before June 2023 treated?
Their depreciation continues from the net book value in the opening balance sheet under Article 61. Ministerial Decision 120 of 2023 allows an election, made with the first tax return, to exclude gains that arose before the first tax period when certain historical cost assets are later sold.
Can a small business deduct the full cost of an asset in the year of purchase?
Only if it uses the cash basis of accounting, which is available where revenue does not exceed AED 3,000,000 under Ministerial Decision 114 of 2023. Under the cash basis the purchase price is deducted when paid. A business that elects Small Business Relief does not calculate deductions at all for those periods.
