The Ministry of Finance issues a decision regarding consumption amendments to investment real estate preserved by fair value for the purposes of corporate tax law

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Abu Dhabi, July 17 / WAM / The Ministry of Finance issued a decision regarding consumption amendments to investment real estate preserved at the fair value of the purposes of the Federal Law No. 47 of 2022 regarding the tax and business tax.

According to the new decision, the taxpayers who choose to recognize the gains and losses on the basis of verification can deduct the consumption of the investment property from their tax income – which is known as “tax consumption” – for investment real estate preserved by fair value.

The decision stipulates that tax consumption can be deducted on the basis of the lower value among the tax value reduced to the investment property, or 4% of its original cost, for each tax period of 12 months, or proportionality in the event that the tax period is shorter or longer than 12 months or the property was kept within only part of the tax period.

The taxpayers of the tax who own investment real estate, either before or after the application of corporate tax.

The decision also clarifies the value that can be claimed as a tax consumption, taking into account whether the investment property is transferred between linked parties or other parties, or if it has been created or developed by the taxpayer itself.

The decision aims to achieve equivalence and fair tax treatment between taxpayers who keep investment real estate registered on the basis of historical cost – who already benefit from accounting consumption discount – and between those who keep them on the basis of fair value.

To take advantage of this deduction, the taxpayers must conduct the selection of the accounting foundation in the first tax period in which they possess an investment property, starting in or after January 1, 2025, knowing that this choice is not subject to cancellation and will apply to all their investment real estate in the future.

This decision gives an exceptional opportunity for taxpayers to choose the basis for verification when recognizing the gains and losses in the financial statements to take advantage of the tax consumption discount, provided that this choice is made in the first tax period, and it also provides instructions about cases in which tax consumption may be recovered in conditions not related to disposal of the investment property, which contributes to enhancing the awareness of the taxpayer with their tax obligations and enabling them to Evaluating their returns on investment real estate accurately.

The issuance of this decision embodies the Ministry of Finance’s commitment to enhance flexibility and provide a fair tax environment that achieves equal opportunities for all taxpayers, as well as its role in enhancing balance and tax impartiality in the corporate tax system in line with international best practices.