UAE Corporate Tax Depreciation, Investment Property, Impairment and ROU Assets – Complete Guide

Introduction

Under UAE Corporate Tax, taxable income is calculated starting from accounting profit as per IFRS. This means most accounting expenses such as depreciation are allowed unless specifically disallowed under the Corporate Tax Law. However, confusion usually arises in areas such as land, building, investment property, impairment and right-of-use (ROU) assets. This guide explains the correct treatment from both IFRS and UAE Corporate Tax perspective with practical examples.

UAE Corporate Tax Basic Formula

Taxable Income = Accounting Profit + Disallowed Expenses – Exempt Income

Depreciation Calculation Formula

Depreciation = (Cost – Residual Value) ÷ Useful Life

Useful Life of Assets (Common Practice)

Depreciation Journal Entry

Depreciation Expense Dr
Accumulated Depreciation Cr

Depreciation – Corporate Tax Treatment

Land and Building – Important Concept

Land is not depreciated because it has an indefinite useful life. However, if land and building are recorded together and depreciation is charged on total property value, then depreciation relating to land portion must be disallowed for Corporate Tax purposes.

Corporate Tax Adjustment Example – Depreciation

Capital Expenditure vs Revenue Expenditure

Investment Property (IAS 40)

Investment Property Fair Value Example

Impairment – Corporate Tax Treatment

Impairment Journal Entry

Impairment Loss Dr
Asset Cr

Right-of-Use (ROU) Assets – IFRS 16

Under IFRS 16, a company records Right-of-Use Asset and Lease Liability.

Right-of-Use Asset Dr
Lease Liability Cr

Depreciation Expense Dr
Accumulated Depreciation – ROU Asset Cr

Lease Liability Dr
Interest Expense Dr
Bank Cr

ROU Asset Example

Interest Limitation Rule

Under UAE Corporate Tax, net interest expense is deductible up to 30% of EBITDA. Excess interest can be carried forward.

Deferred Tax Impact

Temporary differences may arise due to revaluation, fair value adjustments, and depreciation differences, resulting in deferred tax assets or liabilities under IAS 12.

Full Corporate Tax Computation Example

Summary – Allowed vs Disallowed

Legal Reference – UAE Corporate Tax Law

This treatment is based on Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, which states that taxable income is based on accounting profit prepared under IFRS, subject to specific tax adjustments.

Conclusion

UAE Corporate Tax is based on accounting profit under IFRS. Therefore, most accounting expenses such as depreciation are allowed. Adjustments are required only for disallowed items such as depreciation relating to land, revaluation depreciation, impairment on capital assets, and personal or non-business expenses. Understanding the difference between PPE, Investment Property, Working Capital Assets, and Right-of-Use Assets is essential for accurate Corporate Tax computation.