UAE CT deduction for depreciation = IFRS depreciation in the financial statements (no separate tax rates). Methods: straight-line (most common) or reducing balance. Intangibles: amortise over useful life per IFRS IAS 38 — goodwill is not amortised under IFRS (impairment tested instead). Revaluation gains on tangible assets create taxable income when realised.
Depreciation methods and typical useful lives in UAE
| Asset class | Typical useful life | Method | Notes |
|---|---|---|---|
| Computers / IT equipment | 3–5 years | Straight-line | Rapid obsolescence supports shorter lives |
| Office furniture and fixtures | 5–10 years | Straight-line | Standard for most UAE offices |
| Motor vehicles | 3–5 years | Reducing balance or SL | UAE heat and usage justify shorter lives |
| Leasehold improvements | Lease term | Straight-line | Not beyond the lease term |
| Plant and machinery | 5–20 years | Straight-line | Varies widely by industry |
| Buildings (owned) | 25–50 years | Straight-line | Land not depreciated |
| Software (purchased) | 3–5 years | Straight-line | Licence or perpetual — amortise over useful life |
| Intangibles (trademarks, patents) | Legal or economic life | Straight-line | IFRS IAS 38 — only if finite useful life |
Amortisation of intangibles in UAE
Under IFRS IAS 38, intangible assets are split into two categories:
- Finite useful life intangibles: Amortised over the useful life (e.g., a 5-year software licence, a patent with 10 years remaining). Amortisation is a CT-deductible expense in the period recognised.
- Indefinite useful life intangibles and goodwill: Not amortised — instead tested annually for impairment. If goodwill or an indefinite-life intangible is impaired, the impairment loss is CT-deductible in the period recognised.
- Internally developed intangibles: Development costs (per IFRS IAS 38 criteria) are capitalised and amortised. Research costs are expensed immediately — both are CT-deductible.
UAE businesses acquired as going concerns often involve goodwill. Under IFRS 3, goodwill is not amortised. It sits on the balance sheet until impaired. An impairment loss reduces CT taxable income in the year it is recognised. If you are planning an acquisition, model the impairment testing requirement before signing.
Revaluation of assets — CT implications
IFRS permits revaluation of tangible fixed assets (e.g., property) and certain intangibles. UAE CT treatment:
- Unrealised revaluation gains: A revaluation gain posted to the revaluation reserve (other comprehensive income) is not taxable — it has not been realised.
- Realised on disposal: When the asset is sold, the gain is based on proceeds minus original cost (not revalued carrying value) for UAE CT purposes — consult the CT regulations for the specific transitional treatment.
- Higher depreciation on revalued assets: If an asset is revalued upward, depreciation in subsequent years is based on the revalued amount — higher depreciation but the CT deduction may be limited to the cost-based depreciation. This is a complex area requiring specific CT advice.
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Frequently asked questions
Does UAE have capital allowances like the UK or Ireland?
No. UAE Corporate Tax does not have a separate capital allowances regime with prescribed rates (like UK Annual Investment Allowance or Irish Accelerated Capital Allowances). The CT deduction for fixed assets is simply the depreciation charge calculated under IFRS in the financial statements. This means the CT deduction follows the accounting useful life and method.
Can UAE businesses use accelerated depreciation for CT?
Only if accelerated depreciation is justified as an accounting policy under IFRS — for example, if the asset genuinely has a short useful life (rapid obsolescence, heavy use). Artificially shortening useful lives just to accelerate CT deductions is not permitted. The IFRS depreciation must reflect the actual pattern of economic benefits consumption.
Is goodwill amortisation deductible for UAE CT?
Under IFRS, goodwill is not amortised — so there is no amortisation charge to deduct. Impairment losses on goodwill are recognised when the recoverable amount falls below carrying value. UAE CT position: impairment losses are deductible in the period recognised. Specific CT rulings on acquisition goodwill should be confirmed with a UAE tax advisor.
What happens to depreciation when a UAE business sells a fixed asset?
Depreciation stops on the date of disposal. The gain or loss on disposal (proceeds minus carrying value at disposal date) is recognised in the P&L and included in taxable income. Any accumulated depreciation associated with the asset is removed from the books at disposal.
Can UAE free zone companies (QFZPs) deduct depreciation against qualifying income?
Yes — depreciation on assets used in qualifying activities is a deductible cost when calculating qualifying income for the 0% QFZP rate. However, depreciation on assets used in non-qualifying activities reduces non-qualifying income only. Accurate allocation of assets between qualifying and non-qualifying activities is essential for QFZPs.