That makes the fixed asset register a tax document as well as an accounting one. A useful life that is too short, a disposal that was never recorded, or depreciation on an asset that no longer exists all change taxable income directly. Keep tax records for at least seven years after the end of the tax period (Corporate Tax requires seven; VAT's general minimum is five), records for capital assets such as these for at least 10 years, and real-estate records for 15 years.
This guide compares depreciation methods, explains how to set useful lives, summarises the Corporate Tax treatment including the 2025 rule for investment property, and works through a vehicle from purchase to sale. It ends with a register checklist and an FAQ.
Which depreciation methods can UAE businesses use?
IAS 16 allows any method that reflects how the asset's benefits are used up. Three are common:
| Method | How it works | Annual charge on an AED 100,000 asset, 5 years, no residual | Best for |
|---|---|---|---|
| Straight-line | Equal charge each year: (cost − residual value) ÷ useful life | AED 20,000 every year | Buildings, furniture, IT equipment, most assets |
| Diminishing (reducing) balance | A fixed percentage of the remaining book value each year | Year 1 AED 40,000 at 40%, then 24,000, 14,400 and so on | Vehicles and technology that lose value fastest early on |
| Units of production | Charge based on output or use: cost per unit × units in the year | Depends on output, for example AED 0.50 per hour of machine use | Production machinery, heavy equipment, vehicles tracked by kilometres |
Straight-line is the most common choice, because it is simple and the charge is predictable. Choose the method by asset class, apply it consistently, and change it only if the pattern of use changes, as a change in accounting estimate.
IAS 16 also requires component depreciation: if a significant part of an asset has a different useful life, depreciate it separately. A building's lifts and chillers wear out long before its structure, so they are usually separate components with their own lives.
Depreciation starts when the asset is available for use, not when it is paid for or when it is first used. A machine installed and ready in March starts depreciating in March, even if production begins in May.
How do you set useful lives and residual values?
The useful life is how long your business expects to use the asset, not how long it could physically last. IAS 16 leaves the estimate to the company, so lives should reflect your own replacement policy and experience.
Typical ranges used by companies in the region look like this. They are a starting point, not a rule.
| Asset class | Typical useful life | Notes |
|---|---|---|
| Buildings (structure) | 20–50 years | Leasehold buildings no longer than the land lease term |
| Building services: lifts, chillers, MEP | 10–20 years | Often depreciated as separate components |
| Leasehold improvements and fit-out | 3–10 years | No longer than the remaining lease term |
| Plant and machinery | 5–15 years | Shorter for equipment running multiple shifts |
| Motor vehicles | 4–6 years | Heavy use and heat often shorten lives in the Gulf |
| Furniture and fixtures | 4–10 years | |
| Computers and IT equipment | 3–5 years | |
| Software licences | 3–5 years | Intangible assets, amortised under IAS 38 |
The residual value is what you expect to sell the asset for at the end of its useful life, after disposal costs. For most assets it is small or zero; for vehicles sold after four or five years it can be significant.
IAS 16 requires both the useful life and the residual value to be reviewed at least at each financial year end. If they change, adjust depreciation from that point forward. Do not restate past years. A fully depreciated asset still in heavy use is a sign the original life was too short.
How does UAE Corporate Tax treat depreciation and disposals?
Under Federal Decree-Law No. 47 of 2022, taxable income is calculated from the accounting income in standalone financial statements prepared under accepted accounting standards, then adjusted (Article 20). The law has no capital allowance system, so the main rules are these:
| Item | Corporate Tax treatment | Source |
|---|---|---|
| Purchase of a fixed asset | Not deductible when bought: capital expenditure is excluded from deductible expenses | Article 28 |
| Depreciation charged in the accounts | Generally deductible as it flows through accounting profit, subject to the law's general adjustments | Article 20 |
| Gain or loss on disposal | Taxable gain or deductible loss as part of accounting profit | Article 20 |
| Assets revalued upward (revaluation model) | If the business elects the realisation basis, revaluation gains are taxed only when realised, and depreciation on the amount above original cost is added back | Article 20(3); Ministerial Decision 134 of 2023 |
| Investment property held at fair value | Since tax periods starting on or after 1 January 2025, an elective deduction of 4% of original cost a year (or the tax written-down value, if lower); land excluded; requires the realisation basis election; recaptured on sale | Ministerial Decision 173 of 2025 |
| Assets owned before Corporate Tax started | Gains built up before the first tax period can be excluded under transitional rules, for example using market value at the start of the first tax period for immovable property | Ministerial Decision 120 of 2023 |
| Records | At least 7 years after the end of the tax period; keep capital asset records at least 10 years and real-estate records 15 years | Article 56; longer periods follow VAT rules and a safe-side policy |
The practical consequence is that accounting judgements are tax judgements. Depreciation methods, useful lives and residual values should follow IAS 16 and your written policy, and be applied consistently. Both the realisation basis election and the investment property election are made in the tax return and are hard or impossible to reverse, so agree them with your tax adviser before filing.
How does depreciation affect tax? A worked example
A Dubai distributor with a calendar tax year buys a delivery truck for AED 240,000 on 1 January 2024. It expects to use the truck for five years and sell it for AED 40,000, so straight-line depreciation is (240,000 − 40,000) ÷ 5 = AED 40,000 a year.
| Year | Depreciation (AED) | Book value at year end (AED) | Corporate Tax effect at 9% (AED) |
|---|---|---|---|
| 2024 | 40,000 | 200,000 | Reduces tax by 3,600 |
| 2025 | 40,000 | 160,000 | Reduces tax by 3,600 |
| 2026 | 40,000 | 120,000 | Reduces tax by 3,600 |
On 31 December 2026 the company sells the truck for AED 140,000, earlier than planned. The gain on disposal is 140,000 − 120,000 = AED 20,000. It sits in accounting profit, so it is taxable: 9% of AED 20,000 is AED 1,800.
Over three years, the company deducted AED 120,000 of depreciation and was taxed on a AED 20,000 gain, a net deduction of AED 100,000. That equals the truck's real cost to the business: AED 240,000 paid, less AED 140,000 received. Depreciation only changes when the deduction is taken, not how much.
The tax effect assumes the company's taxable income is above the AED 375,000 threshold, where the 9% rate applies.
Investment property. The same company also owns a warehouse it leases to a third party, held as investment property at fair value. The building cost AED 6,000,000, excluding the land. Fair value changes do not create depreciation in the accounts. If the company elects the realisation basis and the investment property deduction under Ministerial Decision 173 of 2025, it can deduct 4% of AED 6,000,000, or AED 240,000, each year, worth AED 21,600 in tax at 9%. The deductions are added back when the property is sold.
What should a fixed asset register include?
The register is the evidence behind every depreciation figure. Auditors and the FTA will expect to trace each asset from invoice to disposal.
What does HYP see in fixed asset registers?
At UAE companies preparing for their corporate tax filings, our finance consultants often find the fixed asset register kept in a spreadsheet separate from the accounts. Depreciation is calculated once a year as a journal, disposals are remembered at year end if at all, and the register total differs from the ledger by an amount nobody can explain.
That gap matters more under corporate tax. Taxable income starts from the accounts, so an asset that was scrapped but is still being depreciated, or a disposal gain that was never booked, flows straight into the tax return. A monthly depreciation run from the register, reconciled to the ledger, removes most of the year-end surprises.
In HYP, the fixed asset register sits inside the accounts, with depreciation by method and asset class posted monthly, components, transfers and disposals with automatic gain or loss. See how it works on our Banking, Fixed Assets & Cash Visibility page.
Related reading: for the records auditors check first under corporate tax, see UAE Corporate Tax: The Records the FTA Will Ask For First.
Sources
- Federal Decree-Law No. 47 of 2022 on Corporate Tax, with amendments (Ministry of Finance)
- Ministerial Decision No. 134 of 2023 on the general rules for determining taxable income
- Ministerial Decision No. 173 of 2025 on depreciation adjustments for investment properties held at fair value
- PwC: Ministerial Decision No. 120 of 2023 on transitional rules
- DLA Piper: Ministerial Decision No. 114 of 2023 on accounting standards
- Zawya: Small Business Relief extended to December 2029
- IAS 16 Property, Plant and Equipment, IFRS Foundation