UAE Corporate Tax Depreciation: What's Deductible & What's Not

Is depreciation deductible for UAE corporate tax? Yes, for capital assets. See the AED 5,000 disallowed-fine example, low-value items and the cash basis.

31 October 2026Qawi7 min read

Key takeaways

Depreciation of capital assets used in a UAE business is a deductible expense for corporate tax, even though the purchase price of the asset isn't deductible when you pay it (FTA Corporate Tax Guide CTGDTI1, section 4.5.6).
UAE corporate tax starts from the accounting figures, so the depreciation method and useful life in a company's financial statements generally carry through to the tax computation; the Decree-Law sets no tax depreciation rates in its deduction articles.
Depreciation on a capitalised cost is not deductible if the cost would have been non-deductible had it been expensed: the FTA's example is an AED 50,000 fine capitalised over 10 years, where AED 5,000 of annual depreciation is disallowed.
A UAE company that follows an accounting policy of not capitalising low-value items can deduct those items in full in the tax period they are incurred, provided the expense isn't otherwise barred.
Companies with revenue of AED 50 million or less may use IFRS for SMEs instead of full IFRS, and the standard chosen determines the depreciation policy that feeds the tax return (as of October 2026).

Is depreciation deductible for UAE corporate tax?

Yes. The FTA's Determination of Taxable Income guide states that the depreciation of the cost of capital assets is a deductible expense for corporate tax purposes, while capital expenditure itself is not deductible when incurred.

The logic comes from Article 28(1) of Federal Decree-Law No. 47 of 2022, which allows expenditure incurred wholly and exclusively for the business and not capital in nature. Because equipment, vehicles and fit-out create an enduring benefit, the cost can't be deducted in one go. Depreciation spreads that cost over the asset's life, and each year's charge reduces taxable income.

How does the FTA treat capital costs compared with ordinary expenses?

Capital expenditure is not deducted when incurred; ordinary running costs are. The table shows how the main cases are treated.

Cost	Tax treatment	Source
Capital asset such as equipment, vehicles or a fit-out	Not deducted when bought; depreciation is deducted over the asset's life	FTA guide CTGDTI1, section 4.5.6
Low-value item expensed under the company's accounting policy	Fully deductible in the tax period incurred, if not otherwise non-deductible	FTA guide CTGDTI1, section 4.5.6
Capitalised cost that would be non-deductible if expensed (a fine, say)	No deduction for its depreciation	Ministerial Decision No. 134 of 2023, Article 7(2)
Capital expenditure not deducted earlier	Deductible in calculating the gain or loss when the asset is realised	Ministerial Decision No. 134 of 2023, Article 7(3)

Figures and rules as of October 2026. Whether an item counts as capital in nature is decided by how it is treated under the accounting standards the company applies (Article 7(4)).

Which depreciation method and useful life should you use?

Use the method and useful life your accounting standards require, because UAE corporate tax is calculated from accounting income. Article 20 of the Decree-Law makes taxable income the accounting income of the tax period, adjusted as the law requires, and where the law and an accounting standard conflict the law prevails.

In practice, a company that depreciates a AED 120,000 machine over five years in its accounts will normally deduct the same annual charge for tax. Say a SHAMS trading company buys that machine in its first tax period; the AED 24,000 yearly straight-line charge (hypothetical example) flows through to its tax computation without a separate tax schedule. The FTA's guide uses a 10-year life only as an illustration, so it sets no standard useful lives. Which standard applies is a separate question: IFRS, or IFRS for SMEs for companies with revenue of AED 50 million or less (Ministerial Decision No. 114 of 2023, Article 4).

AED 50 million: revenue at or below which a UAE company may apply IFRS for SMEs rather than full IFRS, which in turn shapes its depreciation policy. Source: Ministerial Decision No. 114 of 2023, Article 4, checked 31 October 2026.

When is depreciation not deductible?

Depreciation isn't deductible when the underlying cost would have been non-deductible if it had been expensed. Article 7(2) of Ministerial Decision No. 134 of 2023 says no deduction is allowed for depreciation, amortisation or other change related to capitalised expenditure in that case.

The FTA's worked example involves an AED 50,000 fine capitalised and depreciated over 10 years. The company can't claim the AED 5,000 annual depreciation, because no depreciation deduction is allowed for an expense that wouldn't be deductible if it weren't capitalised. The same logic reaches capitalised costs that Article 33 of the Decree-Law bars, and costs paid to connected persons above Market Value under Article 36.

What about low-value items, small businesses and the cash basis?

Low-value items can be deducted immediately if the company's accounting policy is not to capitalise them. The FTA guide says the expense is then fully deductible in the tax period incurred, as long as it isn't otherwise non-deductible. That makes your written capitalisation threshold a tax decision as well as an accounting one.

Two other regimes change the picture. Cash basis accounting is available where revenue doesn't exceed AED 3,000,000 (Ministerial Decision No. 114 of 2023, Article 2), and the FTA guide has a separate section on capital expenditure under it. Small Business Relief applies to eligible businesses with revenue of AED 3,000,000 or less, and the Ministry of Finance announced on 7 August 2026 that it now covers tax periods ending on or before 31 December 2029. Even if you qualify, your fixed asset register still matters for any year you lose the relief. If you'd rather not track these dates by hand, the free UAE compliance calendar lists them for your company: a free calendar of your company's UAE tax and compliance deadlines, personalised from a few questions, as a PDF and calendar file.

How do you put depreciation into your corporate tax computation?

Start from your accounting profit, review each depreciation line, then adjust only where the law blocks it. A practical order:

Confirm which accounting standard the company applies (IFRS or IFRS for SMEs) and that the fixed asset register follows it.
Check each capitalised asset: would the cost have been deductible if expensed? If not, remove its depreciation charge from the deduction.
Review the capitalisation threshold in your accounting policy so low-value items are treated consistently.
Look for assets bought from related parties or transferred within a group, where Ministerial Decision No. 134 of 2023 (Articles 3 and 4) makes separate adjustments to depreciation.
File the return through EmaraTax with the adjusted figures and keep the asset register and invoices as support.

What most guides don't tell you

Tag non-deductible capital costs when you book them. A capitalised fine or an over-market payment to a connected person looks like any other asset in the ledger, and the disallowed depreciation then repeats every year. Flagging it at purchase avoids rebuilding the history at filing time. This is reasoned from Article 7(2), not a rule the FTA states in those words.
A change in useful life changes your tax result. Because tax follows the accounts, shortening an asset's life brings deductions forward and lengthening it pushes them out. Keep a written reason for any change, so the figure can be supported if the FTA queries the return.
Related-party and group transfers have their own depreciation adjustments. If an asset moved between related parties, or within a Qualifying Group, Articles 3 and 4 of Ministerial Decision No. 134 of 2023 adjust the depreciation to the extent it relates to gains or losses not recognised for tax. These are technical; get advice on the facts.
Undepreciated cost isn't simply lost. Article 7(3) lets capital expenditure that was not deducted be taken into account when the asset is realised, so a disposal or write-off should be calculated rather than ignored.

Which deadlines apply to your company?

Depreciation only helps if the return is filed on time and the asset register behind it is current. The free UAE compliance calendar shows the tax and compliance deadlines that apply to your company, personalised from a few questions.

Frequently asked questions

What expenses are deductible for UAE corporate tax?

Expenditure is deductible if it was incurred wholly and exclusively for the purposes of your business and isn't capital in nature (Article 28 of Federal Decree-Law No. 47 of 2022). Fines, dividends and corporate tax itself are among the items Article 33 bars outright.

Are entertainment expenses deductible for corporate tax?

Only partly: Article 32 of Federal Decree-Law No. 47 of 2022 allows a 50% deduction for entertainment expenditure. The other half is added back to taxable income.

How is taxable income calculated from accounting profit?

Taxable income starts from the accounting income in your standalone financial statements and is then adjusted under the Decree-Law, for example for exempt income and non-deductible costs (Article 20). Ministerial Decision No. 134 of 2023 sets further adjustments, including the depreciation rule in Article 7.

What accounting standard do I need to use for corporate tax?

Companies apply IFRS; those with revenue of AED 50 million or less may use IFRS for SMEs instead (Ministerial Decision No. 114 of 2023, Article 4). The standard you pick drives your depreciation policy, and the tax result follows it.

Can I use cash basis accounting for corporate tax?

Yes, if your revenue doesn't exceed AED 3,000,000, or with FTA approval in exceptional circumstances (Ministerial Decision No. 114 of 2023, Article 2). Cash basis recognises income and expenditure when cash is received and paid, so read the FTA guide's cash-basis section before assuming depreciation works the same way.

About Qawi · Qawi is a corporate services firm licensed in the Sharjah Media City (SHAMS) free zone, handling company formation, visas and PRO, bookkeeping, VAT and corporate tax for UAE businesses. Guides are researched from FTA, Ministry of Finance and free zone sources. Qawi on LinkedIn

Sources

Last checked: 31 October 2026

This is general information, not tax or legal advice for your specific situation.