Is a gain on revaluation of property taxed under Corporate Tax?

Article 2 – Taxable Income Adjustments Related to Gains Recognised on Immovable Property Owned Prior to the Taxable Person’s First Tax Period 1. For the purposes of paragraph (i) of Clause (2) of Article (20) and Clause (1) of Article (61) of the Corporate Tax Law, a Taxable Person may elect to adjust its Taxable Income for calculating the gains on any Immovable Property that meets all of the following conditions: a. The Immovable Property is owned prior to the first Tax Period. b. The Immovable Property is measured in the Financial Statements on a historical cost basis. c. The Immovable Property is disposed of or deemed to be disposed of during or after the first Tax Period for the purposes of determining the Taxable Income for a value exceeding the net book value. Ministerial Decision No. 120 of 2023 – As published by Ministry of Finance 2 2. Where Clause (1) of this Article applies, upon the disposal of the Qualifying Immovable Property, the Taxable Person shall make one of the following adjustments in respect of each Qualifying Immovable Property: a. Exclude the amount of gain that would have arisen, at the start of the first Tax Period, had the Qualifying Immovable Property been disposed of at Market Value and the cost of the Qualifying Immovable Property was the higher of the original cost and the net book value. b. Exclude the amount of gain recognised in respect of the Qualifying Immovable Property calculated in accordance with Clause (4) of this Article. 3. For the purposes of paragraph (a) of Clause (2) of this Article, the amount used as the Market Value of the Qualifying Immovable Property shall be determined by the relevant government competent authority in the State. 4. For the purposes of paragraph (b) of Clause (2) of this Article, the excluded amount of gain shall be calculated as follows: a. Calculate the amount of gain that would have arisen upon the disposal of the Qualifying Immovable Property, had its cost been equal to the higher of the original cost and the net book value at the start of the first Tax Period. b. Divide the number of days the Qualifying Immovable Property is owned before the first Tax Period by the total number of days the Qualifying Immovable Property is owned. c. Multiply the amount calculated in paragraph (a) of this Clause by the amount calculated in paragraph (b) of this Clause. d. The amount calculated in paragraph (c) of this Clause shall be the amount of gain on the Qualifying Immovable Property excluded from the Taxable Income during the relevant Tax Period. 5. The election under Clause (1) of this Article shall be made in respect of each Qualifying Immovable Property upon the submission of the first Tax Return in the form and manner prescribed by the Authority and shall be deemed irrevocable except under exceptional circumstances and pursuant to approval by the Authority. Ministerial Decision No. 120 of 2023 – As published by Ministry of Finance 3

Article 20 – General Rules for Determining Taxable Income 1. The Taxable Income of each Taxable Person shall be determined separately, on the basis of adequate, standalone financial statements prepared for financial reporting purposes in accordance with accounting standards accepted in the State. 2. The Taxable Income for a Tax Period shall be the Accounting Income for that period, and to the extent applicable, adjusted for the following: a. Any unrealised gain or loss under Clause 3 of this Article. b. Exempt Income as specified in Chapter Seven of this Decree-Law. c. Reliefs as specified in Chapter Eight of this Decree-Law. d. Deductions as specified in Chapter Nine of this Decree-Law. e. Transactions with Related Parties and Connected Persons as specified in Chapter Ten of this Decree-Law. f. Tax Loss relief as specified in Chapter Eleven of this Decree-Law. g. Any incentives or special reliefs for a Qualifying Business Activity as specified Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 26 in a decision issued by the Cabinet at the suggestion of the Minister. h. Any income or expenditure that has not otherwise been taken into account in determining the Taxable Income under the provisions of this Decree-Law as may be specified in a decision issued by the Cabinet at the suggestion of the Minister. i. Any other adjustments as may be specified by the Minister. 3. For the purposes of calculating the Taxable Income for the relevant Tax Period, and subject to any conditions that the Minister may prescribe, a Taxable Person that prepares financial statements on an accrual basis may elect to take into account gains and losses on a realisation basis in relation to: a. all assets and liabilities that are subject to fair value or impairment accounting under the applicable accounting standards; or b. all assets and liabilities held on capital account at the end of a Tax Period, whilst taking into account any unrealised gain or loss that arises in connection with assets and liabilities held on revenue account at the end of that period. 4. For the purposes of paragraph (b) of Clause 3 of this Article: a. “Assets held on capital account” refers to assets that the Person does not trade, assets that are eligible for depreciation, or assets treated under applicable accounting standards as property, plant and equipment, investment property, intangible assets, or other non-current assets. b. “Liabilities held on capital account” refers to liabilities, the incurring of which does not give rise to deductible expenditure under Chapter Nine of this DecreeLaw, or liabilities treated under applicable accounting standards as noncurrent liabilities. c. “Assets and liabilities held on revenue account” refers to assets and liabilities other than those held on a capital account. d. An “unrealised gain or loss” includes an unrealised foreign exchange gain or loss. 5. Notwithstanding Clauses 1 and 3 of this Article, the Minister may prescribe any of the following for the purposes of this Decree-Law: a. The circumstances and conditions under which a Person may prepare financial statements using the cash basis of accounting. Federal Decree-Law No. 47 of 2022 and its amendments – Unofficial translation (as published by the Ministry of Finance) 27 b. Any adjustments to the accounting standards to be applied for the purposes of determining the Taxable Income for a Tax Period. c. A different basis for determining the Taxable Income of a Qualifying Business Activity. 6. Subject to any conditions prescribed under Clause 5 of this Article, a Taxable Person can make an application to the Authority to change its method of accounting from cash basis to accrual basis from the commencement of the Tax Period in which the application is made or from the commencement of a future Tax Period. 7. In the case of any conflict between the provisions of this Decree-Law and the applicable accounting standards, the provisions of this Decree-Law shall prevail to that extent.

Article 2 – Election to Apply Depreciation to Investment Property Held at Fair Value 1. Where a Taxable Person that prepares Financial Statements on an Accrual Basis of Accounting has elected to take into account gains and losses on a realisation basis pursuant to Clause 3 of Article 20 of the Corporate Tax Law, it may make an irrevocable election that will result in an adjustment to its Taxable Income by applying, for an Investment Property held at fair value under the applicable Accounting Standards, a depreciation deduction of the lower of: a. 4% (four percent) of the Original Cost for each (12) twelve-month Tax Period, or prorated where the Tax Period is shorter or longer than (12) twelve months, or where the Investment Property is held for only part of the Tax Period. b. The Tax Written Down Value at the start of the relevant Tax Period. 2. Where Clause 1 of this Article applies, the Opening Value and Original Cost of the Investment Property for the purposes of Corporate Tax shall be determined in respect of the following: a. The transferor, in the case an Investment Property is transferred and the transfer is covered by Article 26 or 27 of the Corporate Tax Law or the transfer is between members of a Tax Group, other than the most recent transfer of that Investment Property which was not covered by any of the said Articles or was not between members of a Tax Group. b. The Taxable Person, in any other cases. Ministerial Decision No. 173 of 2025 – As published by the Ministry of Finance 3 3. Where Clause 5 of Article 26 or Clause 7 of Article 27 or Clause 9 of Article 42 of the Corporate Tax Law applies to a transfer of Investment Property, the transferee shall adjust its Taxable Income, during the Tax Period in which any of the said Clauses apply, for a depreciation deduction elected for under Clause 1 of this Article that has not been previously adjusted by the transferee for that Investment Property due to the application of paragraph (a) of Clause 2 of this Article. 4. Where a Taxable Person makes an election pursuant to Clause 1 of this Article, the election shall apply to all of its Investment Properties held at fair value under the applicable Accounting Standards. 5. As an exception to Clause 3 of Article 8 of Ministerial Decision No. 134 of 2023 referred to above, a Taxable Person that prepares Financial Statements on an Accrual Basis of Accounting may elect to recognise gains and losses on a realisation basis in the Tax Return referred to in Article 3 of this Decision in which an election is made under this Decision.

The decision to make, or not make, an election to apply the realisation basis must be made by the Taxable Person during their first Tax Period, and will be deemed irrevocable except under exceptional circumstances and pursuant to approval by the FTA.134 If the Taxable Person does not make the election to apply the realisation basis in their first Tax Period then this will be considered an irrevocable election in itself. Example 7: Fair value gain on land During the Financial Year ending 31 December 2025, C LLC, a UAE resident company, recognised a revaluation gain in its Financial Statements of AED 10,000,000 in respect of some land which is measured at fair value. The original cost of the land was AED 50,000,000 and following the revaluation the net book value of the land is AED 60,000,000. The land was not sold at the end of the Tax Period and, therefore, the revaluation gain is considered ‘unrealised’. If no election is made, C LLC would be subject to tax on the unrealised gain of AED 10,000,000 in relation to the Tax Period ending on 31 December 2025. However, if C LLC elects to apply the realisation basis in respect of all assets and liabilities that are subject to fair value or impairment accounting, then the company would not have to include the revaluation gain of AED 10,000,000 when calculating their Taxable Income for this Tax Period. Example 8: Loss below original cost During the Financial Year ending 31 December 2025, S LLC, a UAE resident company, recognised a revaluation loss in its Financial Statements in respect of an asset measured at fair value. The original cost of the asset was AED 250,000, and following the revaluation the net book value of the asset is AED 200,000. The asset has not been sold at the end of the Tax Period. The revaluation loss of AED 50,000 is considered ‘unrealised’. Exempt Income Several exemptions are provided for within the Corporate Tax regime.135 The purpose of these exemptions is to either: • exempt income and capital gains arising from the activity of another juridical person or a foreign branch on the basis that it has already been taxed; or 134 Article 8(3) of Ministerial Decision No. 134 of 2023. 135 Articles 22 to 25 of the Corporate Tax Law. General Corporate Tax Guide | Corporate Tax | CTGGCT1 52