How fixed asset depreciation works for UAE corporate tax and your books

Article 20 of the Corporate Tax Law makes accounting income, from financial statements prepared under accepted accounting standards, the starting point for taxable income. There is no separate capital allowance regime for ordinary business assets. Depreciation calculated under IAS 16 or IFRS for SMEs therefore generally becomes the tax deduction, subject to any specific adjustments the law requires.

Our view: write a short fixed asset policy, approved by the owner, and keep it with the year-end file. If the FTA asks why a laptop is depreciated over three years and a delivery van over five, the answer should be on paper.

Set a threshold below which items are expensed, for example AED 2,500. Items above it with a useful life over a year are capitalised. The threshold should be proportionate to the business; a two-person consultancy and a factory will choose different figures. Apply it consistently.

• Cost includes purchase price, non-recoverable duties, delivery and installation
• Recoverable input VAT is not part of cost
• Fit-out of leased premises is depreciated over the shorter of its life and the lease term
• Repairs that restore an asset are expenses; upgrades that extend its life are capitalised

A Business Bay company spends AED 180,000 plus VAT on fit-out of an office leased for five years, AED 42,000 on furniture (life 7 years), and AED 36,000 on laptops (life 3 years). Input VAT is recovered, so cost excludes it.

Annual straight-line depreciation: fit-out AED 36,000 (over the 5-year lease), furniture AED 6,000, laptops AED 12,000. Total AED 54,000 a year, or AED 4,500 each month. In year one, that AED 54,000 reduces accounting profit and, through Article 20, the starting point for taxable income.

When an asset is sold, remove its cost and accumulated depreciation, record the proceeds, and book the gain or loss. A laptop bought for AED 6,000 and sold after two years for AED 1,500 has a book value of AED 2,000 at sale, giving a loss of AED 500. If you are VAT registered, the sale is usually a taxable supply and output VAT applies to the proceeds.

Assets lost, stolen or scrapped are written off the same way, with no proceeds. Keep evidence: a police report, an insurer’s letter or a disposal certificate.

Every capitalised asset needs a row: description, tag or serial number, location, purchase date, cost, useful life, method, accumulated depreciation and book value. Once a year, physically verify assets against the register; small items disappear quickly in busy offices and warehouses.

Corporate tax records, including the register and purchase invoices, must be kept for seven years after the end of the tax period under Article 56 of the Corporate Tax Law.

When the AI agent reads a supplier bill for a laptop or a van, it suggests capitalising it if the amount exceeds your threshold and proposes the asset record with a useful life from your policy. Depreciation posts monthly on the settings you choose. On disposal, it drafts the journal for the gain or loss and the VAT on the sale.

You approve each new asset and disposal. Companies wanting asset categories, lives or an asset report customised to their policy can request it by booking a call at /book-a-demo.