IAS 16 (IFRS as adopted in the UAE)

Depreciation Calculator
UAE

IAS 16 depreciation calculator with UAE-specific regulatory context, Securities and Commodities Authority (SCA) / Ministry of Finance expectations, and local tax vs accounting depreciation guidance.

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IAS 16 Depreciation Audit Working Paper Template — free PDF

Practical audit guide covering all four depreciation methods with worked examples, component depreciation checklist, change-in-estimate documentation template, and useful life benchmarks by asset class.

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IAS 16 Depreciation in UAE — IAS 16 (IFRS as adopted in the UAE)

The United Arab Emirates adopted IFRS for all entities listed on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Market (DFM), as well as for financial institutions regulated by the Central Bank of the UAE (CBUAE). The UAE's introduction of corporate tax (Federal Decree-Law No. 47 of 2022, effective June 2023) has brought new urgency to the distinction between accounting depreciation under IAS 16 and tax depreciation, which was previously irrelevant in a zero-tax environment.

Regulatory Context — Securities and Commodities Authority (SCA) / Ministry of Finance

The SCA (Securities and Commodities Authority) oversees financial reporting for listed companies and has aligned its requirements with IFRS. The CBUAE mandates IFRS for all banks and insurance companies. With the introduction of UAE Corporate Tax at 9% on profits exceeding AED 375,000, the Federal Tax Authority (FTA) has issued guidance on the treatment of depreciation for tax purposes. The tax base generally starts from accounting profit under IFRS, meaning IAS 16 depreciation directly affects the corporate tax calculation — a fundamental shift from the pre-2023 zero-tax regime.

Practical Guidance for UAE

The UAE's transition from zero corporate tax to a 9% regime has created a new dynamic for depreciation. Previously, there was no tax incentive to accelerate or manipulate depreciation — the only consideration was fair presentation under IAS 16. Now, depreciation reduces taxable profit, creating a financial incentive to accelerate depreciation. UAE entities must ensure that IAS 16 useful life and residual value estimates remain based on the expected consumption of economic benefits, not tax planning. The FTA has indicated that accounting depreciation per IFRS is generally accepted for tax purposes, reducing the compliance burden of maintaining parallel schedules.

Audit Expectations

UAE audit firms follow ISA. The audit of PP&E depreciation in the UAE context requires attention to: whether the introduction of corporate tax has influenced IAS 16 estimates (auditors should verify independence), whether real estate assets are properly classified between IAS 16 (owner-occupied) and IAS 40 (investment property), component depreciation for large property and infrastructure assets, and the adequacy of impairment testing given real estate market cycles in the UAE. The UAE's real estate sector is particularly cyclical, with significant boom-bust patterns affecting property values.

UAE-Specific Considerations

UAE-specific considerations include: the dominance of real estate and construction in the economy — PP&E portfolios are heavily weighted toward buildings, development infrastructure, and construction equipment. The Free Zone regime means different regulatory frameworks may apply depending on where the entity is located (DIFC entities follow IFRS directly). The UAE's ambitious infrastructure programme (Expo 2020 legacy, NEOM proximity effects, Abu Dhabi economic diversification) creates significant PP&E investment. Oil and gas entities (ADNOC and partners) have extensive decommissioning obligations. The UAE's hot climate and sandstorm exposure may justify shorter useful lives for outdoor equipment and vehicles than temperate-climate benchmarks.

Common Inspection Findings

Corporate tax introduction influencing IAS 16 useful life estimates toward shorter lives

IAS 16 vs IAS 40 classification for mixed-use property not properly assessed

Component depreciation not applied to large real estate and infrastructure assets

Useful life estimates not adjusted for UAE climate and operating conditions

Annual review of depreciation estimates not documented in audit files

Frequently Asked Questions — UAE

How does the new UAE corporate tax affect IAS 16 depreciation?
The UAE Corporate Tax Law (effective June 2023) uses IFRS accounting profit as the starting point for taxable income. This means IAS 16 depreciation directly reduces taxable profit — a significant change from the pre-2023 zero-tax environment. Entities should ensure IAS 16 estimates remain based on economic substance, not tax minimisation.
Is there a separate tax depreciation system in the UAE?
The UAE FTA has indicated that IFRS depreciation is generally accepted for tax purposes. There is no extensive parallel tax depreciation system (like UK capital allowances or US MACRS). However, the FTA reserves the right to challenge depreciation estimates that appear unreasonable or tax-motivated.
How should UAE real estate entities classify property between IAS 16 and IAS 40?
Owner-occupied property (used in the entity's operations) follows IAS 16 with depreciation required. Investment property (held for rental or capital appreciation) follows IAS 40, where the fair value model (no depreciation) or cost model (depreciation) is available. Classification depends on the entity's use, not the property's location or type.
Does the UAE climate affect useful life estimates?
Yes. The extreme heat, UV exposure, sand, and humidity in the UAE can accelerate deterioration of outdoor equipment, vehicles, building components (particularly HVAC, which works intensively year-round), and electronic equipment. Useful life estimates should reflect local operating conditions, not global benchmarks.
How should Free Zone entities handle IAS 16 depreciation for tax?
Free Zone Qualifying Persons may benefit from 0% corporate tax on qualifying income. If qualifying income includes revenue from assets located in the Free Zone, depreciation on those assets would reduce qualifying income (at 0% tax, no impact). However, non-qualifying income is taxed at 9%, and related depreciation reduces that taxable amount.

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