The Federal Tax Authority (FTA) has released Public Clarification CTP009 (26 September 2025), which provides important guidance on the application of the valuation method under transitional rules for the purposes of the UAE Corporate Tax Law (Federal Decree-Law No. 47 of 2022, as amended).

This clarification is of particular relevance to real estate developers undertaking off-plan sales and recognising revenue progressively under IFRS 15 or IFRS for SMEs.

Background – Transitional Rules in Corporate Tax

When Corporate Tax came into effect, taxable persons were required to prepare an opening balance sheetbased on their closing financial statements immediately prior to the first Tax Period. The transitional rules (Ministerial Decision No. 120 of 2023) allow adjustments to taxable income to ensure that gains attributable to the period before the introduction of Corporate Tax are not taxed.

For real estate developers, this specifically applies to land, projects under construction, and completed units that were owned prior to the first Tax Period.

Qualifying Immovable Property

For the transitional adjustment to apply, the asset must qualify as “Qualifying Immovable Property.”According to Article 2(1) of Ministerial Decision No. 120 of 2023, the conditions are:

1. The property was owned before the commencement of the first Tax Period.
2. It was measured in the financial statements at historical cost.
3. It is disposed of (or deemed disposed of) during or after the first Tax Period at a value exceeding its net book value.

The classification of the property under IFRS or IFRS for SMEs (e.g., inventory vs. fixed asset) does not affect eligibility.

Valuation Method – Core Principles

The valuation method is one of two approaches permitted under the transitional rules (the other being time apportionment).

Under this method, the excluded gain is calculated as:

Market Value (at the beginning of the first Tax Period)
– Higher of (Original Cost or Net Book Value at the same date)

Key requirements:

• Market Value must be determined by the relevant government authority (e.g., Dubai Land Department, Abu Dhabi DMA) or an accredited valuer authorised by such authority. Independent valuations not approved by the authority will not be accepted.
• The Market Value must relate only to the specific Qualifying Immovable Property. Where the valuation includes portions not subject to disposal (e.g., retained common areas or previously sold units), appropriate downward adjustments are required.

Application Steps

The FTA sets out a four-step process:

1. Calculate the overall excluded gain: Determine the difference between Market Value and the higher of Original Cost or Net Book Value.
2. Allocate the gain across Tax Periods: Apportion based on revenue recognition under IFRS 15 (e.g., percentage of completion).
3. Attribute profits fairly: Identify the accounting profits attributable to the Qualifying Immovable Property element (land, building, or project).
4. Apply adjustments within each period: Offset only against accounting profits of the project in that period. Any excess excluded gain cannot be carried forward.

Practical Scenarios

• Land owned before Corporate Tax, construction starts after → Only the land element qualifies.
• Project under construction before and continuing after Corporate Tax → The entire project (land + construction in progress) qualifies.
• Completed projects sold after Corporate Tax → Entire project qualifies if owned prior.

Portions not recognised before the first Tax Period → Do not qualify (e.g., new construction commencing after).

Implications for Real Estate Developers

• Valuation is critical: Ensure timely and valid valuations from approved authorities.
• Revenue recognition drives timing: Alignment with IFRS 15 percentage-of-completion principles determines when the deemed disposal is recognised for tax purposes.
• Adjustment is ring-fenced: It applies only against profits from the specific project/unit and cannot be used to shelter other taxable income.
• Excess excluded gain lapses: Any amount not utilised within the relevant Tax Periods cannot be carried forward.

Consultant’s View

The FTA’s clarification provides much-needed certainty on how transitional adjustments will be treated for real estate projects. Developers should:

• Review project portfolios to identify qualifying properties.
• Engage accredited valuers early to substantiate Market Values.
• Align accounting and tax positions to avoid mismatches in profit attribution.
• Document elections carefully when filing the first Corporate Tax return, as such elections are generally irrevocable.

Conclusion

The valuation method under transitional rules is a crucial mechanism for ensuring that only post-implementation gains are taxed. Real estate developers must prepare robust valuations, ensure accurate revenue recognition, and maintain clear documentation to benefit from this relief.

For full details, refer to the official FTA Public Clarification CTP009 (26 September 2025).