Amortisation: what it means for UAE businesses.

What amortisation means

Also called: Amortization.

Amortisation is depreciation for intangible assets: things a business owns and uses that have no physical form, such as purchased software, franchise rights, a bought customer list or a licence acquired for a fixed term. The cost is spread over the period the business expects to benefit.

The two standards used in the UAE differ here. Under full IFRS (IAS 38), an intangible asset with an indefinite useful life is not amortised but is tested for impairment every year. Under IFRS for SMEs, which UAE businesses with Revenue up to AED 50 million may use, every intangible asset is treated as having a finite life. If that life cannot be estimated reliably, management uses its best estimate but not more than ten years. A contract based asset cannot be amortised over longer than the contract term.

For Corporate Tax, the Federal Tax Authority treats amortisation in the accounts like depreciation: deductible, unless the capitalised cost would not have been deductible as an expense. Many costs SMEs think of as assets, such as building their own brand or logo, are expenses under the standard and cannot be capitalised.

How it works

• An intangible asset is recognised when it is bought or acquired, with cost as the starting point. Internally generated brands, logos and customer lists are expensed.
• IFRS for SMEs: all intangibles have a finite life. If the life cannot be estimated reliably, the maximum is ten years. Residual value is assumed to be zero in most cases.
• Amortisation starts when the asset is available for use. If the pattern of benefit cannot be determined reliably, the straight line method is used.
• Full IFRS: intangibles with an indefinite life are not amortised but are tested for impairment each year.
• Corporate Tax: Ministerial Decision No. 134 of 2023, Article 7, blocks amortisation on capitalised amounts that would not have been deductible as an expense.

Worked example

A Dubai restaurant pays AED 300,000 for a five year franchise right and AED 120,000 for a perpetual licence for its restaurant management software. It applies IFRS for SMEs and cannot reliably estimate the software's life.

Franchise right cost	AED 300,000
Annual amortisation over the 5 year term	AED 60,000
Software licence cost	AED 120,000
Annual amortisation over the 10 year maximum	AED 12,000
Total annual amortisation	AED 72,000

The franchise cannot be amortised beyond its contract term, and the software falls back on the ten year cap, giving AED 72,000 of expense each year.

Common mistakes

• Capitalising the cost of designing your own brand, website content or customer list. IFRS for SMEs requires most internally generated intangibles to be expensed.
• Amortising a fixed term right, such as a five year franchise, over ten years. The contract term is the ceiling.
• Treating the annual trade licence renewal fee as an intangible asset. It covers one year and is normally a prepayment released over that year.

The law

• Ministerial Decision No. 134 of 2023, Article 7 (depreciation, amortisation and capital expenditure)
• Ministerial Decision No. 114 of 2023, Article 4 (IFRS and IFRS for SMEs)
• Federal Decree-Law No. 47 of 2022, as amended, Article 20, Clause 1 and Article 28, Clause 1

Frequently asked questions

Is amortisation deductible for UAE Corporate Tax?

Generally yes. The Federal Tax Authority's accounting standards guide says capital expenditure is not deductible, but the associated depreciation and amortisation are, unless the capitalised amount would not have been deductible as an ordinary expense.

Is goodwill amortised?

Under IFRS for SMEs, yes. Paragraph 19.34 applies the intangible asset amortisation rules to goodwill, with the same ten year maximum when its useful life cannot be established reliably. Businesses on full IFRS follow different rules for goodwill.

Related terms

Depreciation · IFRS for SMEs · Accruals and prepayments · Taxable income. See every term in the UAE tax glossary.

Need help with bookkeeping? See our bookkeeping service.