What Was the IFRS 16 COVID-19 Rent Concession Practical Expedient
In May 2020, the International Accounting Standards Board (IASB) issued a targeted amendment to IFRS 16 Leases in response to the volume of rent reductions, deferrals, and waivers landlords were granting tenants during the pandemic. The amendment added paragraph 46A, giving lessees an optional practical expedient: instead of assessing every qualifying rent concession against the general lease modification requirements in paragraphs 44 to 46 of IFRS 16, a lessee could elect to account for the concession as if it were not a lease modification at all.
Practically, this meant a lessee who made the election recognized the effect of the concession, typically a reduced or waived rent payment, directly in profit or loss for the period it related to, without remeasuring the lease liability at a revised discount rate and without adjusting the right-of-use asset. This was significantly simpler than the standard modification accounting, which is why it was elected widely by lessees across the UAE’s retail, hospitality, and commercial office sectors between 2020 and 2022.
This relief no longer exists. It was always a temporary, time-limited practical expedient, and its eligibility window closed on 30 June 2022. Any article or advice presenting it as something a business can still elect for a rent concession negotiated today is out of date. The sections below explain how the relief worked while it was available, why it stopped applying, and what UAE lessees must do instead when a landlord offers a rent reduction now.
Eligibility Conditions Under the IFRS 16 Rent Concession Amendment
A rent concession only qualified for the practical expedient in paragraph 46A if all three of the following conditions were met at the same time.
| Condition | Requirement |
|---|---|
| Revised consideration | The change in lease payments resulted in revised consideration for the lease that was substantially the same as, or less than, the consideration for the lease immediately before the change. |
| Timing of the reduction | The reduction in lease payments related to payments originally due on or before the applicable cut-off date (30 June 2021 under the original May 2020 amendment, extended to 30 June 2022 under the March 2021 amendment). |
| No other substantive change | No other substantive changes were made to the other terms and conditions of the lease, such as an extension of the lease term or a change to the underlying asset. |
If a concession failed any one of these three conditions, the practical expedient was never available for it, and the lessee had to fall back on the general IFRS 16 lease modification requirements, the same requirements that apply to every rent concession today.
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Timeline: How the IFRS 16 Rent Concession Relief Changed Between 2020 and 2022
| Date | Event |
|---|---|
| May 2020 | IASB issues the original amendment to IFRS 16, introducing paragraph 46A and covering rent concessions with reduced payments originally due on or before 30 June 2021. |
| March 2021 | IASB extends the cut-off date to 30 June 2022, in response to continuing pandemic-related disruption to rent negotiations. |
| 30 June 2022 | The practical expedient’s eligibility window closes. No further extension was issued. |
| 2026 (today) | The practical expedient is not available. Any rent concession negotiated or finalized now must be assessed under the general IFRS 16 lease modification requirements, regardless of the reason for the reduction. |
A lessee that elected the practical expedient applied it retrospectively in line with IAS 8, but without restating comparative figures. The cumulative effect was recognized as an adjustment to the opening balance of retained earnings at the start of the annual reporting period in which the amendment was first applied. The disclosures normally required under paragraph 28(f) of IAS 8 for a change in accounting policy did not apply to this first-time application, a specific carve-out set out in IFRS 16:C21.
See also: Corporate Tax in UAE
Why the IFRS 16 Rent Concession Practical Expedient No Longer Applies
Three points matter for any UAE finance team looking at this topic in 2026.
- The cut-off was fixed at 30 June 2022. A rent concession granted or renegotiated after that date does not qualify, no matter how similar the commercial circumstances look to a 2020 or 2021 concession.
- The IASB deliberately chose not to extend the relief a second time. By 2022 the standard-setter judged that pandemic-driven rent renegotiations had receded enough that a temporary simplification was no longer justified, and lessees were expected to return to applying the standard’s normal modification requirements.
- The relief was always optional and always narrow in scope. It never applied to rent concessions granted for commercial reasons unrelated to the pandemic, and it never applied to lessors.
For a UAE business negotiating a rent reduction with a landlord today, whether due to market conditions, a renewal negotiation, or a tenant-specific hardship, the practical expedient is not an option. The concession must be assessed under paragraphs 44 to 46 of IFRS 16 like any other change to a lease.
Related: Accounting & Bookkeeping Services
IFRS 16 Lease Modification Accounting: What Applies Now
Where the practical expedient does not apply, a lessee first determines whether the change is a lease modification at all, meaning a change in the scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions. If it is a modification, the lessee then works through two questions.
| Question | Accounting outcome |
|---|---|
| Does the modification increase the scope of the lease by adding the right to use one or more underlying assets, and does consideration increase by an amount commensurate with the standalone price for that increase? | If yes, the lessee accounts for the modification as a separate, new lease, unrelated to the original contract. |
| If not accounted for as a separate lease, does the modification decrease the scope of the lease (for example, terminating the right to use part of the leased space)? | The lessee decreases the carrying amount of the right-of-use asset to reflect the partial or full termination and recognizes a gain or loss in profit or loss for the proportionate decrease in scope. |
For a modification that is not accounted for as a separate lease and does not decrease scope, such as a straightforward rent reduction with no change to the leased space or term, the lessee remeasures the lease liability by discounting the revised lease payments using a revised discount rate at the effective date of the modification, and makes a corresponding adjustment to the right-of-use asset. Unlike the former practical expedient, there is no immediate profit-or-loss hit at the date of the concession. The effect is instead spread over the remaining lease term through lower depreciation on the right-of-use asset and lower interest expense on the lease liability.
Worked Example: IFRS 16 Rent Concession Accounting Then and Now
A UAE retail tenant leasing showroom space negotiates a three-month rent waiver worth AED 90,000 with its landlord, with no other change to the lease term or the underlying premises.
| Aspect | Former practical expedient (available only up to 30 June 2022) | Standard IFRS 16 modification accounting (applies to any concession today) |
|---|---|---|
| Assessment required | Lessee could elect not to assess whether the concession met the definition of a lease modification. | Lessee must assess whether the waiver is a lease modification under paragraphs 44 to 46. |
| Lease liability | Not remeasured. | Remeasured by discounting the revised payments at a revised discount rate as of the effective date. |
| Right-of-use asset | Not adjusted. | Adjusted by the same amount as the lease liability remeasurement. |
| Timing of the AED 90,000 benefit | Recognized directly in profit or loss in the period(s) the waiver related to. | Not recognized immediately. The reduced lease liability lowers interest expense, and the reduced right-of-use asset lowers depreciation, spread over the remaining lease term. |
If this waiver had been agreed before 30 June 2022 and met the three eligibility conditions, the AED 90,000 practical-expedient route was available. Agreed today, in 2026, only the right-hand column applies.
Also check: External Audit Services
Common Misconceptions About the IFRS 16 Rent Concession Relief
- “The practical expedient is still available.” It expired on 30 June 2022 and has not been reinstated or extended since.
- “Any pandemic-related rent adjustment automatically qualified.” A concession still had to meet all three conditions in paragraph 46A: substantially unchanged or reduced consideration, a reduction tied to payments due on or before the cut-off date, and no other substantive change to the lease terms.
- “Electing the practical expedient was mandatory.” It was always optional, and a lessee could apply it to some contracts and not others, or apply it consistently to similar contracts, without any obligation to use it across the whole lease portfolio.
- “The relief applied to lessors as well as lessees.” Paragraph 46A was explicitly a lessee-only expedient. Lessors granting rent concessions continued to apply the existing lessor accounting requirements in IFRS 16 throughout the pandemic, with no equivalent simplification.
Why Historical IFRS 16 Rent Concession Accounting Still Matters for UAE Audits and Corporate Tax
Even though no business can elect the practical expedient for a new concession today, how it was applied in 2020 to 2022 financial statements still matters for two practical reasons.
First, UAE Corporate Tax under Federal Decree-Law No. 47 of 2022 computes taxable income starting from IFRS-based accounting net profit. A rent concession election made in a FY2021 or FY2022 period, whether accounted for under the practical expedient or under standard modification accounting, fed into the profit figures and retained earnings balances that later periods build on. An incorrectly applied election in that period can still distort opening balances relevant to a Corporate Tax position established from a company’s first tax period.
Second, record retention obligations mean this history has to remain retrievable. Corporate Tax records must generally be retained for 7 years from the end of the relevant tax period, extended by a further 2 years where a tax refund request is pending, under Cabinet Decision No. 17 of 2026 (effective 1 April 2026). A company that elected the practical expedient for a 2021 or 2022 rent concession could still be asked, well into 2028 or 2029, to explain and evidence that judgment during an FTA review or an external audit covering that period.
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
How Farahat & Co. Can Help
Farahat & Co. supports UAE lessees with reviewing how historical rent concessions were accounted for under IFRS 16, applying the current lease modification requirements to rent negotiations taking place now, and making sure lease-related figures feeding into Corporate Tax computations and statutory audits are accurate and well documented.
Contact Farahat & Co. today to discuss your IFRS 16 lease accounting requirements.
