On 17th June 2025, the Federal Tax Authority (FTA) of the United Arab Emirates issued Decision No. 6 of 2025, laying down comprehensive standards, controls, and procedures to manage shortages in excise goods within designated zones, particularly when such shortages are due to natural characteristics of the goods. This decision comes into effect on 1st July 2025 and is pivotal for Warehouse Keepers and Taxable Persons dealing with excise goods under the UAE tax framework.
This blog delves into the key provisions of this decision, offering clarity on compliance requirements and operational implications for businesses.
Background and Legal Context
The decision is rooted in several legislative instruments, including:
- Federal Decree-Law No. 7 of 2017 on Excise Tax (and its amendments),
- Cabinet Decision No. 52 of 2019 on Excise Goods and Tax Rates,
- And the authority vested in the FTA by earlier board decisions.
The decision primarily focuses on defining, evaluating, and regulating “Natural Shortage” — a concept critical for sectors dealing with goods susceptible to evaporation, shrinkage, or deterioration due to inherent properties
Key Definitions
Understanding a few terms is essential:
- Natural Shortage: An uncontrollable loss in excise goods during production, storage, or transportation, arising from the goods’ inherent characteristics, not human error or negligence.
- Independent Competent Entity: Approved laboratories authorized by the FTA to evaluate and certify natural shortages.
- Report: The official document issued by the Independent Competent Entity that certifies the permissible/expected natural shortage percentages for specific goods.
- Declaration: The formal statement submitted by the Warehouse Keeper or Taxable Person to the FTA disclosing the natural shortage, supported by documentation.
Standards and Controls
The FTA mandates a detailed and scientific approach to quantify and validate natural shortages. Key points include:
- Individual Evaluation:Each Warehouse Keeper/Taxable Person must determine natural shortage percentages at the product level within Designated Zone.
- Mandatory Inspection: Field inspections by the Independent Competent Entities are required to establish the percentage of the Natural Shortage, based on inspection and actual data covering at least previous 6 months.
- Provisional Evaluation: If operations are newer than six months, the Natural Shortage shall be determined, based on inspection and actual data, if any.
- Notification of Changes: Any production/storage change that could impact natural shortage levels must be reported within 20 business days.
- Documentation: A comprehensive set of supporting documents must be maintained, including:
- Explanation of the production workflow, clearly identifying stages where natural shortages are likely to occur.
- Production formula outlining, Anticipated Shortage, both natural and non-natural
- Equipment data & manuals.
- Historical shortage data.
- Reports from Independent Competent Entities.
- Validity Period: Reports are valid for one year, with renewal requiring updated data covering actual percentage of Natural Shortage in the previous 12 months and expectations for the upcoming 12 months.
- FTA Monitoring: Unannounced inspections and audits by the FTA are permitted to verify compliance.
Compliance Procedures
To remain compliant, affected entities must:
- Submit a formal request to the Independent Competent Entity.
- Retain and present all supporting documentation on request.
- Ensure the Declaration submitted to the FTA does not exceed the certified permissible shortage percentage.
Approval of Independent Entities
The FTA will form a dedicated committee responsible for:
- Evaluating and approving laboratories or entities as Independent Competent Entities.
- Defining the eligibility standards and publishing the list of approved names.
Transitional Provisions
To ensure a smooth transition: Any report issued within the first 6 months post-implementation (i.e., until 31 December 2025) will be retrospectively valid from 1 July 2025 and will remain valid for a year from such date.
Conclusion
FTA Decision No. 6 of 2025 is a significant step toward enhancing transparency and consistency in excise tax administration, particularly for goods with volatile or perishable properties. The FTA decision on excise goods shortage in designated zones highlights the need for businesses to strengthen their internal processes and compliance measures.
Businesses operating in designated zones must take proactive steps to comply by:
Engaging with FTA-approved entities promptly,
Maintaining robust documentation,
Monitoring operational changes that affect shortage levels.
Failure to comply with the FTA decision on excise goods shortage in designated zones may result in regulatory penalties or disallowance of claimed shortages, potentially increasing tax liabilities.
📞 Need Expert Assistance?
If you require help navigating this regulation, preparing documentation, or liaising with approved entities, RVG’s expert tax advisory team is here to assist you. We offer tailored support to ensure full compliance with FTA requirements regarding excise goods in designated zones.
Book your free consultation with RVG today and get expert guidance designed around your business needs.
