Understanding Natural Shortages in Excise Goods: Key Updates for Businesses in Designated Zones

The Federal Tax Authority (FTA) in the UAE has issued a new Public Clarification, EXTP011, effective from July 1, 2025, addressing the treatment of “Natural Shortage of Excise Goods”. This is crucial for businesses operating within Designated Zones (DZs) that handle excise goods.

Previously, excise goods found deficient or short in quantity within a DZ, during transfer between DZs, or while held under suspension, were generally considered released for consumption and thus subject to excise tax. However, Cabinet Decision No. 108 of 2023 provides an exception for shortages due to the natural characteristics of the goods in certain situations.

The new FTA Decision No. 6 of 2025, which EXTP011 clarifies, sets out the specific standards, controls, and procedures for dealing with such natural shortages.

What constitutes a Natural Shortage?

A shortage is considered “natural” if:

• It occurs during the production, storage, or transportation of excise goods within a DZ.
• It’s beyond the control of the Relevant Person (Warehouse Keeper or Taxable Person) due to the inherent nature of the goods, not for any other reason.
• The shortage makes it impossible to release the excise goods for consumption.

Examples include reasonable levels of loss/evaporation due to moisture (not negligence), irretrievable residues in containers, and irretrievable losses within production machinery under normal operating conditions. Importantly, losses from negligence, theft, or operational inefficiencies are

not considered natural shortages.

Key Procedures for Businesses:

1. Independent Competent Entity Report: Businesses storing or producing excise goods in a DZ may apply to FTA-approved laboratories (Independent Competent Entities) to determine the permissible percentage of natural shortage.
   • This entity will conduct inspections and issue a report detailing the permissible, expected, or actual natural shortage percentage, valid for one year.
   • The report can be obtained even without 6 months of prior actual data if a new factory/production line is established or a product is newly developed.
2. Notification to FTA: The Relevant Person must notify the FTA of the actual natural shortage by submitting a declaration on the EmaraTax platform. The declared percentage must not exceed that stated in the Independent Competent Entity’s report. This declaration can cover multiple tax periods, up to six months.
3. Record Keeping: Comprehensive documentation is required to prove natural shortages, including a detailed explanation of the manufacturing process, production formulas, expected natural shortage percentages with supporting documents from previous periods, and manufacturing equipment data. The Independent Competent Entity’s report and relevant actual data must also be retained.

Important Considerations:

• If the reported natural shortage exceeds the approved percentage in the report, the excess will be considered a release for consumption, and excise tax will be payable on that amount.
• Non-natural shortages (e.g., physical waste) must follow the standard process for lost and damaged goods declarations.
• These procedures apply exclusively to Relevant Persons operating within a Designated Zone. Taxpayers outside DZs cannot claim relief or refunds for natural shortages.
• A declaration for natural shortage cannot be submitted without a valid report from the Independent Competent Entity.

Report Validity and Renewal: The report is valid for one year, provided there are no substantial changes in operations that would alter the natural shortage percentage. If changes occur (e.g., in production lines or storage conditions), the Relevant Person must inform the Independent Competent Entity within 20 business days to request a new report reflecting the updated percentage. New reports should also be requested after the expiration of the previous one, including actual shortages from the past 12 months and expected percentages for the next 12 months.

Businesses dealing with excise goods in DZs should thoroughly review EXTP011 and ensure their processes align with the new requirements to avoid unintended tax liabilities.

summary

Effective July 1, 2025, the UAE’s Federal Tax Authority (FTA) has clarified “Natural Shortage of Excise Goods” within Designated Zones (DZs) through Public Clarification EXTP011. This is crucial for businesses handling excise goods in DZs.

Disclaimer: The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk.

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