Understanding Persons Liable to Pay Tax in the UAE

Excise tax is a significant part of the UAE’s tax system, introduced under Federal Decree-Law No. 7 of 2017 and later amended by Federal Decree-Law No. 19 of 2022. The UAE government has continuously worked to ensure compliance and clarity within this tax regime, and a key development came on November 6, 2023, when the UAE Cabinet issued Decision No. 108 of 2023. This decision brought forth critical clarifications on the Executive Regulation of the Federal Decree-Law, shedding light on the responsibilities of various stakeholders in the excise tax supply chain. 

Who is Liable for Excise Tax? 

The cabinet decision underscores the importance of understanding who is responsible for excise tax payments and when liabilities arise. It is not only producers and importers who are accountable, but also various other participants in the supply chain. 

1. Liability of Supply Chain Actors 

Article 2 of the Cabinet Decision specifies that, in cases where the excise tax has not been paid, multiple parties within the supply chain can be held liable. These parties include: 

• Persons in the Supply Chain: Any individual or entity involved in the supply chain, including manufacturers, importers, and distributors, can be held responsible if the excise tax has not been settled. 
• Investors and Financial Stakeholders: Individuals or entities with a financial stake in the supply chain where tax obligations have not been fulfilled may also bear liability.
• Owners of Excise Goods: Even if a person is not the producer or importer, if they own excise goods, they can be held accountable in specific circumstances. 

This broad definition of liability ensures that all participants in the supply chain, whether directly or indirectly involved, must be vigilant in meeting tax obligations. 

2. Responsibilities of the Warehouse Keeper 

One of the key points raised in the Cabinet Decision is the role of Warehouse Keepers. These are entities responsible for storing excise goods in designated zones. If the tax payment is missed, the Warehouse Keeper can be held accountable in the following cases: 

• Inadequate Record-Keeping: Warehouse Keepers are required to maintain accurate records of the excise goods, and failing to do so may lead to liability for unpaid taxes. 
• Failure to Comply with Conditions: If the Warehouse Keeper does not meet the regulatory conditions set by the authorities, they may be held responsible. 
• Benefiting from Tax Non-Payment: If the Warehouse Keeper gains any financial or operational advantage from the failure to pay excise taxes, they can be held liable for non-payment. 

These provisions highlight the importance of thorough record-keeping and compliance with regulatory standards, ensuring that Warehouse Keepers play a proactive role in maintaining the integrity of the excise tax system. 

3. Conditions for Stockpiler Exemption 

Interestingly, the Cabinet Decision provides some relief to certain Stockpilers under specific conditions: 

• Exemption Conditions: A Stockpiler may not be required to pay the excise tax if they hold excise goods that are in free circulation within the UAE. However, these goods must not have already had tax paid, been relieved, remitted, or deferred. 
• No Excess Stockpiling: The goods stored must not be classified as excess stock as per the guidelines provided in Article 11 of the Cabinet Decision. 

These provisions are beneficial to businesses dealing with the distribution and stockpiling of excise goods, providing a clear framework for tax exemption under certain conditions. 

Conclusion 

The introduction of Cabinet Decision No. 108 of 2023 marks a pivotal moment in the UAE’s excise tax landscape. It clarifies the responsibilities of multiple stakeholders within the supply chain, from producers and importers to warehouse keepers and stockpilers. The expanded liability and heightened compliance requirements underscore the importance of thorough understanding and meticulous record-keeping for businesses operating in this space. 
By staying informed about the nuances of these regulations and ensuring adherence to the tax obligations, businesses can navigate the complexities of the excise tax system and mitigate potential liabilities. In a rapidly evolving regulatory environment, proactive compliance is essential to ensure that companies stay aligned with the UAE’s legal framework while avoiding unnecessary tax liabilities. 

summary

Cabinet Decision No. 108 of 2023, issued on November 6, provides critical updates to the Executive Regulation of the Federal Decree-Law No. 7 of 2017 on Excise Tax in the UAE. Article 2 outlines the entities responsible for paying tax when the primary liable person fails to meet their obligations. Key points include the liability of individuals within the supply chain, investors, and owners of excise goods. Warehouse keepers may also be held accountable under specific conditions, such as failing to maintain proper records or benefiting from non-compliance. Additionally, stockpilers are protected from tax liability if they own excise goods in free circulation and meet certain criteria. Businesses must understand these regulations to ensure compliance and avoid unexpected liabilities. 

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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