Designated Zones in Excise Tax Compliance

With the recent Cabinet Decision No. 108 of 2023, key updates to the Executive Regulation of Federal Decree-Law No. 7 of 2017 on Excise Tax in the UAE were introduced, particularly emphasizing the regulation and management of “Designated Zones.” These zones play a pivotal role in how excise goods are stored, transferred, and taxed within the country. In Part 1 of this two-part article, we delve into the essential elements of Article 15 of the Executive Regulation, covering the concept and functionality of Designated Zones and the responsibilities of Warehouse Keepers in managing excise goods.

What is a Designated Zone?

A “Designated Zone” refers to specific areas in the UAE where excise goods can be stored, transferred, or processed without triggering tax obligations unless these goods are released for consumption. Article 15 of Cabinet Decision No. 108 of 2023 defines these areas and their criteria, outlining the responsibilities and procedures required for compliance.

Conditions for Designated Zones

For an area to qualify as a Designated Zone, it must meet stringent regulatory standards:

1. Fenced Free Zone Requirements: Designated Zones must be enclosed spaces that have robust security measures to monitor and restrict the entry, exit, and movement of excise goods. These zones are also under the surveillance of customs departments, ensuring the safe custody and tracking of excise goods within their confines. 
2. Warehouse Keeper Appointment: Each Designated Zone must have a Warehouse Keeper, a critical role that includes overseeing excise goods management and ensuring compliance with the regulation’s demands. Warehouse Keepers are responsible for supervising these zones and handling excise goods per the UAE tax authority’s guidelines.
3. Financial Guarantees: The Authority may require a financial guarantee during the registration, renewal, or amendment of a Designated Zone, providing a level of security to cover any potential risks associated with excise goods held within the zones.

Key Responsibilities of the Warehouse Keeper

Warehouse Keepers bear the central responsibility for managing excise goods within Designated Zones. This includes maintaining records of excise goods at all times, documenting transfers between zones, and verifying that goods intended for export or inter-zone transfer remain untaxed unless released for consumption.

1. Documenting and Maintaining Records: Warehouse Keepers are required to maintain accurate, up-to-date records detailing stock levels, excise goods transfers, and movements, ensuring compliance with Clause 9 of Article 15. This includes maintaining records of excise goods held, intended transfers, and the completion of each transfer.
2. Authority Communication and Evidence Retention: The Authority mandates that Warehouse Keepers provide necessary documentary evidence on demand, tracking the value, quantity, and movements of excise goods within Designated Zones. This requirement ensures that excise goods are accounted for accurately and assists in preventing tax evasion by requiring transparent documentation for the entire lifecycle of excise goods within these zones.

Regulatory Impact on Excise Goods

Excise goods stored within Designated Zones are not subject to excise tax until they leave the zone or are otherwise deemed released for consumption. This deferment aligns with the UAE’s goal of supporting business operations that require the temporary storage, transfer, or processing of excise goods without imposing an immediate tax burden.

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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