Understanding Excise Tax Deductibility in the UAE

On November 6, 2023, the UAE government issued Cabinet Decision No. 108 of 2023, which provides the Executive Regulation of the Federal Decree-Law No. 7 of 2017 on Excise Tax. Among the key highlights of this regulation is Article 16, which focuses on the criteria and requirements for deducting excise tax in the UAE. This article provides much-needed clarity on how taxable persons can claim deductions for excise tax previously paid on goods. In this article, we will explore the essential elements of Article 16, breaking it down to understand its significance and practical application for businesses in the UAE.

1. Eligibility for Deductible Tax (Clause 1)

According to Article 16, taxable persons are eligible to deduct excise tax paid on excise goods in their tax return for the period in which the right to deduction arises. This allows businesses to manage their tax obligations and cash flow more effectively, ensuring that the tax relief is linked to the specific period in which the excise tax was incurred.

2. Calculation of Deductible Tax (Clause 2)

The deductible tax amount is equivalent to the excise tax previously paid on the same goods. This means taxable persons can reclaim the exact amount they paid in excise tax, as long as they meet the required conditions and retain the necessary supporting documentation. This straightforward method simplifies the deduction process and offers clarity for businesses.

3. Providing Evidence for Deduction (Clauses 3 and 4)

To substantiate their claims for excise tax deductions, taxable persons must provide the Federal Tax Authority (FTA) with documentation that verifies the value of the excise tax previously paid. The required evidence includes:

• A copy of the purchase invoice for the excise goods.
• A declaration from the supplier confirming the tax payment and its value.
• Additional information linking the goods in question to the prior tax payment.

This structured approach helps ensure transparency and accountability, making the tax deduction process clear for both the FTA and businesses.

4. Conditions for Deduction in Specific Scenarios (Clause 5)

Clause 5 outlines specific scenarios where excise goods can be deducted under particular conditions. These include:

• Goods exported outside the UAE or to another implementing state where excise tax has been paid.
• Goods consumed during international travel departing from the UAE.

This gives businesses clear guidelines for claiming deductions in specific export and consumption situations, contributing to more consistent tax practices.

5. Documentation for Exported Goods (Clause 6)

When goods are exported, taxable persons must provide proper documentation to validate the export and excise tax payment. Acceptable documents include:

• A customs declaration and a commercial export certificate.
• A shipping certificate and official proof of export.

If the FTA deems the provided documentation insufficient, it has the discretion to request alternative evidence tailored to the type of goods and the nature of the export, ensuring the process is adaptable to different circumstances.

6. Instances of Considered Tax Payment (Clause 8)

Tax payment is recognized when the goods were subject to excise tax, and the tax has been paid. The right to deduct tax aligns with the tax period in which the tax became due. This ensures that taxable persons can rely on a clear timeline for when they can claim excise tax as paid.

7. Role of Customs Departments (Clause 9)

Customs departments play an essential role in validating the type and quantity of exported goods. This validation is conducted using export documents in line with established customs procedures, and a tax risk matrix developed in coordination with the FTA. This ensures that all exports are properly documented and meet regulatory requirements.

8. Compliance and Procedural Requirements (Clause 10)

Every excise tax deduction is subject to compliance with the regulations and procedural requirements set out by the FTA. Taxable persons must meet all the outlined conditions to secure their deduction claims successfully, ensuring that the process is fair and transparent.

Conclusion

The recent amendments under Cabinet Decision No. 108 of 2023 reflect the UAE’s commitment to transparency and compliance in tax processes. Article 16 of the Executive Regulation provides essential guidance for businesses seeking to claim excise tax deductions. By outlining the conditions for eligibility, documentation, export scenarios, and customs coordination, taxable persons are equipped with the tools to manage excise tax deductions effectively. This clarity aligns with the objectives of the Federal Decree-Law No. 7 of 2017 on Excise Tax and supports businesses in maintaining accurate tax practices.

summary

Cabinet Decision No. 108 of 2023 outlines the updated Executive Regulation for the Federal Decree-Law No. 7 of 2017 on Excise Tax, with Article 16 detailing criteria for excise tax deductions. Businesses can claim deductions on previously paid excise tax during the period the right arises, provided they meet eligibility requirements and furnish proper documentation, such as purchase invoices and supplier declarations. Specific scenarios like exports and international travel are also covered. The regulation emphasizes compliance with Federal Tax Authority (FTA) procedures and the role of customs in validating exported goods. This amendment highlights the UAE’s commitment to transparent and streamlined tax practices, equipping businesses to manage excise tax deductions effectively.

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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