Understanding Excise Tax Deductibility in the UAE

The Cabinet Decision No. 108 of 2023, issued on November 6, 2023, outlines the Executive Regulation of the Federal Decree-Law No. 7 of 2017 on Excise Tax. One of the central highlights of this regulation is Article 16, which delves into the criteria and requirements for deducting excise tax in the UAE. This comprehensive piece of legislation provides clear guidance on when and how taxable persons may claim excise tax deductions on previously paid taxes. Here, we will break down the essentials of Article 16 to better understand its significance and application.

Eligibility for Deductible Tax (Clause 1)

• According to Article 16, taxable persons can deduct excise tax paid on their excise goods in their tax return for the period in which the right to deduction arises. This provides a structured way for businesses to manage their tax obligations and cash flow more effectively, ensuring that tax relief is tied to the period in which the excise tax was incurred.

Calculation of Deductible Tax (Clause 2)

•  The deductible tax amount is equivalent to the excise tax previously paid on the same goods. This means that taxable persons are eligible to claim back exactly what they paid in excise tax, provided they meet the necessary conditions and retain the appropriate evidence.

Providing Evidence for Deduction (Clauses 3 and 4)

• To substantiate claims, the Federal Tax Authority (FTA) requires documentation verifying the value of previously paid excise tax. Taxable persons need to retain:
  •  A copy of the purchase invoice for the excise goods.
  •  A declaration from the supplier confirming tax payment and its value.
  •  Additional information linking the goods in question to the previous tax payment

This structured approach helps both the FTA and taxable persons maintain a transparent process for confirming deductible tax claims.

Conditions for Deduction in Specific Scenarios (Clause 5)

•  Clause 5 outlines scenarios where excise goods can be deducted under specific conditions:
  •  When goods are exported outside the UAE or to another implementing state with excise tax paid.
  •  If the goods are consumed during international travel departing from the UAE.

Documentation for Exported Goods (Clause 6)

• When goods are exported, taxable persons must furnish either:
  •  A customs declaration and a commercial export certificate.
  • A shipping certificate and official proof of export.

Should the documentation be deemed insufficient by the Authority, it has the discretion to request alternative evidence tailored to the type of goods and nature of the export.

Instances of Considered Tax Payment (Clause 8)

•  Tax payment is recognized when:
  • 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 clarity ensures that taxable persons are fully aware of when they can claim excise tax as paid, adding consistency to the tax deduction process.

Role of Customs Departments (Clause 9)

•  Customs departments play a pivotal role by 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, which is developed in coordination with the Authority.

Compliance and Procedural Requirements (Clause 10)

•  Every excise tax deduction is subject to adherence to the regulations and FTA’s specified procedures. Taxable persons must meet all conditions outlined to secure their deduction claims successfully.

Conclusion

The recent Executive Regulation amendment under Cabinet Decision No. 108 of 2023 reflects the UAE’s commitment to transparency and compliance in tax processes. Article 16 serves as an essential guideline for taxable persons, laying out a systematic approach to claiming excise tax deductions. With clear directives on eligibility, documentation, export scenarios, and customs coordination, taxable persons are equipped to manage excise tax deductions effectively, aligning their tax practices with the standards of the Federal Decree-Law No. 7 of 2017 on Excise Tax.

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.

For understanding more about Corporate Tax, VAT, Excise Tax, Financial Services, Advisory Services, reach out to us on:contact@acme-group.me | +971 52 740 1169.