On 17 June 2025, the UAE Federal Tax Authority (FTA) issued strong standards and procedures for managing the natural shortages of excise goods in specific zones. Effective from 1 July 2025, this decision is important to handle the goods produced for warehouses and taxable persons. The management of excise-goods, especially those that are prone to natural losses such as evaporation or shrinkage, has been a complex issue for businesses working within the specified areas of the UAE. Recognizing this, the FTA has implemented the Decision No. 6 2025 to establish clear, scientific and applied standards to handle natural-shortages. This blog offers a comprehensive observation of new decisions, its legal references, definitions, compliance obligations and practical implications for affected businesses.
Background and Legal Reference
The latest decision of FTA anchors in a solid legislative structure, including:
⦁ Federal decree-law No. 7 (revised) of 2017 on excise tax 2019
⦁ Cabinet Decision No.52 on excise goods and tax rates
⦁ Authority given by former FTA board decisions
These instruments collectively empower FTA to regulate excise goods, especially susceptible to damage due to their natural properties.
Key Definitions
Understanding the terminology is essential for compliance:
⦁ Natural Shortage: An unavoidable loss of excise goods during production, storage, or transport, arising from the inherent characteristics of the goods—distinct from losses due to human error or negligence.
⦁ Independent Competent Entity: Laboratories or organizations approved by the FTA to scientifically evaluate and certify natural shortages.
⦁ Report: The official document from an Independent Competent Entity, certifying the permissible or expected natural shortage percentage for a specific product.
⦁ Declaration: The formal statement submitted by a Warehouse Keeper or Taxable Person to the FTA, disclosing the natural shortage and supported by all required documentation.
Standards and Controls
The FTA mandates a rigorous, scientific approach to quantifying and validating natural shortages:
Individual Evaluation
Each Warehouse Keeper or Taxable Person must determine natural shortage percentages at the product level within their designated zone.
Mandatory Inspection
Field inspections by Independent Competent Entities are required. These inspections must be based on actual operational data covering at least the previous six months.
⦁ Provisional Evaluation: For newer operations (less than six months), natural shortage is determined based on available inspection and operational data.
⦁ Notification of Changes: Any change in production or storage that could affect natural shortage levels must be reported to the FTA within 20 business days.
Comprehensive Documentation
Businesses must maintain detailed records, including:
⦁ Production workflow explanations, highlighting stages where natural shortages may occur
⦁ Production formulas and anticipated shortage calculations
⦁ Equipment data and manuals
⦁ Historical shortage data
⦁ Reports from Independent Competent Entities
Validity Period
Reports are valid for one year. Renewal requires updated data covering the actual natural shortage percentage over the past year and projections for the next 12 months.
FTA Monitoring
The FTA may conduct unannounced inspections and audits to verify compliance.
Compliance Procedures
To ensure compliance, businesses must:
⦁ Engage with Independent Competent Entities: Submit formal requests for evaluation and certification of natural shortages.
⦁ Maintain Documentation: Retain all supporting documents and present them upon FTA request.
⦁ Submit Accurate Declarations: Ensure that the declared natural shortage does not exceed the certified permissible percentage.
Approval of Independent Entities
The FTA will establish a dedicated committee responsible for:
⦁ Evaluating and approving laboratories or organizations as Independent Competent Entities
⦁ Defining eligibility standards
⦁ Publishing and updating the list of approved entities
Transitional Provisions
To facilitate a smooth transition:
Any report issued within the first six months after implementation (until 31 December 2025) will be retrospectively valid from 1 July 2025 and remain valid for one year from that date.
Conclusion
FTA Decision No. 6 of 2025 marks a significant advancement in the administration of excise tax for goods with volatile or perishable properties. It brings clarity, consistency, and scientific rigor to the management of natural shortages in designated zones. Businesses must act proactively by:
⦁ Engaging with FTA-approved entities promptly
⦁ Maintaining robust documentation
⦁ Monitoring and reporting operational changes that could affect shortage levels
Failure to comply may lead to regulatory penalties or rejection of shortage claims, increasing tax liabilities.
Need Help? We are Here To Assist
Navigating the new regulations can be complex. If you need help with compliance, documentation, or liaising with approved entities, ebs chartered accountants expert team is ready to assist. Book your free consultation today and ensure your business remains fully compliant with FTA requirements for excise goods in designated zones.
FAQs
What is the FTA’s new decision on natural shortage of excise goods?
The FTA now allows a predefined percentage of natural shortage in excise goods stored in designated zones.
Who does this decision apply to?
It applies to warehouse keepers and businesses operating within FTA-designated excise zones.
What qualifies as a ‘natural shortage’?
Losses due to natural causes like evaporation, leakage, or spillage under normal storage conditions.
Do businesses need to report natural shortages?
Yes, businesses must submit a request and supporting documents to the FTA for approval of natural shortage claims.