The Federal Tax Authority has issued Decision No. 6 of 2025 on Standards, Controls and Procedures for Dealing with Shortage Within the Designated Zone due to the Natural Characteristics of Excise Goods, as amended (the “Decision“) marking a significant development in the UAE’s excise tax regime.
The Decision establishes, for the first time, a mandatory, evidence-based framework under which natural shortages of excise goods may be recognised. Importantly, excise goods shortages will no longer be accepted on a self-assessed or informal basis. Instead, recognition is now contingent on independent verification and formal documentation.
Independent Verification Becomes Central
At the core of the Decision is the requirement that warehouse keepers and excise-registered persons are now legally required to obtain an approved report from an independent competent entity (laboratories approved by the FTA) determining the permissible percentage of natural shortage for each excise good and for each taxable person at the level of the designated zone.
This report must be based on formal field inspections of production and storage processes and on actual operational data covering a period of not less than six previous months. The independent competent entity must issue an initial report specifying the permissible shortage percentage applicable to each excise good.
Where a production line or product has been in operation for less than six months, the percentage may be determined based on inspection and any actual data available.
The Decision also requires that taxable persons notify the independent competent entity of any changes in production lines or storage conditions within 20 business days, so that a new report can be issued if the permissible percentage is affected.
In practical terms, this represents a shift from discretionary assessments to a strictly regulated, pre-approved technical determination of acceptable loss levels.
Natural Shortage Narrowly Defined
The Decision confines “natural shortage” to shortages arising solely from the inherent nature of excise goods during production, storage, or transportation within a designated zone, and which are beyond the control of the taxable person. Any shortage falling outside this narrow definition is unlikely to qualify for relief.
Declarations and Record-Keeping Obligations
Warehouse keepers and taxable persons are required to:
- Determine and apply the permissible natural shortage percentage for each excise good;
- Obtain and retain the approved report covering all relevant excise goods; and
- Submit declarations of natural shortage through the Authority’s electronic system.
In addition, the Decision imposes detailed documentary requirements. When submitting a declaration, businesses must retain and be able to provide supporting evidence including:
- a detailed explanation of the manufacturing process identifying stages where natural shortage may occur;
- a production formula reflecting expected natural and non-natural losses;
- historical data evidencing expected shortage percentages;
- manufacturing equipment data and operating manuals; and
- the approved report together with at least six months of actual operational data
The percentage declared to the FTA may not exceed the percentage stated in a valid report, and a declaration cannot be submitted at all unless the report remains valid.
These obligations place a clear emphasis on traceability, consistency, and formal audit-readiness, replacing the previous informal approach to excise shortages.
Practical Significance
The most important impact of the Decision is that unsubstantiated shortages or shortages not supported by a valid independent report may now be treated as taxable releases. Businesses that cannot demonstrate compliance with the new framework risk additional excise tax assessments, administrative penalties, and potential disputes.
The framework also introduces ongoing compliance obligations: reports must generally be renewed annually, unannounced inspections by approved laboratories may occur, and the FTA retains the right to conduct its own verification visits.
Affected businesses should therefore proactively:
- assess whether current processes align with the new standards;
- engage an approved independent competent entity;
- implement procedures for timely updates when operations change; and
- strengthen internal controls to ensure that recognised shortages are fully supported by independent evidence.
Our team can advise on compliance with FTA Decision No. 6 of 2025, including recognising natural shortages, documentation requirements, and excise tax risk management. For further information, please contact Suneer Kumar at suneer@alsuwaidi.ae, Vida Grace Serrano at vida@alsuwaidi.ae, or Mamdouh Tawfik at m.tawfik@alsuwaidi.ae.