New UAE Excise Rules: FTA Decision No. 6 Takes Effect July 2025
Standards, Controls, and Procedures for Natural Shortages of Excise Goods in Designated Zones
Effective Date: 1 July 2025
Issued On: 17 June 2025
UAE Federal Tax Authority has set out a structured framework for recognizing and handling natural shortages of excise goods occurring during production, storage, or transportation within Designated Zones. It aims to distinguish genuine losses caused by the inherent nature of goods from other forms of discrepancies.
Key Highlights of the Notification:
Independent Competent Entity (ICE) Assessment:
Only an FTA-approved Independent Competent Entity may determine and certify the permissible percentage of natural loss, ensuring objective, standardized evaluations.
Timely Reporting of Changes:
Any operational factors process adjustments, storage modifications, or production variations that could affect the natural loss threshold must be reported to the ICE within 20 business days. A revised ICE report must follow.
Mandatory Declaration to the FTA:
Taxpayers must submit a formal declaration in the FTA’s system, referencing the valid ICE report and including all supporting documentation.
Robust Documentation:
Businesses are required to maintain detailed records, including production formulas, stage-by-stage manufacturing data, expected loss percentages, equipment manuals, and historical shortage analyses.
FTA Inspection Rights:
The Authority retains the right to conduct inspections at the warehouse keeper’s premises to verify compliance.
Prescribed Procedures:
A step-by-step process is now established for recognizing, documenting, and reporting natural shortages, replacing the prior self-assessment approach.
The newly issued FTA Decision No. 6 of 2025, marks a significant shift from the previous UAE excise tax treatment of natural loss
| Aspect | Previous Regime | FTA Decision No. 6 of 2025 |
| Definition of ‘Natural Loss’ | General interpretation for natural loss due to “inherent characteristics” without clear thresholds or documentation requirements. | Clear and comprehensive definition of “Natural Shortage”, including procedures, documentation, and monitoring. |
| Independent verification & its mechanism | No formal mechanism for independent verification. Taxpayers self-assessed and justified losses with internal records. | Mandatory appointment of Independent Competent Entities (approved labs) to determine permissible shortage levels. |
| Documentation requirement | Basic records like production data or inventory movement reports. | Detailed list required: production formulas, manufacturing stages, expected shortage %, equipment manuals, past data, and official Reports from Independent Entities. |
| Submission process | No ICE audit report was required to be submitted with the excise declaration. | Must submit a formal Declaration in the FTA system with reference to the valid Report. |
| FTA Inspection/ Audit | FTA inspection/ audit was done once declaration was submitted with prior intimation | Provisions for unannounced site visits by FTA and the Independent Entity. |
| Loss percentage | No fixed validity period; may vary across entities and periods. | Report is valid for 1 year, and updated annually with both actual and expected shortage data. |
| Adjustment on the process change | No specific timeline for notifying FTA. | Any change in process/storage must be reported within 20 business days to trigger reassessment. |
| Transitional Reporting Rules | Not applicable. | Reports issued within 6 months from the effective date (1 July 2025) will be valid for 1 year from 1 July 2025. |