Maximizing cash flow: defer excise duty through import into Excise UAE Designated Zones

The landscape of excise tax in the UAE has witnessed significant expansion by the Federal Tax Authority (FTA), with further growth anticipated in the near future. The FTA has observed a substantial number of companies registering for tax returns, and excise tax is projected to make a substantial contribution to the UAE federal budget. However, businesses dealing with excisable goods are facing challenges due to the high rates of excise tax, ranging from 50% to 100% in some cases. In light of these high tax rates, companies are encouraged to consider registering for Designated Zones to defer their excise tax liability, thereby optimizing their cash flows and managing their financial obligations more effectively.

Designated Zones

A Designated Zone is a defined, fenced area intended to be a free zone, accessible only through designated roads, and subject to the supervision of a Warehouse Keeper. When a Designated Zone is registered with the FTA, it is treated as being outside the UAE for Excise Tax purposes.

Types of Designated Zones

There are two types of Designated Zones –

1. Type A Designated Zone

• Located within the territory of a free zone.
• Fenced to control access.
• Under the Customs Department's control.
• Supervised by an appointed Warehouse Keeper.

2. Type B Designated Zone

• Any other area approved by the FTA as a Designated Zone.
• May be part of a free zone that is not entirely registered as a Designated Zone.
• Requires security measures to restrict entry and exit.

Warehouse Keeper

A Warehouse Keeper is a person approved and registered with the FTA to supervise a Designated Zone. They are responsible for controlling and supervising the Designated Zone and the excise goods stored within it.

Key benefits of utilizing Designated Zones

1. Tax suspension: goods imported, produced, or preserved in a Designated Zone and subsequently exported from it are not considered released for consumption in the UAE. As a result, businesses can defer the payment of excise tax until the goods are consumed within the UAE.
2. Internal transfers: transfer of goods within a Designated Zone is not subject to excise tax, as they are still considered not released for consumption.
3. Cash flow management: by utilizing Designated Zones, businesses can effectively manage their cash flows, postponing the payment of excise tax until goods are released for consumption within the UAE.

How MBG can assist:

To make the most of Designated Zones and optimize cash flows for excisable goods, MBG offers the following services:

1. Warehouse keeper and designated zone registration: MBG can assist in the registration process with the FTA.
2. Declaration filing: we will help with the filing of declarations related to the movement of goods to and from the Designated Zone.
3. Internal control compliance: our team will ensure that all internal controls related to the Designated Zone comply with the applicable regulations.
4. Representation and tax agent services: MBG can represent your business in front of the FTA as your authorized Tax Agent in case of any investigation or tax audit.
5. Monthly internal control reporting: we provide comprehensive monthly reports on internal controls related to the Designated Zone.
6. Tax planning: our experts will provide valuable tax planning strategies to optimize cash flow and maximize benefits.

In a time when cash flows are crucial for businesses, Designated Zones offer a viable solution for managing excise tax obligations effectively. By leveraging the benefits of Designated Zones, businesses can enhance their financial flexibility and navigate the challenges posed by the evolving excise tax landscape in the UAE.