Treatment of Wastage of Excise Goods in the UAE

Understanding the Treatment of Wastage of Excise Goods in the UAE

Excise goods play a critical role in the tax structure of the UAE, particularly when it comes to their regulation within designated excise tax zones. The Federal Tax Authority (FTA) has established clear guidelines on how wastage, deficiencies, and destruction of excise goods are treated to ensure compliance with Federal Decree-Law No. 7 of 2017 on Excise Tax and its Executive Regulations. This blog aims to provide a detailed understanding of the treatment of such cases and the process of obtaining relief from excise tax when applicable.

A. General Principle

In principle, the FTA considers any excise goods found to be deficient, missing, or requiring destruction within a designated zone as having been released for consumption. Consequently, these goods are subject to excise tax, unless relief is granted under specific conditions.

This principle applies to:

Shortages discovered within a designated excise tax zone.
Deficiencies found during transfers between designated zones.
Shortfalls while goods are under customs suspension.

B. Exception and Relief from Excise Tax

The Executive Regulation provides an exception to the general rule, allowing warehouse keepers responsible for excise goods to seek relief from excise tax in limited cases. This relief is contingent upon adherence to specific processes and criteria set forth by the FTA.

C. Conditions for Relief

To obtain relief from excise tax for deficient or missing excise goods within a designated zone, the following conditions must be met:

Notification to the FTA within 30 days of discovering the deficiency or shortage.
FTA acceptance of the deficiency or shortage being due to a legitimate cause.

D.Process for Obtaining Relief

To request excise tax relief and approval for the destruction of excise goods, warehouse keepers must submit a declaration via the FTA’s e-Services Portal using Form EX203B (Lost and Damaged Declaration). The process involves the following steps:

Submission of Declaration: The taxable person (goods owner) completes and submits Form EX203B.
Warehouse Keeper Approval: The warehouse keeper must approve the declaration before it is forwarded to the FTA.
FTA Review: The FTA assesses the request and supporting documentation.
Decision within 30 Days: The FTA responds with either approval, partial relief, or rejection.

Information Required in the Declaration

The declaration must include the following details:

TRN (Tax Registration Number) of the goods owner.
Registration number of the warehouse keeper.
Location of planned destruction (if applicable).
Reference number of the designated zone where the goods are held.
Date of entry of goods into the designated zone.
Date deficiency, damage, or shortage was discovered.
Reason for deficiency/shortage and justification for destruction approval.
Supporting evidence validating the request.
Description of excise goods, including item codes.
Value of excise tax due on those goods.

For additional supporting information, businesses can reach out to the FTA via deficiencyandshortage@tax.gov.ae.

E. Legitimate Causes for Relief

The FTA will approve relief requests only if the shortage or deficiency results from one of the following legitimate causes:

1. Force Majeure
Circumstances beyond the control of the warehouse keeper or taxable person, such as:

Natural disasters (floods, fires, earthquakes).
Theft (supported by a police report).
Other unforeseen events impacting goods.

2. Natural Wastage and Shortage

Spoilage or contamination due to natural causes (e.g., storage conditions).
Loss of moisture affecting weight or volume.
Goods becoming unfit for consumption before sale.

3. Wastage in Production

Shortages occurring as part of a manufacturing process.
Acceptable wastage thresholds determined based on industry norms.
If wastage exceeds thresholds, further justification is required.

F. Supporting Documentation

The FTA requires valid supporting documentation to process relief requests, such as:

Force Majeure: Police reports, Civil Defence reports, insurance claims, photographic evidence.
Natural Wastage: Photographic proof, expiry records, storage condition logs, inventory reports.
Production Wastage: Production records, input-output logs, manufacturing formulas.

The FTA may conduct an audit if wastage levels exceed acceptable thresholds.

Destruction of Excise Goods
If excise goods require destruction within a designated zone, prior approval from the FTA is mandatory. Destruction should not commence until the FTA grants permission, as it may require inspection beforehand.

Key Rules for Destruction

Affected goods must be held for at least 30 days after notification unless earlier destruction is permitted.
If the FTA opts to inspect the goods, destruction must be postponed until after the inspection.
If no FTA response is received within 30 days, the warehouse keeper may proceed with destruction.
A Destruction Certificate must be provided as evidence to claim excise tax relief.

FTA Response and Assessment

The FTA will review the submitted declaration and respond within 30 days. Possible outcomes include:

1. Approval of full or partial relief if a legitimate cause is established.
2.Rejection if the cause is not deemed legitimate or if the declaration was not submitted within 30 days.
3.Inspection Request before allowing relief or destruction.

Conclusion

Understanding and adhering to the UAE’s excise tax regulations on wastage and destruction of excise goods is essential for businesses operating within designated excise tax zones. The FTA has established a well-defined process for obtaining relief, but compliance with strict timelines, documentation requirements, and approval procedures is crucial.
Warehouse keepers and taxable persons should maintain meticulous records and act promptly when dealing with excise goods shortages or destruction to avoid unnecessary excise tax liabilities. Consulting with tax experts and staying updated with FTA guidelines can further ensure compliance and optimal tax treatment of excise goods within the UAE.