[Global IDT Insights] UAE Clarifies Excise Treatment of Natural Shortages

Editorial Team – [2026] 184 taxmann.com 686 (Article)

Global IDT Insights provides a weekly snippet of tax news specifically related to Indirect Taxes from around the globe.

1. UAE Issues Public Clarification on Treatment of Natural Shortage of Excise Goods Within Designated Zones

The United Arab Emirates (UAE) has issued a public clarification regarding the treatment of natural shortages in excise goods within a designated zone (DZ). The clarification explains when excise goods shall not be considered ‘released for consumption’ in the event of a natural shortage, provided the relevant conditions are met. It also outlines standards, controls, and procedures in line with the Federal Tax Authority (FTA) Decision No. 6 of 2025.

This clarification focuses on shortages arising during production, storage, or transportation of excise goods within a DZ due to the natural characteristics of such goods. It also defines the process for determining the percentage of natural shortage, reporting obligations, and conditions for its treatment.

The following are the key aspects of the clarification issued by UAE:

(a) Natural shortage not treated as ‘release for consumption’

Excise goods are generally treated as released from a DZ and entered into free circulation when there is a shortage or deficiency during transfer between DZ or under a suspension arrangement. However, a natural shortage within a DZ is not considered a release for consumption in certain situations.

A shortage qualifies as natural if it occurs during production, storage, or transportation within a DZ, is beyond the control of the relevant person due to the nature of the goods, and makes it impossible to release the goods for consumption. Losses caused by negligence, theft, or operational inefficiencies are not considered natural shortages.

(b) Examples of circumstances where natural shortage may occur

Natural shortage may result from the characteristics of excise goods and normal operating conditions. Examples include:

• Reasonable levels of moisture loss or evaporation not due to negligence.
• Irretrievable residues in containers or distribution equipment.
• Losses within production machinery under normal operating conditions.

(c) Requirement to obtain a report from an independent competent entity

The warehouse keeper or taxable person producing/storing excise goods within a DZ may request an ‘Independent Competent Entity’ (ICE) approved by the FTA to determine the percentage of natural shortage along with the required documents.

The ICE reviews the request in accordance with prescribed standards and controls and issues a report based on inspection and actual data. The report specifies details of the excise goods and the permissible, expected, or actual percentage of natural shortage. This report remains valid for one year from the date of issuance.

(d) Determination process and inspection

The ICE may conduct visits to the relevant person’s warehouses or factories. The percentage of natural shortage is determined based on inspection and actual data covering at least the six previous months.

If historical data is unavailable (e.g., new factories, production lines, or products), the percentage is determined based on inspection and available data. The FTA will publish a list of approved ICEs.

(e) Declaration and notification requirements

Upon obtaining the report, the relevant person is required to notify the FTA of the actual natural shortage by submitting a declaration on the EmaraTax platform. The declared percentage must not exceed the percentage specified in the report. The declaration may cover multiple tax periods, provided it does not exceed six months. While prior approval from the FTA is not required, all supporting documents must be retained for record-keeping purposes.

(f) Treatment when declared shortage exceeds report

Where the declared natural shortage exceeds the percentage specified in the report, such excess is treated as release for consumption, and the relevant person is liable to pay excise tax on the amount exceeding the report. Any shortage not classified as natural must follow the standard procedure by following the normal process (i.e., by way of submitting a lost and damaged goods declaration).

(g) Record keeping requirements

The relevant person must retain documents proving natural shortage and provide them to the FTA upon filing the declaration. Examples of such documents includes:

• Manufacturing process details and stages where shortage may occur
• Production formula and expected shortage percentage normally incurred accompanied with supporting documents for previous periods
• Manufacturing equipment details and operating manuals
• Report issued by ICE and actual data for a period of no less than 6 previous months (if applicable).

(h) Applicability limited to DZs

This process is applicable only to persons operating within a DZ. Taxpayers operating outside DZ are not eligible to claim relief or request a refund of excise tax on any shortage. Additionally, submission of a declaration for natural shortage requires a valid report issued by an approved ICE.

(i) Validity of the Report and renewal procedure

Reports issued by the ICE are valid for up to one year from the date of issuance of such report, provided there are no material changes affecting the natural shortage percentage. In case of such changes, the relevant person is required to inform the ICE within 20 business days and request a new report.

Upon expiry, a fresh report must cover the actual shortage for the preceding twelve months as well as the expected or permissible shortage percentage for the next twelve months. The FTA and the ICE may conduct verification visits to ensure the accuracy of the reported figures.

(j) Transitional provisions

Reports issued within six months from 01-07-2025 (up to 31-12-2025) are deemed valid from 01-07-2025 until 30-06-2026.

Source – Official Public Clarification

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