Old Provisions

New Provisions

ITC’s Analysis

Official Evidence:

An export certificate issued by one of the customs departments in the State or a clearance certificate issued by

any of these departments or competent authorities in the

State regarding Excise Goods leaving the State after verifying

their departure from it, or any document or clearance

certificate certified by the competent authorities in the

country of destination stating the entry of the Excise Goods.

The introduction of three new terms which are defined in the Decree-Law, seeks to provide clarity on the set of documents taxpayers must possess for transactions undertaken-particularly export of goods,

While the old provisions of the Decree-Law remained silent on the area, the Decision specifies the list of supporting documents to be held by the taxpayer, which seem to be line with global tax regimes and best practices.

The incorporation of the additional definitions would further assist taxpayers in holding the adequate level documents set forth by the law for the exports undertaken and thus removes any ambiguity in terms of what constitutes sufficient levels of documentation.

Shipping Certificate:

The document issued by sea, air or land transport companies and agents proving the transfer and departure of Excise Goods from the State to outside the State

Commercial Evidence:

The document issued by sea, air, or land transport companies

and agents, which proves the transfer and departure of Excise

Goods from the State to outside the State, and includes any of

the following documents:

1. Air waybill or air manifest.

2. Sea waybill or sea manifest.

3. Land waybill or land manifest

Old Provisions

Amended Provisions

ITC’s Analysis

(3) If the Authority rejects the Tax Registration Application, the Person may:

a.      Request a reconsideration according to the procedures stated in Article (27) of Federal Law No. (7) of 2017 referred to.

b.      Submit another Tax Registration Application under Article (3) of this Decision

(3) The Authority’s rejection of the Tax Registration application shall not preclude the compliance of the Person to the provisions of the Decree-Law and this Decision, including making another application for Tax Registration when the Tax Registration conditions are met

Clause 3 of Article 5 of the newly published law makes it clear that should FTA reject an application submitted for tax registration by an applicant, the rejection does not provide the applicant the liberty to remain non-compliant with the excise tax regulations set forth by the Decree-Law.

This shifts the burden on the applicant to remain compliant with the regulations in comparison with the prior provisions of the Decree-Law which allows for only two alternatives in the event of a registration application being rejected.

Therefore, it is of utmost importance that business owners who intend to set up an entity involved in conducting excisable activities/ commence excisable activities in addition to their existing operations to understand the complexities surrounding Excise Tax in UAE.

Old Provisions

New Provisions

ITC’s Analysis

(5) The Authority may deregister the Registrant without him submitting a request to do so in the following two cases:

a)      if it finds that the Registrant is no longer responsible for the Tax in accordance

with the provisions of this Decision, or

b)     if maintaining the Tax Registration would prejudice the integrity of the Tax

system, in accordance with the controls specified by the Authority in this regard

The amendments to the Decree-Law equip FTA to de-register an existing registration of a taxpayer, even without the taxpayer having to submitting a de-registration application if the Authority identifies that the taxpayer does not fall under the scope of excise tax such as those listed under Clause 2 of Article 2 of the Decree-Law during the preceding 6-month period.

However, the law also provides the taxpayer the opportunity to reverse the de-registration process triggered by FTA if the registrant is able to sufficiently prove that he intends to undertake excisable activities within the subsequent 6-month period

(6) The Authority must inform the Registrant of the Tax deregistration or the initial

approval of the request to deregister, within (5) five business days from the date

of the Tax deregistration that occurred in accordance with Clause 5 of this Article or the issuance of the initial approval for its deregistration, as the case may be.

While the law remains silent on the penalties imposed on taxpayer in the event that FTA triggers a de-registration process on the taxpayer’s registration, it is crucial for the taxpayer to review its business operations and whether it falls under the scope of excise tax regime.

Old Provisions

New Provisions

ITC’s Analysis

(4) A Person, in the course of conducting business, shall keep audited records and showing the quantity of his stock of Excise Goods from the date the Decree-Law comes into force, for the purposes of ascertaining the stock of Excise Goods.

(4) A Person, in the course of conducting Business, shall keep audited records and showing the quantity of his stock of Excise Goods from the date the Decree-Law comes into force on such Excise Goods, for the purposes of ascertaining the stock of Excise Goods.

(5) In the event that a Person does not maintain audited records in accordance with above clause, the Authority may consider the Person’s entire stock of Excise Goods as excess Excise Goods and the Tax is due on them in full.

Addition of Clause 5 into the Decree-Law mandates stockpilers to hold audited records for the stock held within their respective Designated Zones.

In case the Stockpiler is not able to furnish the audited stock records upon request by the FTA, the Authority may consider the entirety of remaining stock as “Excess Goods”, ergo triggering a tax liability for the value of remaining stock.

Hence, it may be imperative for Stockpilers to hold audited stock records which also includes for the stockpile calculations and records for tax due paid on the “excess excise goods”.

Old Provisions

New Provisions

ITC’s Analysis

(3) Excise Goods shall be treated as leaving a Designated Zone and enter free circulation when they are found to be deficient or there is a shortage in their quantity from a Designated Zone or during transfer between Designated Zones or whilst held in a suspension arrangement in

accordance with the Customs Laws

(5) As an exception to paragraph (d) of Clause 3 of this Article, release of Excise Goods for consumption is not deemed to have occurred if:

(b) there is a natural shortage in the quantity of Excise Goods in a Designated

Zone, where all of the following conditions are met:

1)     the shortage is as a result of the natural characteristics of the good and meets the standards and controls specified by the Authority,

2)     the owner of the Excise Goods and the Warehouse Keeper notify the Authority of the shortage resulting from natural characteristics, in accordance with the procedures and mechanisms approved by the Authority in this regard, and

3)     the owner of the Excise Goods and the Warehouse Keeper keep documents proving the shortage resulting from the natural characteristics of the goods and submit them to the Authority upon request.

The addition of Clause 5(b) to Article 12 of the Decree-Law allows for natural forms of shortages identified in stock of excise goods within a Designated Zone, due to the nature of items held (such moisture loss, evaporation loss etc.) not being treated as ‘released for consumption’ and tax to be paid therein.

Addition of this clause would positively benefit taxpayers, especially producers of excisable goods such as tobacco and tobacco products, who regularly incur shortages due to the nature of raw materials used in production.

The additional clause in the Decree-Law states that the shortage identified must be in line with the standards and controls specified by FTA.

However, the law remains silent on the specific control and measures provided by FTA, which has not been provided under the Cabinet-Decision released.

It is also worth noting that the introduction of the new clause particularly relates to the shortage occurred due to natural causes only. The reporting requirements for the waste identified remain the same.

Old Provisions

Amended Provisions

ITC’s Analysis

(2) A direct Export shall be exempt from Tax if

a.      Official and commercial evidence of Export is retained by the Exporter.

(2) A direct Export shall be exempt from Tax if

a. The Exporter retains any of the following:

1.      a customs declaration, and a Commercial Evidence that proves the Export,

2.      A Shipping Certificate and an Official Evidence that prove the Export,                                   or

3.      A customs declaration that proves the suspension arrangement of customs duties.

One of the key amendments brought forth to the Decree-law is the definitions surrounding Official and Commercial Evidence (Refer Table 1 for Article 1) and the list of documents accepted by FTA in order to approve for the export of goods.

With the amendments brought forth with the issuance of the new Cabinet Decision, the FTA specifies the list of documents required to evidence the export of goods from the State in order to streamline the process of claiming export exemptions by taxpayers and having a standardized set of requirements, thus attempting to minimize the ambiguities resulting from the prior provision of the Decree-law

(3) An indirect Export shall be exempt from Tax if

b.     the overseas customer obtains official and commercial evidence of Export, and provides the

supplier with a copy of this;.

(3) An indirect Export shall be exempt from Tax:

c.      the Overseas Customer obtains any of the following and provides it to the supplier:

1.      a customs declaration, and a Commercial Evidence that proves the Export,

2.      a Shipping Certificate and an Official Evidence that prove the Export, or

3.      a customs declaration that proves the suspension arrangement of customs duties

(5) The Authority may specify alternative forms of

evidence according to the nature of the Export or the nature of the goods being exported.

(4) The Authority may decide not to accept the documents submitted if they do not constitute sufficient evidence of the exit of the Excise Goods from the State, and may specify

alternative forms of evidence according to the nature of the Export or the nature of the Excise Goods being exported

With the amendments said to take place, the new Cabinet Decision provides FTA the authority and discretion to reject the documents submitted in addition to specifying alternative forms of evidence.

This tightens the need for taxpayers to hold all the relevant supporting documents necessary, such as those listed in the above section, to prove the export of goods.

(5) Customs departments must verify the type and

quantity of exported Excise Goods with the export documents issued thereby

according to their customs procedures in force, and based on the classification of

the tax risk matrix that is specified in coordination with the Authority

With the addition of the clause into the Decree-law, the relevant Customs Authority is now required to inspect the goods being exported against the supporting documents specified in Clause 2 and 3 of the Article in accordance with the relevant customs procedures in force.

ITC anticipates that this may lead to additional lead time for businesses to export goods as they are now required to be inspected by the customs authority prior to their departure from the state.

Once the goods are inspected with the relevant supporting documents, the customs authority provides an inspection stamp on the exit certificates, which would play a vital role in accordance with Clause 5 of Article 14.

The inspection process may deem further inspection costs to be incurred on part of the taxpayer.

Old Provisions

Amended Provisions

ITC’s Analysis

(4) The Authority may request a financial guarantee for the registration of each Designated Zone as it specifies.

(4) The Authority may request a financial guarantee upon registration of a Designated Zone or upon its registration renewal or amendment as specified by the Authority in this regard.

With the revisions made to Clause 4, the revised Decree-law states that the FTA may ask for a financial guarantee upon such events of registration, renewal, or amendment of Designated Zones.

The amendments to Clause 4 of the article may have been the resultant of the release of two public clarifications by the FTA namely EXTP010 and EXTP008, which covers topics such as the calculation of financial guarantees, monitoring average stock within Designated Zone etc.

(5) The Designated Zone will be treated as if it were within the State if it changes its operating mechanism or violates any of the conditions upon which it was specified as a Designated Zone

On the event that the DZ fails to meet the conditions specified in Clause 2,3,6,9 of the Decree-law, the DZ will no longer receive preferential tax treatments and the goods stored within the DZ will be considered as released for consumption, which would then trigger a tax liability.

This is to ensure stringent reporting and regulatory requirements are being adhered to by the Warehouse Keeper during the management of activities conducted within the Designated Zone.

(9) The Warehouse Keeper shall be required to retain documentary evidence as

specified by the Authority on:

(g) The value and quantity of Excise Goods subject to deficiency or shortage and

that which was or will be destroyed.

Old Provisions

Amended Provisions

ITC’s Analysis

(6) Any deduction of Tax will be subject to the conditions or evidence requirements specified by the Authority

(6) In the event that the Tax is deducted in accordance with paragraphs (a) and (b) of

Clause 5 of this Article, any of the following must be submitted:

a.      a customs declaration, and a Commercial Evidence that proves the Export, or

b.      Shipping Certificate and an Official Evidence that prove the Export

With the amendments brought forth with the issuance of the new Cabinet Decision, the FTA specifies the list of documents required to evidence the export of goods from the State in order to streamline the process of

claiming export exemptions by taxpayers and having a standardized set of requirements in an attempt to minimize the ambiguities as per the prior provision of the Decree-law

(8) For the purposes of this Article, the Taxable Person is considered to have paid the

Tax in the following two cases:

a.      purchasing goods that were subject to Tax and on which the Tax has been paid,

             or

b.      the right to deduct Tax arising in the same Tax Period for which the Tax is due.

The addition of Clause 8 could be linked with Clause 1 of Article 2 of the Decree-law wherein the onus of the liability to pay tax may shift to related parties such as a member of the supply chain, investors, or owner of excisable goods.

Thus, it is imperative that businesses involved in the purchase of excisable goods from within the State or goods for which tax has been paid for, hold sufficient records evidencing the payment of tax for the goods purchased.

Old Provisions

New Provisions

ITC’s Analysis

(3) If a non-Taxable Person who is conducting business, directly exports Excise Goods

for which Tax was previously paid by a Taxable Person, he may submit a refund

application subject to the following conditions:

a.      The Excise Goods are physically exported to a place outside the State,

b.      He submits evidence proving payment of Tax on the Excise Goods in the State, provided such evidence proves the amount of paid Tax,

c.      He retains any of the following:

1.      Customs declaration, and a Commercial Evidence that proves the Export,

          OR

2.      A Shipping Certificate and an Official Evidence that proves the Export.

d.      the Excise Goods are not used, partially or fully, or altered in the time between supply and Export, except to the extent necessary to prepare the Excise Goods for Export

Previously, only registered taxpayers had been permitted to claim refunds for goods which have been exported.

The additional provision brought forth to the Decree-law may be positively received by non-taxable persons, who are involved in the purchase of local purchase of excisable goods and subsequent exports of the same.

With the additional provisions of the Decree-Law, non-registered persons may be allowed to submit refund requests, provided he meets the criteria specified under the Clause 3 and 4 of this Article, depending on the nature of exports undertaken by the person.

This clause may also promote prospective business owners undertaking activities of similar nature to commence operations within UAE, without the tax laden of not being able to claim the excise tax paid on the goods which had been locally sourced and subsequently exported.

A key point to note here is that Clause 3 and Clause 4 of this Article will come into effect only from 1^st June 2024, unlike the other amendments listed above.

(4) If a non-Taxable Person who is conducting business, indirectly exports Excise

Goods for which Tax was previously paid by a Taxable Person, he may submit a

refund application subject to the following conditions:

a.      the Overseas Customer physically Exports the goods supplied to a place outside the State,

b.      he submits evidence proving payment of Tax on the Excise Goods in the State, provided such evidence proves the amount of paid Tax,

c.      he obtains from the Overseas Customer or his representative any of the following and submits a copy to the supplier:

1.      a customs declaration, and a Commercial Evidence that proves the Export,

       OR

2.      Shipping Certificate and an Official Evidence that prove the Export.

d.      the Excise Goods are not used, partially or fully, or altered in the time between supply and Export, except to the extent necessary to prepare the Excise Goods for Export