In the United Arab Emirates, all designated areas must have a Warehouse Keeper who is responsible for supervising the Designated Zone’s activities and ensuring that it adheres to the necessary safety and security standards. To be eligible for this role, a Warehouse Keeper must submit an application to the Federal Tax Authority for authorization to oversee the Designated Zone.
Starting from April 1, 2023, this statement offers additional information about the requirements and standards necessary to register as a Warehouse Keeper or to renew the registration of a Designated Zone. It elaborates on the conditions and criteria that must be met.
Reference from the Law:
The following Clarification issued by the FTA is meant to simplify certain aspects related to the implementation of the Federal Decree-Law No. 28 of 2022 on Tax Procedures, Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, and their Executive Regulations.
In this explanation, Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, is referred to as “Decree-Law”, and Cabinet Decision No. 37 of 2017 on the Executive Regulation of the Federal Decree-Law No. 7 of 2017 on Excise Tax is referred to as “Executive Regulation”.
Anyone who manages or plans to manage a Designated Zone for excise tax purposes (also called an “excise”) must enroll as a Warehouse Keeper and enroll each of the Designated Zones that they oversee or intend to supervise. As a component of the Designated Zone’s registration or renewal of registration application, the Warehouse Keeper must:
What happens when the conditions are not met?
Not fulfilling these conditions could lead to the denial of a new application or suspension of the registration of the Designated Zone, resulting in the cessation of all imports of excise goods and the production of goods in the Designated Zone.
The registration of the Designated Zone is valid for 12 months and must be renewed before the expiration of this term. And, if the Warehouse Keeper fails to renew the registration of the Designated Zone before the end of the 12-month period, the status of the Designated Zone’s registration will first become “suspended” for 20 business days and then “expired.”
If the Warehouse Keeper is requested to give a financial guarantee or an updated financial guarantee, it should be provided within 40 business days. Failure to do so within the designated time frame will result in the rejection of the registration application or the suspension/expiration of the registration of the Designated Zone.
Detailed Analysis from the FTA:
If the regulations for a Designated Zone are not followed, or if the renewal application is not submitted in a timely manner, the registration of a Designated Zone can become “suspended” or “expired.” During the suspension period, the following rules apply:
After the suspension period has ended, before which Designated Zone registration has not been renewed, it will expire, and all excise goods within the Designated Zone will be deemed to have been released for consumption. Excise Tax should then be accounted for these goods. The EmaraTax portal will be used by the FTA to notify the Warehouse Keeper of the suspension or expiration of the Designated Zone registration.
It is necessary for the Warehouse Keeper to identify the types of excise goods that are currently stored or will be stored in the Designated Zone.
Once the registration or renewal application is approved, the Warehouse Keeper must monitor the average month-end stock for the following six months and inform the FTA if it increases by more than 20% of the originally reported quantity at the time of registration or renewal as the case may be.
For example, a Designated Zone was registered effective from April 2023. At the time of registration, the average month-end holding stock of excise goods was 50,000 units. The month-end stock for the following 6 months in 2023 was:
According to the information provided, the average month-end stock of excise goods has increased to 80,000 units, which is 60% higher than the previously declared quantity of 50,000 units. Since this increase exceeds the 20% threshold, the Warehouse Keeper must inform the FTA via the EmaraTax portal.
Once notified, the FTA will increase the financial guarantee for that Designated Zone accordingly.
The FTA places great importance on physical security when determining whether to approve a Warehouse Keeper’s request to supervise a Designated Zone. During the review of the registration or renewal application, the FTA may inspect the Designated Zone site to confirm that strict and sufficient security measures have been implemented to manage, monitor, and protect excise goods that have not yet been subject to Excise Tax.
The applicant is responsible for providing enough evidence to demonstrate that they meet the following physical security standards:
FTA’s approval for registration does not demand meeting all criteria. The officer assesses evidence and physical inspection to determine if minimum physical security requirements are met. If not, applicant is given 20 business days to implement necessary measures, else FTA may reject the application for registration or renewal.
If the FTA finds during an inspection that any of the physical security measures are missing in the registered Designated Zone, the Warehouse Keeper will be informed to make improvements within 20 business days. Failure to do so will result in the registration status being suspended for 20 business days, and the imposition of administrative penalties.
The Warehouse Keeper needs to have a stock and record management system that keeps track of all excise goods entering and leaving the Designated Zone. An accounting and inventory management system is recommended to provide a clear audit trail. The system must be able to identify:
If the stock and record management system doesn’t meet the requirements, the FTA may reject the registration request. The FTA may ask the applicant to implement the necessary measures within 20 days, and failure to do so may lead to rejection. If the FTA finds an insufficient system during an inspection, the Warehouse Keeper will be notified to take action within 20 days, and failure to do so may result in suspension of the registration status, penalties, and restrictions.
Warehouse Keepers are permitted to register a Designated Zone for a 12-month period, and the registration must be renewed every 12 months. To renew the registration, the Warehouse Keeper can complete and submit the renewal form available on the EmaraTax portal at least 20 business days before the expiry date.
If the renewal application is not submitted within this period, the Designated Zone’s registration will be suspended for 20 business days and the consequences outlined above will apply. If the renewal application is still not submitted within the suspension period, the Designated Zone will expire. If the Warehouse Keeper wishes to continue operating the expired Designated Zone, they must submit a new application to register the DZ that expired due to late renewal.
After the FTA approves an application for registration or renewal of a Designated Zone, they will notify the applicant of the amount of financial guarantee required for each area. The applicant must provide this guarantee within 40 business days, and it needs to be renewed every 12 months. If they fail to do so, their application will be rejected.
The required financial guarantee may be adjusted after registration, and the updated guarantee must be submitted within 40 business days to maintain the registration status. If the updated guarantee is not submitted within this time limit, the registration status will become “suspended” for 20 business days. If no updated guarantee is submitted by the end of the suspension period, the registration will expire, and all excise goods will be considered released for consumption, and Excise Tax should be paid for these goods.
This article was published on 10 March 2023
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