Cabinet Decision No. 108 of 2023 on Amendments to Excise Tax Regulation

27 November 2023- On 6 November 2023, the United Arab Emirates (UAE)’s Cabinet of Ministers issued Cabinet Decision No. 108 of 2023 to amend certain provisions of Cabinet Decision No. 37 of 2017 on the Executive Regulation of the Federal Decree-Law No. 7 of 2017 on Excise Tax (Excise Tax Executive Regulation), with the amendments set to become effective on 1 December 2023 (Amended Executive Regulation). The publication of the updated Excise Tax Executive Regulations follows the issuance of Federal Decree-Law No. 19 of 2022 which amended the Federal Decree-Law No. 7 of 2017 on Excise Tax which was issued on 26 September 2022 and came into effect from 14 October 2022.

This represents the first major change to the Excise Tax Executive Regulations since they came into effect in October 2017, and sees the UAE Government address certain challenges faced by the business community impacted by Excise Tax. In particular, these changes will be welcomed by non-Excise Tax registered exporters who deal with locally purchased Excise Goods, as the changes have opened up the opportunity for those businesses to receive refunds of Excise Tax which were previously unavailable. 

The refund available falls under the category of tax refunds in special cases, indicating this will be a refund which can be obtained via a specific refund process as opposed to a Tax Return. More details on the exact mechanism of these refunds are awaited, but impacted businesses should start to review their operations and quantify the potential available for Excise Tax refunds. 

Similarly, another notable change sees the introduction of the concept of “natural shortage” of Excise Goods, which will no longer be considered to be a release for consumption where not declared – whilst reporting requirements will still apply in such cases, this will be a welcome change from a compliance perspective. 

The key changes introduced by the Amended Executive Regulation have been summarized below:

Introduction of New Definitions

Article 1 of the Amended Executive Regulation has introduced additional definitions which are to be appended to the Definitions set forth in Federal Decree-Law No. (7) of 2017 on Excise Tax (Excise Tax Law). 

Three new terms have been introduced in Article 1 under 'Definitions': "official evidence," "commercial evidence," and "shipping certificate" which effectively mirror the definitions of the terms as set out in the UAE VAT legislation. These additions provide clarity and specificity to key concepts within the regulation.

Authority for FTA to enact forced Deregistration

As per provisions (2) and (5) of Article 6 of the Amended Executive Regulation, the Federal Tax Authority (FTA) is now empowered to forcefully deregister an Excise Taxable Person in the event where they cease to conduct activities which trigger an Excise Tax liability within 6 months from the date they cease to conduct such activities, unless it is proven that they have an intention to resume conducting such activities in the coming 6 months.

Audited Reports and Stockpiled Excise Goods

As per Article 11 (5) of the Amended Executive Regulation, the failure to maintain audited reports for stockpiled Excise Goods may lead to the FTA considering the entire inventory as "excess," triggering full Excise Tax liability. This will have a particular impact during Excise Tax audit activity, in the event where taxpayers are unable to provide an audited stockpiled goods report upon request.

Exemption on the payment of Excise Tax for goods where Natural Shortages may occur

As per Article 12 (5) (b) of the Amended Executive Regulation, Excise Goods are no longer considered ‘released for consumption’ in cases of natural shortage, subject to meeting specified requirements. This change, in particular will be welcomed by producers of Excise Goods within designated zones, particularly producers of tobacco products, who have faced challenges in cases of shrinkage or moisture evaporation of products during storage. Notably, this change relates only to shortages which occur naturally in products, and the requirement to report other shortages or wastage of goods e.g., during a manufacturing process, will remain. 

Introduction of detailed Export Exemption Requirements

As per Article 14 of the Amended Executive Regulation, supporting documentation requirements for exempting an export of Excise Goods from Excise Tax have become more detailed in comparison to the previous Executive Regulation. The clause now sets out the types of documents which are required in order for direct and indirect exports to be exempt from Excise Tax. 

In addition, for exported Excise Goods, the relevant Customs Departments are now required to match the type and quantity of such goods against the export documents issued by them, according to the Customs procedures in force and based on the classification of the tax risk matrix determined in coordination with the FTA. This is indicative of the FTA’s focus on export transactions in general for indirect taxes, where particular focus is had on evidencing the export of goods from the UAE in order to apply export provisions such as exemption from Excise Tax or zero-rating for VAT purposes. 

Excise Tax Designated Zones Compliance

As per Article 15 of the Amended Executive Regulation, Excise Tax Designated Zones failing to comply with conditions and requirements will now be treated as mainland UAE for Excise Tax purposes.

Deductible Excise Tax for Exported Goods

As per Article 16 of the Amended Executive Regulation, Deductible Excise Tax for exported Excise Goods is now subject to similar evidentiary requirements as those for exempting exported goods.

Refund for Non-Taxable Persons Exporting Excise Goods

As per Article 22 of the Amended Executive Regulation, Persons not classified as taxable persons for Excise Tax purposes can request a refund of previously paid Excise Tax on goods exported outside the UAE, effective from June 1, 2024, subject to compliance with evidentiary requirements. Again, this change will also be welcomed by industry as it will open a route for traders in Excise goods who purchase locally for export only, to seek to obtain an Excise Tax refund. Previously, this ability was restricted only to those entities which were required to be registered for Excise Tax purposes due to import, production, stockpiling, or releasing goods from a designated zone.

These amendments signify a significant update to the Excise Tax landscape in the UAE. Many of the changes made are either designed to formalize the trends we have seen the FTA apply when conducting Excise Tax Audits on impacted taxpayers, but also recognize the need to provide relief to certain compliance challenges which have been faced by businesses in the past. As such, it is crucial for businesses to review their operations and compliance strategies in light of these changes.