Following a critical update, the Federal Tax Authority (FTA) has issued Decision No. 6 of 2025, effective from 1 July 2025. This decision resolves the long-standing issue of regulatory clarity surrounding the handling of natural shortages in excise goods.

This article offers an in-depth analysis of the new decision, its impact on businesses in the UAE, and how to achieve full compliance in the ever-changing excise tax landscape.

Understanding Excise Tax in the UAE

Excise tax in the UAE was introduced to reduce the consumption of goods that are harmful to human health or the environment. It currently applies to products such as:
– Tobacco and tobacco products
– Carbonated drinks
– Energy drinks
– Sweetened beverages
– Electronic smoking devices and liquids

Businesses involved in importing, producing, storing, or distributing these goods must register for excise tax and meet strict reporting and payment requirements.

What Is a Natural Shortage?

What we mean by a natural shortage is the unavoidable reduction in the quantity of excise goods during production, transport, or storage due to natural causes, like:

– Evaporation

– Spillage

– Temperature-related volume change

– Expiry or degradation over time

These losses are common in industries that handle liquids, chemicals, or perishables. Until now, there hasn’t been clear guidance on how to tax these losses, which has caused some uncertainty over compliance.

FTA Decision No. 6 of 2025 – Key Highlights

Introduced in mid-2025, Decision No. 6 lays out a clear framework for reporting and explaining natural shortages. The key points are as follows:

1. Mandatory Documentation

Businesses need to keep detailed records of natural shortages, including:
– The type and quantity of excise goods
– The nature and reason for the loss
– The methods used to determine the shortage
– Supporting evidence, such as technical reports or environmental data

2. Predefined Allowable Thresholds

FTA may publish acceptable shortage thresholds for particular goods or activities. If shortages fall within these limits and are properly documented, they may be exempt from excise tax liability.

3. Approval for Excessive Losses

Businesses must seek prior approval and submit a detailed justification if the loss exceeds FTA-defined thresholds, to avoid tax penalties.

4. Time-Bound Reporting

Excise businesses must report shortages within a specified timeframe after they’re discovered. Failing to report in time can lead to fines or having the exemption denied.

5. Enhanced Audit Powers

FTA reserves the right to audit and verify any claims related to natural shortages. Inaccurate or unsubstantiated claims may result in reassessments or administrative penalties.

Implications for UAE Businesses

FTA Decision No. 6 marks a shift towards greater accountability in excise tax compliance. For businesses operating in regulated sectors, this involves:
– Implementing accurate tracking systems
– Putting internal controls in place to monitor inventory flow
– Being prepared for regular audits to defend shortage claims
– Providing staff training on new documentation and reporting processes

Failing to comply could lead to substantial financial exposure, reputational damage, and regulatory scrutiny.

How German FinTax Consultancy Can Help

Understanding the complexities of excise tax regulations can be tough—particularly when dealing with new updates like Decision No. 6. At German FinTax Consultancy, we specialize in tailored tax advisory for UAE-based businesses.

Here’s how we can help:
– Excise Tax Compliance Reviews: Ensure your operations, inventory systems, and reporting frameworks meet FTA standards.
– Documentation & Reporting Support: Prepare and organise the necessary evidence to justify natural shortages effectively.
– Threshold Assessment & Risk Mitigation: We analyse your goods and processes to determine acceptable loss levels and help you avoid unapproved claims.
– FTA Representation: We liaise with the FTA on your behalf for approvals, clarifications, and dispute resolution.
– Training & Internal Controls: Equip your team with the tools and knowledge to stay compliant in real time.

German FinTax Consultancy combines technical expertise, local experience, and a proactive approach to ensure you’re always one step ahead of regulatory changes. With Decision No. 6 coming into effect from 1 July 2025, now is the time to act.