The Federal Tax Authority (FTA) formally lists FTA Decision No. 6 of 2025 on Standards, Controls and Procedures for Dealing with Shortage in Excise Goods and its amendment on its legislation portal, with the amendment published on January 29, 2026.
These Decisions introduce a formal, evidence-based framework for recognising natural shortages of excise goods within Designated Zones, replacing informal or discretionary treatment previously observed in practice.
Table of Contents
What the Original Decision (No. 6 of 2025) Covers
Definition and Scope
A Natural Shortage is defined as a loss of excise goods arising from their inherent physical characteristics (such as evaporation, shrinkage, or residue) occurring during manufacture, storage, or transportation within a Designated Zone, where:
• the loss is beyond the control of the taxable person; and
•the goods cannot be released for consumption because of that loss.
Where these conditions and the prescribed reporting requirements are met, such shortages are not treated as a release for consumption for Excise Tax purposes.
Mandatory Independent Assessment
Warehouse keepers and excise-registered businesses must obtain a report from an FTA-approved Independent Competent Entity (ICE) to:
• determine the permissible natural shortage percentage for each excise product; and
• support that percentage with actual operational data (generally based on at least six months of records, where available).
This report sets the maximum permissible loss percentage that may be applied for Excise Tax purposes, and the declared shortage must not exceed the approved percentage.
Independent Competent Entity (ICE) Explained
An Independent Competent Entity (ICE), as defined under the Decision, refers to laboratories approved by the FTA to which warehouse keepers and taxable persons submit requests to determine the permissible natural shortage percentage for excise goods.
Practically, an ICE is an accredited laboratory or technical body that conducts scientific inspections, sample testing, and operational reviews (including production, storage, and transport conditions) to quantify natural loss percentages. The FTA, in coordination with entities such as the Central Testing Laboratory of the Abu Dhabi Quality and Conformity Council (QCC), has accredited such technical bodies to provide data-driven, objective reports that support natural shortage claims.
These reports are critical because they provide a credible, technical basis for permissible loss percentages, replacing prior informal or self-assessed methodologies.
Documentation and Reporting Requirements
Businesses must maintain adequate documentation to support natural shortage claims, including:
• process descriptions and production formulas explaining where and how shortages arise;
• equipment details affecting product handling and storage;
• historical shortage data and testing outcomes; and
• other relevant technical or operational evidence supporting the claim.
Compliance and Enforcement
- The FTA and the ICE may conduct unannounced inspections to verify compliance with approved natural shortage percentages and operational conditions.
• Failure to meet documentation and reporting requirements may result in:
- rejection of the natural shortage claim (with the loss treated as a taxable release for consumption); and
- potential Excise Tax penalties under the UAE tax regime.
Transitional and Validity Provisions
- ICE reports issued after 1 July 2025 aregenerally validfor up to one year.
• Certain transitional arrangements apply for reports obtained during the initial implementation period, subject to the conditions set out in the FTA Decisions and amendments.
• Businesses should plan for periodic renewals or re-inspections, particularly where material changes occur in production, storage, or handling processes that may affect natural loss patterns.
What Decision No. 1 of 2026 Changes
The amendment issued in January 2026 updates procedural and definitional elements of Decision No. 6 of 2025. It does not replace the core framework but reinforces:
• the interpretation of “natural shortage”;
• governance standards around ICE assessments and reporting; and
• compliance expectations for documentation and declarations.
The amendment strengthens audit readiness expectations, signalling that supporting documentation, internal controls, and consistency between operational practice and declared percentages will be scrutinised more rigorously during FTA reviews.
Practical Implications for Businesses
Operational Impact
Manufacturers and warehouse keepers in Designated Zones (e.g., tobacco, soft drinks, concentrates, vaping products) should:
• review and formalise internal procedures for identifying natural shortages;
• align inventory systems, quality control protocols, and environmental monitoring (e.g., temperature and humidity logs); and
• ensure traceable documentation is maintained to support ICE assessments.
Natural shortage tracking should be treated as a continuous compliance process, not a one-off reporting exercise. Any material operational change may require reassessment.
Tax Reporting
- Excise Tax returns must reflect only ICE-supported shortages.
• Any excess loss beyond the approved percentage is likely to be treated as a taxable release for consumption.
• The FTA’s Lost & Damaged Excise Goods service reflects that such declarations rely on independent verification and supporting evidence. Failure to submit compliant evidence may result in additional assessments and penalties.
FTA’s Lost & Damaged Excise Goods Service
The FTA’s Lost & Damaged Excise Goods service allows taxable persons and warehouse keepers to submit a Lost & Damaged declaration (e.g., physical loss, natural shortage, or laboratory samples) via the EmaraTax system.
For natural shortage claims specifically:
- a report issued by an FTA-approved Independent Competent Entity (ICE) must be attached.
- the shortage percentage declared must not exceed the percentage specified in the ICE report; and
- all supporting documentation must be retained on record for audit purposes.
In practice, this introduces execution and control considerations in addition to technical compliance. Natural shortages may occur continuously at an operational level, while FTA declarations are event-based, creating potential timing mismatches. Weak coordination between operations and tax teams can result in incomplete or delayed declarations, undermining otherwise valid ICE-supported claims. Further, while ICE reports determine permissible loss thresholds, the FTA may still expect batch-level or transaction-level evidence of actual losses; reliance on approved percentages without operational logs may be challenged during audits.
If a natural shortage event is not declared through this service, or if supporting evidence is incomplete, the FTA may treat the loss as a release for consumption, making the full quantity subject to Excise Tax.
How This Aligns with the UAE’s Regulatory Trend
These Decisions reflect a broader UAE tax policy trend toward:
• stronger governance and audit trails;
• standardised technical substantiation; and
• reduced discretion in tax relief claims.
The shift from informal tolerance of losses to formal third-party validation aligns with international excise best practices and increases compliance expectations for operators within Designated Zones.
Commercial, Operational & Control Implications
Although Decision No. 1 of 2026 does not introduce new tax relief, the formalisation of natural shortage recognition under Decision No. 6 of 2025 has clear operational and control implications for excise-registered businesses. Natural shortages supported by an ICE-approved report are not treated as taxable releases, which helps reduce excise tax exposure on unavoidable losses and supports margin stability. Conversely, any losses exceeding the approved thresholds remain taxable, potentially increasing excise cost.
The framework also introduces ongoing compliance-related operating costs, including ICE assessments, periodic renewals, and enhanced monitoring and documentation systems. This shifts excise tax exposure from uncertain, audit-driven adjustments to more predictable and manageable compliance processes. From a control perspective, the regime strengthens inventory governance, reduces the risk of retrospective excise tax assessments, and supports more consistent planning and reporting outcomes.
