Introduction
The United Arab Emirates (UAE) continues to refine its excise tax regime to encourage healthier consumption and ensure fairness in taxation. One of the most significant recent developments is Federal Tax Authority (FTA) Decision No. 11 of 2025, which introduces additional cases where excise tax paid on excise goods may be deducted and sets out the controls for such deductions.
The decision, issued on 12 December 2025 and effective from 1 January 2026, is especially important for businesses dealing with excise goods such as tobacco, energy drinks and sugar‑sweetened beverages.
In this guide, we unpack the legal text and provide a practical, human‑focused explanation. You’ll learn who is eligible to deduct excise tax, what documentation is required, and how the rules apply to issues like natural shortages and the high‑sugar classification of beverages. By the end of this article, you’ll have a clear roadmap for navigating excise tax deduction under the UAE’s updated framework.
What is the Excise Tax?
Excise tax in the UAE is a consumption‑based levy imposed on specific products considered harmful to health or the environment, including tobacco products, electronic smoking devices, energy drinks and sweetened beverages.
Introduced in 2017, the tax is collected from businesses when the goods are produced, imported or released for consumption. Businesses generally pass the cost on to consumers, but under certain conditions they may reclaim the tax paid on goods that are not ultimately sold or consumed. FTA Decision No. 11 of 2025 expands these conditions.
Context: Natural Shortages and Sugar‑Based Drinks
Before examining the new deduction cases, it’s useful to understand two related developments that influenced Decision No. 11:
Natural shortages in designated zones
Under FTA Decision No. 6 of 2025, the FTA clarified how to treat natural shortages of excise goods. A shortage is considered natural if it occurs during production, storage or transport within a designated zone, is beyond the control of the warehouse keeper or taxable person, and results from the inherent nature of the goods.
Examples include evaporation losses due to moisture, irretrievable residues in containers, or unavoidable losses during normal production. For such shortages, businesses must obtain a report from an Independent Competent Entity (an accredited laboratory) confirming the permissible percentage of natural shortage and then notify the FTA through a declaration. If the shortage is within the approved percentage, the goods are not treated as released for consumption, and no excise tax is due.
Tiered excise tax on sweetened drinks
The EXTP012 Public Clarification introduced a new tiered volumetric model for taxing sweetened drinks. Instead of a flat rate, the tax depends on sugar content: high sugar (≥8 g per 100 ml), moderate sugar (≥5 g but <8 g), low sugar (<5 g), and zero‑rated for drinks with only artificial sweeteners.
Each category carries its own AED‑per‑litre tax rate. Businesses must update their product registration and submit laboratory reports from accredited labs; without a valid report, the drink is automatically classified as high sugar. If tax liability decreases under the new model, businesses may apply for a deduction equal to the reduced amount.
New Deduction Scenarios Under Decision No. 11 of 2025
1. Goods removed for inspection and natural shortages
Many excise goods are stored in designated zones (DZs), bonded warehouses where tax is suspended until goods are removed for sale or consumption. Decision No. 11 recognizes that sometimes samples of excise goods must be removed from a DZ for inspection by an Independent Competent Entity to determine the natural shortage percentage.
Such samples may be damaged during inspection and become irrecoverable. Under Article 2, Clause 1, of Decision No. 11, taxpayers may now deduct the tax paid on excise goods that are removed from a designated zone exclusively for inspection purposes, provided that the goods are damaged and cannot be returned.
This deduction ensures that businesses aren’t penalised for losses beyond their control while complying with FTA Decision No. 6 of 2025. However, several controls apply:
- Exclusive purpose: The removal must be solely for inspection by the Independent Competent Entity to determine the natural shortage. Any other use may disqualify the deduction.
- Damage during inspection: The sample must be damaged during inspection, making it irrecoverable and preventing its return to the DZ.
- Documentation: The warehouse keeper or taxable person must retain evidence issued by the Independent Competent Entity detailing the quantity removed, confirming that removal was for natural shortage determination, and verifying that the goods were damaged. This report is essential when requesting the deduction.
2. Excess tax on sweetened drinks reclassified to lower sugar categories
The second scenario addresses businesses that paid excise tax on sweetened drinks under the high‑sugar rate but later discover, through accredited laboratory testing, that the drinks fall into a lower sugar category or are not subject to excise tax at all.
Under Article 2, Clause 2, of Decision No. 11, a taxable person may deduct tax paid in excess on sweetened drinks originally classified as high sugar, once a laboratory report proves the drinks contain less sugar. This transitional relief applies only to tax periods starting 1 January 2026 and ending 30 June 2026.
To benefit from this deduction, businesses must follow several controls:
- Unsold inventory: The goods must not be sold before the right to deduction arises. Selling the drinks before receiving the laboratory report disqualifies the deduction.
- Laboratory report: Taxpayers must obtain and submit a report from an accredited laboratory proving that sugar content places the product in a lower category or shows it is not taxable. Without a valid report, the FTA will default to the high‑sugar category.
- Evidence of previous tax payment: A copy of the previously submitted declaration on the FTA system confirming payment at the high‑sugar rate must be included.
- Proof of unsold goods: Documentation must show that the goods in question were not sold before the deduction right arose.
Why these changes matter
These two deduction scenarios support fairness and accuracy in excise tax collection. They prevent businesses from paying tax on goods they cannot sell (damaged samples) or from being overtaxed due to conservative initial classification. They also encourage accurate laboratory testing and proper documentation of excise goods, aligning with the UAE’s broader public‑health goals by incentivising reduced sugar content.
Step‑by‑Step Guide to Claiming Deduction
If you are a warehouse keeper or taxable person dealing with excise goods, follow these steps to claim a deduction under Decision No. 11:
A. For goods removed for inspection
- Arrange inspection: Engage an Independent Competent Entity approved by the FTA to inspect your goods. Ensure that removal from the DZ is solely for inspection and natural shortage assessment.
- Record removal: Maintain internal records showing the quantity of goods removed, the date, and the purpose (natural shortage assessment). Include shipping or transfer documents if applicable.
- Ensure proper handling: While the goods will be handled by the laboratory, it’s important that any damage occurs during inspection, not because of inadequate packaging or negligence.
- Obtain inspection report: Request a detailed report from the Independent Competent Entity confirming the percentage of natural shortage and noting that the sample was damaged and irrecoverable.
- Submit deduction request: Through the FTA’s EmaraTax platform, submit a deduction request, attaching the inspection report and evidence of excise tax payment. Clearly identify the quantity removed and justify the deduction.
- Retain documentation: Keep the report and all related records for at least five years in case of an FTA audit.
B. For sweetened drinks reclassified to a lower category
- Sample testing: Send representative samples of your sweetened drinks to an accredited laboratory from the FTA’s approved list to determine sugar content. Each product variation may require its own analysis.
- Update product registration: Log into the FTA portal to update your product registration details, reflecting the correct sugar category (high, moderate, low or zero) based on the lab results.
- Check inventory: Confirm that the products subject to deduction remain unsold. If items have been sold prior to obtaining the lab report, they are not eligible.
- Prepare documentation: Gather the following:
- Laboratory report proving lower sugar content.
- Copy of the previous declaration showing you paid excise tax at the high‑sugar rate.
- Evidence (inventory records, invoices, warehouse logs) proving the goods remained unsold.
- Submit the deduction claim: File the deduction request via EmaraTax, uploading the necessary documents. Include a cover letter summarising why the claim is valid (e.g., reclassification of sugar content and unsold status).
- Monitor FTA response: The FTA may request additional information. Respond promptly to avoid delays. Once approved, the deduction will be reflected in your excise tax account, lowering your liability.
Pro Tip
For both deduction scenarios, maintain robust internal controls. Digital inventory systems that log each movement of goods, automated alerts when goods leave a designated zone, and a central repository for laboratory reports make it easier to respond to FTA requests. Consider scheduling regular audits of your excise records and working with tax advisors familiar with the UAE excise framework.
Record‑Keeping and Compliance Tips
The FTA places a strong emphasis on documentation. To improve the likelihood of a successful deduction claim:
- Keep inspection and lab reports organised: Store reports from Independent Competent Entities and accredited laboratories in a secure digital repository. Index them by product and date.
- Maintain detailed inventory logs: Records should show when goods enter or leave a designated zone, the purpose of removal (inspection, sale, destruction), and their status (sold, unsold). This supports both deduction scenarios.
- Implement internal approval workflows: Ensure that removal of goods for inspection or testing is authorised by senior management and documented. Unauthorized removals may jeopardise eligibility.
- Cross‑reference declarations: Make sure your EmaraTax declarations accurately reflect the classification and quantity of goods. Any discrepancy between declarations and lab results may trigger audits.
- Renew laboratory reports annually: For natural shortage assessments, Independent Competent Entity reports are valid for one year. Renew them promptly if production processes change or the report expires.
Impact on Businesses
Fairness and cash‑flow relief
By allowing deductions for damaged inspection samples and reclassified beverages, Decision No. 11 reduces the tax burden on businesses. Instead of treating all removed goods as released for consumption, the FTA recognises that some removals are necessary and do not generate revenue.
Similarly, reclassification of sweetened drinks ensures that businesses are taxed based on actual sugar content, not assumptions. Both measures help smooth cash flow and improve regulatory fairness.
Encouragement of healthier products
The emphasis on sugar content in sweetened drinks aligns with the UAE’s health objectives. By linking tax rates to sugar levels and allowing refunds when drinks contain less sugar than initially declared, the FTA incentivises manufacturers to reformulate products and reduce sugar content. This encourages a shift towards healthier beverages, benefiting consumers and potentially reducing long‑term healthcare costs.
Increased administrative burden
On the other hand, businesses must invest in compliance infrastructure. They need to engage accredited laboratories, update product registrations, and maintain meticulous records.
For smaller manufacturers or importers, the cost of regular lab testing and documentation may be high. Outsourcing tax compliance or investing in digital tools can mitigate this burden.
Timeline and Key Dates
Understanding the effective dates is critical:
- 12 December 2025: FTA Decision No. 11 issued.
- 1 January 2026: Decision becomes effective; deduction rights arise for the two scenarios.
- 1 January: 30 June 2026: Transitional window for deducting excess tax paid on sweetened drinks originally classified under the high‑sugar category.
- Ongoing: Deduction for damaged inspection samples applies whenever goods are removed for inspection, as long as controls are met.
Conclusion
FTA Decision No. 11 of 2025 reflects the UAE’s commitment to a fair and health‑oriented excise tax system. By permitting deductions for goods removed for inspection and damaged during natural shortage assessments, and for sweetened drinks misclassified as high sugar, the decision ensures that businesses pay tax only on goods actually consumed or sold.
However, these benefits come with stricter documentation and compliance requirements. Businesses must work closely with accredited laboratories, maintain accurate inventory records and align their processes with FTA guidelines.
Quick FAQs
Can I deduct excise tax on goods that were destroyed due to natural disasters or accidents?
Decision No. 11 specifically addresses goods removed for inspection and damaged during inspection, and excess tax on sweetened drinks. Destruction due to accidents or disasters may fall under other provisions of the excise tax law, such as relief for lost or damaged goods. You should consult FTA Decision No. 6 of 2025 and related regulations to determine eligibility.
What qualifies as an Independent Competent Entity for natural shortage assessments?
The FTA maintains a list of accredited laboratories qualified to determine sugar content and natural shortage percentages. These entities must be independent and recognised by the Ministry of Industry and Advanced Technology.
How often do I need to renew laboratory reports?
For natural shortage assessments, the Independent Competent Entity’s report is valid for one year and must be renewed if operations change or the previous report expires. For sugar‑content assessments, you should update the report whenever the formulation changes or when required by the FTA.
Can I sell sweetened drinks while waiting for a laboratory report?
You may sell products before obtaining the report, but any tax paid at the high‑sugar rate will not be deductible for those sold units. Only unsold goods at the time of deduction are eligible.
What happens if my declared natural shortage exceeds the percentage in the Independent Competent Entity’s report?
Any shortage above the approved percentage is considered a release for consumption, and excise tax becomes payable on that excess. Ensure that your declaration aligns with the permissible percentage and that you have robust data to support it.
Disclaimer: The information provided in this blog is for general informational purposes only. For professional assistance and advice, please contact experts.
