UAE Excise Tax Deductions & Refunds — FTA Decision No. 11 of 2025 and Natural Shortage Rules

Excise tax deductions and refunds in the UAE are governed by Articles 16 and 20-21 of Federal Decree-Law No. 7 of 2017, with detailed controls in Articles 16 and 21-22 of the Executive Regulation. FTA Decision No. 11 of 2025 (effective 1 January 2026) introduces additional deduction cases for goods removed for natural shortage inspection and for sweetened drinks reclassified to lower sugar categories. Abdelhamid & Co (FTA TAAN 20033908) assists registrants with deductible tax claims, refund applications, and excess tax carry-forward management.

Deductible Excise Tax — Legal Framework Under Article 16

Article 16 of the Decree-Law (as amended by Federal Decree-Law No. 7 of 2025) establishes four categories of deductible tax. The Payable Tax for any tax period equals the Due Tax less the total Deductible Tax. This mechanism prevents cascading taxation where excise goods move through multiple taxable events.

The four deductible categories are: tax paid on exported excise goods; tax paid on goods that become a component of another excise good on which tax has become or will become due; tax paid on unsold goods where the tax rate has decreased (limited to the extent of the decrease); and tax paid in any other cases determined by the FTA with its specified controls.

Excise Tax Deduction — Conditions and Controls

Under Article 16(1) of the Executive Regulation (as amended by Cabinet Decision No. 198 of 2025), eligible deductions may be taken on the tax return for the period in which the right arose or in the subsequent tax period. The deductible value equals the tax previously paid on the same goods.

Additional Deduction Cases — FTA Decision No. 11 of 2025

FTA Decision No. 11 of 2025 (effective 1 January 2026) establishes two additional cases for excise tax deduction under paragraph (d) of Article 16(1) of the Decree-Law:

First, tax paid on excise goods removed from a Designated Zone for the purpose of inspection by an Independent Competent Entity to determine the permissible Natural Shortage percentage. The goods must have been damaged during inspection and became irrecoverable. Evidence from the Entity confirming the purpose of removal and damage is required.

Second, tax paid in excess on sweetened drinks classified under the High-Sugar Category (≥8g/100ml), after submission of a Laboratory Report proving the drinks fall under a lower category. This applies only for tax periods from 1 January 2026 to 30 June 2026 — a transitional provision for the new tiered system. The taxable person must not have sold the goods before the deduction right arose.

Natural Shortage — FTA Decision No. 6 of 2025

FTA Decision No. 6 of 2025 (effective 1 July 2025, amended by FTA Decision No. 1 of 2026) establishes standards and controls for dealing with natural shortage within Designated Zones. Natural Shortage is defined as a shortage in the quantity of excise goods during production, storage, or transportation within the Designated Zone, beyond the control of the taxable person due to the nature of the goods themselves.

Warehouse Keepers and taxable persons must obtain a Report from an approved Independent Competent Entity determining the permissible natural shortage percentage for each excise good. The Report must be based on inspection and actual data covering at least 6 months of prior operations. Reports are valid for one year and must be renewed within 30 business days of expiry.

The natural shortage percentage declared to the FTA must not exceed the percentage stated in the valid Report. Declarations may cover multiple tax periods but not more than one year. Transitional provisions allow Reports issued within 12 months of 1 July 2025 to be valid until 30 June 2027, provided the application was submitted by 31 March 2026.

Excess Refundable Tax and Carry-Forward Rules

Under Article 20 of the Decree-Law (amended by Federal Decree-Law No. 19 of 2022), where Deductible Tax exceeds Due Tax or where payments to the FTA exceed Payable Tax, the excess must be carried forward to subsequent periods and offset against Payable Tax or Administrative Penalties until depletion.

A refund application may be submitted only after the excess has been carried forward for the period specified in the Executive Regulation. Under Article 21(4) of the Executive Regulation, the FTA is not obligated to refund remaining excess if less than two tax periods have passed since the excess arose. Exceptions apply where registration is cancelled or where the FTA is satisfied excess will continue for at least one year.

Special Case Refunds — Diplomatic Bodies and GCC Registrants

Article 21 of the Decree-Law provides for refunds to foreign governments, international organisations, and diplomatic bodies (subject to reciprocity) for tax paid in official activities. Persons registered in another GCC Implementing State who pay excise tax in the UAE and then export to that state may claim a refund, provided they submit evidence of registration in the other state, proof of tax paid in the UAE, export documentation, and proof of tax paid in the destination state.

Non-taxable persons conducting business who directly or indirectly export excise goods on which tax was previously paid may also apply for refunds under Articles 22(3-4) of the Executive Regulation (effective from 1 January 2026 per Cabinet Decision No. 198 of 2025).

Why Choose Abdelhamid & Co for Excise Tax Refund Claims

Our team manages deductible tax calculations, carry-forward tracking, and refund applications. We ensure complete documentation for export deductions, handle the FTA's 20-business-day decision timeline, and represent clients on rejected refund claims through the reconsideration request process.

Frequently Asked Questions

Related Services

• Excise Tax Return Filing — correct deduction claims in monthly returns
• Compliance Review — audit deduction eligibility and documentation
• Tax Dispute Reports — support for rejected refund claims

Last reviewed: 25 May 2026