Businesses involved in the production, storage, or transportation of excise goods in the UAE need to pay close attention to updated requirements concerning natural shortages.
The Federal Tax Authority (FTA) has issued specific standards and procedures explaining how businesses should identify, document, report, and manage natural shortages of excise goods. The framework is particularly relevant to warehouse keepers and taxable persons handling excise products within designated zones.
The clarification provides businesses with a clearer understanding of when a reduction in the quantity of excise goods may be considered a genuine natural shortage rather than a taxable release for consumption.
What Is a Natural Shortage?
A natural shortage refers to a reduction in the quantity of excise goods that occurs because of the inherent characteristics of the goods themselves.
For example, certain products may naturally lose quantity during production, storage, or transportation because of factors such as evaporation or other unavoidable characteristics.
Under the FTA framework, a natural shortage must be beyond the control of the taxable person and must arise from the nature of the goods rather than from another cause.
This distinction is important because not every difference between recorded inventory and actual stock will qualify as a natural shortage.
Why Has the FTA Introduced Specific Controls?
Excise goods are subject to specific tax rules in the UAE, and accurate inventory records are essential for determining potential tax liabilities.
Without clear procedures, businesses could face uncertainty when their actual stock differs from their recorded quantities.
The FTA’s framework establishes a more structured approach by requiring businesses to determine appropriate permissible or expected shortage percentages for individual excise goods.
This helps create a documented basis for assessing whether a shortage falls within the permitted parameters.
Which Businesses Are Affected?
The rules are particularly relevant to:
- Warehouse keepers handling excise goods
- Businesses registered for Excise Tax
- Businesses producing excise goods
- Businesses storing excise products
- Businesses transporting excise goods within designated zones
- Other taxable persons whose operations may result in natural shortages
Businesses should assess their own activities and inventory processes to determine whether these requirements apply to them.
How Is the Permissible Shortage Percentage Determined?
The FTA’s Decision No. 6 of 2025 requires warehouse keepers and taxable persons to obtain an assessment from an Independent Competent Entity to determine the permissible or expected percentage of natural shortage.
The percentage is determined at the level of each excise good for the relevant warehouse keeper or taxable person within the designated zone.
An independent competent entity can issue a report identifying the relevant excise goods and the permissible, expected, or actual natural-shortage percentage.
This means businesses should not simply decide internally that a particular level of stock loss is “natural.” Appropriate supporting evidence and documentation are required.
Documentation Is a Key Requirement
Proper documentation is one of the most important aspects of managing natural shortages.
Businesses should maintain records that can demonstrate:
- The type of excise goods involved
- The quantity affected
- The circumstances causing the shortage
- The applicable shortage percentage
- Supporting technical or independent reports
- Inventory records
- Relevant production, storage, or transportation information
- The declaration submitted to the FTA
Maintaining complete records can make it easier to demonstrate compliance if the business is subject to an FTA review or audit.
Reporting the Natural Shortage
The FTA provides a process through which the relevant shortage can be declared.
According to the FTA’s service information, businesses are required to submit a declaration of the natural shortage through the Authority’s electronic platform and attach the relevant report issued by the independent competent entity. Supporting documentation should also be retained by the concerned person.
Businesses should therefore ensure that their internal inventory and tax teams understand the declaration process and maintain the required supporting documents.
Natural Shortage vs. Other Stock Losses
It is important to distinguish a genuine natural shortage from other forms of inventory loss.
A shortage may not qualify simply because goods are missing from inventory.
The FTA’s definition focuses on shortages that arise from the natural characteristics of the excise goods and are beyond the control of the taxable person.
Losses resulting from other circumstances may need to be treated differently under the applicable Excise Tax rules.
This is why businesses should carefully investigate significant stock differences rather than automatically classifying every shortage as a natural loss.
Why Accurate Inventory Records Matter
Excise Tax compliance is closely connected with inventory management.
Businesses should ensure that their physical stock, accounting records, warehouse records, and tax records are properly aligned.
Regular reconciliation can help identify discrepancies early and allow the business to investigate the reason for a shortage before it becomes a larger compliance issue.
A strong inventory-control process should include:
- Regular physical stock counts.
- Reconciliation with accounting records.
- Documentation of production and storage losses.
- Monitoring of expected natural-loss percentages.
- Investigation of unusual variations.
- Retention of technical and supporting reports.
- Timely submission of required declarations.
What Happens If a Shortage Is Not Properly Supported?
Businesses should not assume that an unexplained stock difference will automatically be accepted as a natural shortage.
Where a business cannot demonstrate that the shortage meets the applicable conditions, the tax treatment may be different.
The FTA has also emphasised the importance of compliance and enforcement in the excise sector. In the first half of 2026, the Authority conducted more than 103,000 inspection visits and reported tax liabilities and administrative penalties associated with non-compliant excise products.
This highlights why businesses handling excise goods should maintain proper controls and documentation.
Practical Steps for Excise Businesses
Businesses can take several steps to improve their readiness:
Review Inventory Procedures
Check whether current stock-management procedures accurately capture production, storage, transportation, and natural losses.
Identify Relevant Products
Determine which excise goods may experience natural shortages because of their physical or chemical characteristics.
Obtain Appropriate Reports
Where required, work with an independent competent entity to establish the relevant permissible or expected shortage percentage.
Strengthen Record Keeping
Maintain supporting documentation for inventory movements, shortages, calculations, and declarations.
Train Employees
Warehouse, finance, tax, and operations teams should understand how natural shortages need to be identified and reported.
Monitor Variances
Unusual differences between expected and actual inventory should be investigated promptly.
How Mudeer Group Can Help
Managing Excise Tax requirements can be challenging, particularly for businesses dealing with large inventories and multiple warehouse or supply-chain operations.
At Mudeer Group, we support UAE businesses with accounting, taxation, compliance, and financial management requirements.
Our team can help businesses review their financial records, strengthen tax-related processes, maintain appropriate documentation, and better understand their compliance responsibilities.
For businesses dealing with excise goods, having accurate financial and inventory records can play an important role in reducing compliance risks.
Final Thoughts
The UAE’s approach to natural shortages of excise goods provides businesses with a clearer framework for dealing with stock reductions that occur because of the inherent characteristics of certain products.
FTA Decision No. 6 of 2025 establishes standards and controls for determining permissible or expected natural-shortage percentages, while the FTA’s EXTP011 clarification provides additional guidance for businesses.
The key takeaway for businesses is simple: a natural shortage should be properly assessed, documented, and declared rather than treated as an unexplained inventory difference.
Companies handling excise goods should review their current inventory and tax procedures, maintain appropriate supporting evidence, and ensure that relevant declarations are submitted through the FTA’s prescribed channels.
Taking a proactive approach can help businesses maintain better control over their inventory while reducing potential Excise Tax compliance risks.
