Excise Tax and the Scope of Excise Tax Audit

The intent of Excise Tax is to reduce consumption of these commodities while also raising revenues for the government that can be spent on public services.

All businesses that import, produce or release excise goods from a designated zone must consider their registration requirements and compliance responsibilities related to filing and paying Excise Tax.

In the UAE, Excise Tax is currently applied on the following goods:

• Tobacco and tobacco products.
• Liquids used in electronic smoking devices and tools.
• Electronic smoking devices and tools.
• Carbonated drinks (note that this excludes sparkling water).
• Energy drinks.
• Sweetened drinks.

 What is Excise Tax Audit?

It is important to understand any potential obligations the business may have in respect of the UAE Excise Tax.

The FTA is committed to providing extensive support and guidance to assist with Excise Tax obligations. However, the responsibility lies with the business to make sure that any required compliance obligations are fulfilled.

The FTA has the power to conduct audits and impose penalties on those who are not compliant with their Excise Tax obligations.

Excise tax audit is the verification of the excise tax liability of a taxable person for a particular Tax period. This is an examination to check whether the liabilities are reported correctly and are paid within the due date or not.

What is the scope of Excise Tax Audit in the UAE? When And where?

The Excise Tax Authority can carry out Tax Audit at any time it feels necessary to do so. The Tax Auditor can either visit the premises of the taxable person or they can be called to the offices of the FTA to carry out Tax Audit.

Federal Tax Authority will determine who all should be audited and at what interval. A person who has registered for Excise tax or supposed to be registered for Excise Tax will be audited at the discretion of the authority. It will be determined by the Tax Auditor / FTA based on the possible risk foreseen by the Authority on account of tax evasion or errors.

FTA will be sending five days prior notice to the taxable person for Tax Audit. But in the case of suspected Tax Evasion, a surprise visit from the Tax Auditor can be expected at any time.

How is the Excise Tax Audit Conducted?

The Tax Auditor will verify the documents, inventories, premises of the taxable person etc., to check the exact taxable position of the taxable person during the course of Tax Audit. The Tax Auditor has the right to take a copy or the original of the documents, goods or samples for their further review. The tax auditor has the right to interact with the persons of the company in various departments like accounts, logistics, warehouse keeper etc., to understand the business and confirm certain transactions.

A taxable person subject to Tax Audit must give full facility and assistance to the Tax Auditor during the course of Tax Audit. If the taxable person has a tax agent or a legal representative, he will also be responsible to do so.

1. The Tax Auditor should be allowed to enter into the premises of the taxable person.
2. The Tax Auditor should be given access to the Excise Tax records and documents.
3. Staff such as the person responsible for compiling Excise Tax Return etc., are to be present during the course of Tax Audit.

What are the records to be maintained under UAE Excise Tax?

There are 9 records to be strictly maintained by a taxable person for Tax Audit.

1. Records of all produced, imported or stockpiled Excise Goods.
2. Records of exported Excise Goods.
3. Evidence of exported Excise Goods.
4. Records of Stock Level.
5. Detailed records of lost or destroyed Excise Goods.
6. Tax records for due tax on imported Excise Goods.
7. Tax records for due tax on produced Excise Goods.
8. Tax records for due tax on Excise Goods that have been stockpiled.
9. Evidence of deductible tax:

(a) Tax paid on exported Excise Goods.

(b) Tax paid on exported Excise Goods constituent to another Excise Goods which is or is subject to tax.

(c) Mistakenly amounts paid to the Tax authority.

What are the rights of taxable person during an Excise Tax Audit?

During the course of Tax Audit, you will be allowed to supervise while the records are removed by the Tax Auditor. If the Tax Auditor removes the records or any items in correspondence with the Tax Audit, the Tax Auditor has the right to get back those records or items after the assessment. The taxable person can demand for a receipt (documentary evidence) for the removal of any documents or samples by the Tax Auditor.

The UAE Ministry of Finance unveiled amendments to some provision of the Federal Decree-Law No 7 of 2017 on Excise Tax, effective from 14th October 2022.

Provisions for the statute of limitation relating to tax audits, tax assessments and permissible time-frames to submit a voluntary disclosure have been added. The Statute of Limitation Article sets the maximum time-frame in which the FTA – which is responsible for the enforcement of Excise Tax – can act. Once this period expires, the FTA is generally precluded from taking actions. Generally, the FTA may not conduct a tax audit or issue a tax assessment to a taxable person after the expiration of 5 years from the end of the relevant tax period. In accordance with the provisions, there are exceptions to that general rule.

The new Federal Decree-Law includes other amendments. In accordance with the Decree, the amendments are effective from 14th October 2022.

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