The Federal Tax Authority (FTA) has announced that businesses must complete Corporate Tax registration within 90 days from the Date of Incorporation / MOA.
As the UAE's economy diversifies, the Federal Tax Authority (FTA) is taking a more aggressive stance on tax compliance, particularly concerning excise tax. Businesses dealing in excisable goods face intense scrutiny, and the cost of non-compliance is skyrocketing. Penalties for errors, late filings, and miscalculations can result in significant fines and even the seizure of goods. This blog post outlines the five most common and costly excise tax mistakes and provides actionable advice to help you avoid them.
Mistake 1: Late Registration or Deregistration
The Problem
One of the most frequent errors is a failure to register for excise tax in time. Businesses that import, produce, or release excisable goods must register for excise tax with the FTA within 30 days of becoming liable, which includes importers, producers, warehouse keepers, and certain stockpilers. Similarly, a common mistake is not deregistering once a business stops dealing in excisable goods. Both can lead to serious consequences.
The Penalty
Late registration incurs a fixed penalty of AED 10,000. Failing to deregister can result in escalating penalties, starting at AED 1,000 per month and capping at AED 10,000.
How to Avoid?
Be proactive and create a robust internal system to monitor your business activities. As soon as you begin dealing in excisable goods, set a reminder to initiate the registration process. For ongoing compliance, it's wise to consult a qualified tax advisor to confirm your obligations from the very beginning.
Mistake 2: Incorrect Tax Calculation and Valuation
The Problem
Many businesses make the mistake of under-declaring their excise tax liability. This can happen in two ways: using the wrong tax rate (e.g., mistakenly applying a 50% rate instead of the correct 100% rate) or failing to include all relevant costs in the taxable value. The taxable value must include costs like insurance and freight, and excluding them leads to an incorrect, lower tax base. The FTA has also introduced a new, formalized framework (Decision No. 6 of 2025) for managing "natural shortages" of excise goods, requiring businesses to use an FTA-approved Independent Competent Entity (ICE) to validate and report any loss. Failure to comply with these new procedures can lead to under-declaration penalties.
The Penalty
Under-declaration results in fixed and percentage-based penalties on the underpaid amount. The FTA has the authority to conduct reassessments, issue backdated tax assessments, and impose fines on the corrected amount, which can be substantial.
How to Avoid?
Ensure your tax calculation methodology is accurate and up-to-date. Regularly review the FTA's official guidelines and product lists to guarantee you are using the correct rates. Given the complexity of valuations and the new rules on natural shortages, seeking professional expertise can prevent costly miscalculations.
Mistake 3: Failure to Maintain Proper Records
The Problem
Businesses are required to maintain excise-tax documentation (invoices, customs declarations, stock-movement reports, etc.) for at least five years in compliance with FTA record-keeping rules. The inability to produce these records upon request is a significant violation. This includes new documentation requirements for natural shortages as per the FTA's Decision No. 6 of 2025, which mandates maintaining comprehensive records like stock reconciliation statements and ICE assessment reports.
The Penalty
This violation carries a fixed penalty of AED 10,000 for the first offense. Repeat offenses will see this penalty increase to AED 20,000.
How to Avoid?
Implement a robust digital record-keeping system. This ensures all documents are securely stored and easily accessible. Regular internal audits can help you verify that your documentation is complete and compliant with FTA requirements.
Mistake 4: Late Filing and Payment
The Problem
Missing the deadline for submitting your monthly excise tax return and the corresponding payment is a very common issue. Even a slight delay can trigger penalties, which can be especially severe due to their compounding nature.
The Penalty
The fixed penalty for late filing is AED 1,000 for the first offense and AED 2,000 for any subsequent offenses. However, the most severe penalty is for late payment, which can escalate to 300% of the unpaid tax amount over time.
How to Avoid?
Automate your tax filing and payment processes. Set up reminders and calendar alerts to ensure you never miss a deadline. Always allocate funds for tax liabilities in advance to avoid last-minute payment issues.
Mistake 5: Misuse of Digital Tax Stamps (DTS) and Non-Compliance with Movement Controls
The Problem
For specific products like tobacco, electronic smoking devices, and sweetened beverages, the FTA requires the use of Digital Tax Stamps (DTS). A common mistake is dealing in unstamped or counterfeit-stamped goods. Furthermore, businesses often fail to report the movement of excisable goods between designated zones, violating strict movement controls.
The Penalty
These violations lead to severe penalties, including the seizure and permanent confiscation of goods. Monetary fines can be significant, amounting to the higher of AED 50,000 or 50% of the tax due on the goods in question.
How to Avoid?
Always source your products from trusted suppliers who use valid, pre-applied digital tax stamps. Adhere meticulously to all FTA procedures for the movement and inventory management of excisable goods.
Conclusion
Proactive excise tax compliance is the best defense against the substantial fines and penalties imposed by the FTA. Understanding and avoiding these common mistakes is crucial for any business dealing in excisable goods. The recent introduction of specific regulations, such as Decision No. 6 of 2025, highlights the FTA's commitment to stricter enforcement and the need for businesses to stay informed and compliant. If you’re at risk or unsure of your obligations, seeking professional expertise is not an option—it’s a necessity. To ensure full compliance and peace of mind, reach out to the professional excise tax advisory services in UAE from Reyson Badger today.
