EXTP010

Excise Tax Public Clarification

Registration of Warehouse Keeper and Registration and Renewal of Registration of Designated Zones

Please be informed that Public Clarification EXTP010 replaces Public Clarification EXP005, effective from 1 April 2023.

Issue

Every designated zone in the UAE is required to have an appointed warehouse keeper^[1] who is responsible for overseeing the operation of the designated zone and ensuring that the conditions and security requirements imposed over the designated zone continue to be met. A warehouse keeper must apply to the Federal Tax Authority ("FTA") to be authorised to oversee a designated zone.^[2]

This Public Clarification provides more details on these conditions and criteria to register as a warehouse keeper and to register or renew the registration of a designated zone, effective from 1 April 2023.

Summary

Any person who operates, or intends to operate a designated zone for Excise Tax purposes (also known as an excise), must register as a warehouse keeper and register each of the designated zones that he supervises or intends to supervise^[3].

As part of the designated zone's registration or renewal of registration request, the warehouse keeper is required to:

Specify the types of excise goods that are or will be kept in the designated zone.
Specify the quantity of excise goods which is or will be kept in the designated zone.
Provide a financial guarantee in respect of the excise goods stored or to be stored in the designated zone.
Provide proof that adequate physical security measures in respect of the designated zone were implemented.
Provide proof that it maintains a stock and record management system which tracks goods moving into and out of the designated zone as well as transfers between designated zones.

Failure to meet these requirements may result in the rejection of a new application or suspension of the registration of a designated zone, i.e. suspension of all imports of excise goods as well as the production of goods in the designated zone.

The designated zone's registration is valid for 12 months and must be renewed before the expiry of this period.

If the warehouse keeper fails to renew the designated zone's registration before the end of the 12-month period, the designated zone registration status will become 'suspended' for 20 business days and then 'expired'.

If the warehouse keeper is requested to provide a financial guarantee or is requested to provide an updated financial guarantee, this financial guarantee should be provided within 40 business days. Failure to do so within the prescribed time limit will result in either rejection of the application for registration or suspension/expiry of a designated zone registration.

Detailed analysis

Status of the designated zone

The registration of a designated zone can become 'suspended' or 'expired' if the requirements, as clarified below, for a designated zone are not complied with or if the renewal application is not submitted on time or not submitted at all.

During the suspension period, the following shall apply:

All imports of excise goods into the designated zone shall be suspended.
All production of excise goods within the designated zone shall be suspended.
All transfers from other designated zones shall be suspended.

Following the end of a suspension period, the designated zone registration can expire and all excise goods in the designated zone will then be considered to be released for consumption, and Excise Tax should be accounted for in respect of these goods.

The FTA will notify the warehouse keeper of the suspension and expiry of the designated zone registration via the EmaraTax portal.

Registration as warehouse keeper and application for a designated zone

A person is not allowed to act as a warehouse keeper before being registered as a warehouse keeper with the FTA^[4].

To register as a warehouse keeper, the applicant must submit a registration application to the FTA providing certain details about himself and the operations he intends to conduct.

The person must also submit a designated zone application in respect of each designated zone he supervises or intends to supervise. A fee is required to be paid for the registration of each designated zone for a period of 12 months.

The FTA considers various factors to determine a warehouse keeper's eligibility to register a designated zone, including the criteria and conditions set out below.

Categories of excise goods

The warehouse keeper is required to specify which categories of excise goods are stored or are intended to be stored in the designated zone.

Quantity of excise goods in a designated zone

At the time of registering a designated zone, the applicant must provide the FTA with the average month-end stock of the relevant excise goods that will be in the designated zone over a 12-month period, based on the following:

If the applicant is already in business and has a warehouse in which excise goods are stored, the applicant is required to determine the average month-end stock of the relevant excise goods based on the actual month-end stock of each product of excise goods held in the 12 months preceding the date of the application.
If the applicant is planning to start operating or managing a warehouse and does not have the quantities data to determine the actual month-end stock, the applicant is required to forecast the expected month-end stock per product of excise good to be held for each of the coming 12 months.

Following the approval of the application to register or renew a designated zone, the warehouse keeper must monitor the average month-end stock of excise goods stored in the designated zone for 6 months following such registration or renewal.

The warehouse keeper is required to notify the FTA if the average month-end stock over the 6-month period increased by more than 20% of the originally reported quantity of excise goods in the designated zone at the time of the designated zone's registration or renewal as the case may be.

For example, a designated zone was registered effective from April 2023. At the time of registration, the average month-end holding stock of excise goods was 50,000 units.

The month-end stock for the following 6 months in 2023 was:

April: 60,000 units
May: 74,000 units
June: 80,000 units
July: 95,000 units
August: 93,000 units
September: 78,000 units

Based on the above, the average month-end stock of excise goods was 80,000 units. This is 60% higher than the previously declared average month-end stock of excise goods of 50,000 units. Since the variance is more than 20%, the warehouse keeper is required to notify the FTA through the EmaraTax portal.

Following notification, the FTA will update the financial guarantee for that designated zone to a higher amount.

Physical security

Physical security is one of the most important factors that will be considered by the FTA in its decision to grant an approval to a warehouse keeper to supervise a designated zone.

As part of the review of the registration or renewal application, each designated zone site may be inspected to ensure that adequate and stringent security measures are put in place to control, monitor, and safeguard the excise goods within the designated zone that have not been subject to Excise Tax.

The applicant is required to provide sufficient evidence to prove which of the following physical security criteria are met:

The physical site has sufficient space to store at least the average month-end holding stock reflected in the registration form.
The premises allow for excise goods to be stored in separate identifiable locations that are clearly marked.
The entrances and external doors of the premises are of solid material and fitted with appropriate locking systems such as keypad code locks or electronic locks. If separate freight doors are constructed, all access through the freight doors are monitored with CCTV cameras and/or security personnel.
Windows are fitted with barriers to restrict access and removal of the excise goods.
Alarms or anti-theft or anti-intrusion systems are configured to detect unauthorised access outside business hours. These systems are connected to a security monitoring point such as a security office on the site.
The warehouse building is fit for operations. This can be evidenced, for example, by submitting a health and safety certificate issued by the competent authority such as UAE Civil Defense.
The premises have external perimeter fencing prohibiting any unauthorized entry. The fencing is of an appropriate height to prevent any illegal entry through, over, or under it, and is maintained in good condition.
All entry and exit points, including gates, are controlled, and unauthorised access to the premises is restricted. All gates are fitted with security locks and/or barriers to restrict access.
The premises are guarded by trained security personnel. The warehouse keeper retains details of the security guards on site, including their working hours and shift, job duties, and details of their supervisor responsible for the overall security of the premises. Security checks are conducted at the gates by the security personnel for anyone leaving the premises.
The warehouse keeper retains access to logs that identify the details of persons that accessed the premises, including authorised personnel and visitors.
Exterior and interior security lighting are installed at all entry and exit points, storage areas, parking and holding areas. The lighting is sufficient to ensure that every part of the area is illuminated to enable a clear identification of persons through the CCTV system.
The premises are covered by a robust CCTV monitoring system that covers all the entry and exit points as well as all the storage areas. It is recommended that the surveillance system be capable of real-time recording, automatic archiving, night vision cameras and high-quality video recording that can store at least 60 days of recording.

Not all above requirements must necessarily be fully satisfied and evidenced for the FTA to approve the registration. The FTA officer will assess, on the basis of the evidence submitted, if the designated zone meets the minimum required level of physical security.

The FTA may physically inspect the premises to determine whether these requirements are met. If the requirements are not satisfactorily met, the FTA will notify the applicant of the need to implement the measures within 20 business days.

If the applicant fails to resolve the issues identified by the FTA, the request to register or renew an area as a designated zone may be rejected by the FTA.

If the FTA inspects the designated zone after its registration and notices that any or all of the above measures are lacking, the warehouse keeper will be notified to make the necessary improvements within 20 business days to ensure that the physical security measures are met. Where the warehouse keeper fails to do so, the designated zone registration status will become 'suspended' for 20 business days and administrative penalties may be imposed.

Stock and Record Management System

The warehouse keeper must implement a stock and record management system, ideally an accounting and inventory management system that provides a clear audit trail of all excise goods entering and exiting the designated zone or area intended to be registered as a designated zone.

The system must be sufficient to identify the following:

The stock levels in the designated zone at any given time.
The value and quantity of excise goods entering the designated zone.
The value and quantity of excise goods leaving the designated zone and released for consumption.
The value and quantity of excise goods transferred to another designated zone, including details of that designated zone.
The value and quantity of excise goods transferred from the designated zone for export.
The value and quantity of excise goods produced within the designated zone.

Where the stock and record management system does not meet the above requirements, the FTA may notify the applicant of the need to implement the necessary measures within 20 business days to approve their application. Where the applicant fails to resolve the issues identified by the FTA, a request by a warehouse keeper to register an area as a designated zone may be rejected by the FTA.

If the FTA conducts an inspection of the designated zone after its registration and notices that no or an insufficient stock and record management system was implemented, the warehouse keeper will be notified to take necessary action within 20 business days. Where the warehouse keeper fails to do so, the designated zone's registration status will become 'suspended' for 20 business days, and the above listed restrictions will be applied and administrative penalties may be imposed.

Renewal of the Designated Zone's Registration

Warehouse keepers can register a designated zone for a period of 12 months. This means that every 12 months, the warehouse keeper must apply to renew the registration of the relevant designated zone.

The renewal form will be available on the EmaraTax portal to be completed and submitted at least 20 business days before the date on which the designated zone's registration period expires.

If the warehouse keeper fails to complete and submit the relevant renewal application within this period, the designated zone's registration status will become 'suspended' for 20 business days and the suspension implications as outlined above will apply.

If the warehouse keeper still fails to complete and submit the relevant renewal application within the suspension period, the designated zone will expire.

If the warehouse keeper intends to operate the expired designated zone, the warehouse keeper will be required to submit a new application to register the designated zone that expired due to late renewal.

Financial Guarantees

Upon review and approval of the submitted information and documentary evidence included within a first application for registration, the FTA will notify the applicant of the amount required as a financial guarantee in respect of each area intended to be registered as a designated zone.

In Public Clarification EXTP008, the FTA has provided guidance on how financial guarantees in respect of Excise Tax designated zones are calculated.

The applicant has 40 business days to provide the financial guarantee, which is required to be renewed every 12 months, subject to a successful renewal of the registration of the designated zone. If the applicant fails to provide the financial guarantee within 40 business days, the registration application will be rejected.

As outlined above, the required financial guarantee may be adjusted after registration or renewal of a registration of the designated zone, for example where the average month-end stock of excise goods varies by 20% or more from the previously declared average month-end stock of excise goods.

The warehouse keeper will need to submit the updated financial guarantee within 40 business days in order to maintain the designated zone's registration status. If the warehouse keeper fails to submit the updated financial guarantee within that time limit, the designated zone's registration status will become 'suspended' for 20 business days.

Following the end of this suspension period, if no updated financial guarantee was submitted, the designated zone registration will expire and all excise goods in the designated zone will be considered to be released for consumption, and Excise Tax should be accounted for in respect of these goods.

This Public Clarification issued by the FTA is meant to clarify certain aspects related to the implementation of the Federal Decree-Law No. 28 of 2022 on Tax Procedures, Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, and their Executive Regulations.
This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.

Legislative References:

In this clarification, Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, is referred to as 'Decree- Law', and Cabinet Decision No. 37 of 2017 on the Executive Regulation of the Federal Decree-Law No. 7 of 2017 on Excise Tax is referred to as 'Executive Regulation'.

^[1]Article 1 of the Decree-Law defines the term 'warehouse keeper' as any person approved and registered at the FTA to supervise a designated zone in accordance with the provisions of the Executive Regulation.

^[2]Article 8(3) of the Decree-Law states that a person shall not act as a warehouse keeper, before his registration in accordance with this Article.

^[3]Article 15(3) of the Executive Regulation states that the designated zone shall be registered via an application submitted by the warehouse keeper to the FTA pursuant to the procedures determined by the FTA.