Excise Duty and VAT in UAE the government of UAE introduced at almost the same time between 2017-2018 in the UAE. Excise tax and VAT are forms of indirect tax levied on certain goods and services for different purposes. These taxes are an additional revenue for the UAE government. It is observed that consumers find it difficult to adjust to the different tax systems in the country, making it advisable to approach a tax agent in Dubai that can assist you in the vat registration of the two tax systems.
Also read: Requirements of Registering Excise Tax
Differences between the Excise Tax and VAT in the UAE
Purpose of taxation in the UAE
- Excise Tax – Excise tax in UAE is a type of indirect tax imposed on certain goods that are harmful to human health or the environment. The purpose of this tax is to reduce the consumption of unhealthy goods while increasing government revenue that can be used for public welfare.
- VAT – Value-added tax (VAT) is another type of indirect tax that is imposed on the consumption of goods and services in the UAE. The purpose of the tax is to provide the government with a new source of income that will be utilized for providing the public with high-quality services such as public transports.
Goods and Services applicable for Excise Tax and VAT
- Excise Tax – This form of tax applies to only certain goods and services such as carbonated drinks, energy drinks, and tobacco.
- Carbonated drinks include any aerated drink excluding unflavored aerated water. This category also includes any goods is intended to be made into an aerated beverage.
- Energy drinks include any beverage that is marketed or sold as an energy drink and has ingredients that provide mental or physical stimulation such as caffeine, taurine, ginseng, and guarana.
- Tobacco includes all products listed under Schedule 24 of the GCC Common Customs Tariff.
- VAT – VAT is charged on the majority of goods and services in the UAE. The goods exempted from VAT are known as ‘Exempt Supplies’ such as financial services, residential buildings, and bare land.
The rate of excise and VAT imposed on the goods and services
- Excise Tax – The rates for excise tax in the UAE are:
- Carbonated drinks will be charged 50% excise tax
- Energy drinks will be charged 100% excise tax
- Tobacco will be charged 100% excise tax
- VAT – The standard rate for VAT in the UAE is 5 %. The VAT rate can vary for certain products. Zero-rated supplies (0% VAT) are applied to certain goods and services such as export of goods and services and international transportation services, to name a few.
Businesses required to register for Excise and VAT in the UAE
- Excise Tax – The businesses that should register for excise tax are those that engage in:
- A business that deals with the import of goods levied excise tax into the UAE
- Businesses that produce goods levied excise tax and market or sell them for consumption in the UAE.
- The stockpiling of taxable goods applicable in certain cases in the UAE. A business or a person that owns taxable goods but cannot prove that the excise tax is paid on said goods, must register for excise tax.
- A business that engages with any person that is responsible for supervising a warehouse used for storage of taxable goods within a designated zone.
Also, find more info: UAE Excise Tax Law: Everything You Need To Know
Businesses can approach a tax consultant that can help in registering excise tax in UAE
- VAT – Standard VAT is applied to all tax registered businesses in UAE mainland and free zones. If a certain free zone is declared as a ‘designated zone’ by the UAE Cabinet, those free zones are treated as outside the UAE for tax. Such free zones will be considered tax-free. For businesses that are required to register for VAT in UAE, VAT consultants are best sought for VAT registration in UAE.
Refunds of the Excise and VAT
- Excise Tax – Excise tax is paid only once in the supply chain. A business that has purchased taxable goods and subjected to the tax cannot receive a refund of the excise tax paid. However, there are a few cases in which a refund of the excise tax is given, including the following:
- The initial tax which is paid on a taxable good, which is then used in the production of a ‘new’ taxable good on which tax will be again due.
- Excise tax paid on a taxable good that is exported outside the UAE.
- When the excise tax has been paid to the Federal Tax Authority as an error or mistake.
Refunds of the excise tax are also available to people who are not registered for excise tax specifically for the following:
- If an excise tax has been paid by certain international governments, international organizations, or similar institutions while conducting official activities in the UAE and a reciprocal agreement is in place between the UAE and the respective home country.
- If an excise tax has been paid in the UAE by a registered person in another GCC country that is implementing the excise tax, and has exported those goods out of UAE and has also paid an excise tax in that respective GCC country.
- VAT- VAT refund is available only under the following cases:
- Business or individual – If the input tax on purchases is more than the output tax collected by the business or other service providers.
- Tourists – The Federal Tax Authority (FTA) has introduced the VAT refund scheme for tourists. A tourist that visits UAE can claim a refund of the VAT paid during the trip. A tourist can approach a VAT consultant that can assist in claiming VAT refund in the UAE.
You may be interested in reading: Registration of Digital Tax Stamp for Tobacco Products
The introduction of VAT and Excise tax in Dubai has brought additional responsibilities for businesses. Farahat & Co has VAT and excise tax consultants that can assist you and your business with its various services such as VAT registration, filing of VAT, and VAT refund in the UAE.