An excise tax is a tax levied on specific goods that are considered harmful to human health or the environment. In the UAE, the excise tax is levied on tobacco products, energy drinks, and carbonated beverages. The tax is currently set at 100% for tobacco products and 50% for energy drinks and carbonated beverages. Excise tax is no exemption to goods that are sold or consumed within UAE-designated zones. Therefore, it is imperative for taxable persons to consult UAE tax consultants to effectively meet excise tax liabilities in UAE-designated zones and to stay compliant.
The Scope of UAE-designated Zones
Designated zones are areas that have been established by the UAE government to promote economic growth and attract foreign investment. These zones are subject to special rules and regulations, including exemptions from certain taxes such as VAT and customs duties. The UAE currently has over 20 designated zones, including free zones and special economic zones.
What Are the Excise Tax Liabilities Inside UAE Designated Zones?
Excise tax is applicable within designated zones in the UAE, notwithstanding certain exemptions and benefits that apply. Primarily, the excise tax is exempted on goods that are imported into a designated zone on the basis that the goods are not consumed within the zone. This confirms that businesses that store and trade in excise goods within a designated zone can do so without paying excise tax on the respective goods.
However, the excise tax is applicable when goods are released from a designated zone for consumption in the UAE. For instance, if a business imports excise goods into a designated zone and later releases the goods for consumption in the UAE, it will be liable to pay excise tax on the goods. The excise tax rate for these goods is currently set at 100% for tobacco products and 50% for carbonated drinks and energy drinks.
How is Excise Tax Calculated Inside Designated Zones?
Excise tax in UAE is calculated based on the retail selling price of the goods. For imported goods, the retail selling price is determined based on the customs value of the goods, plus any additional costs such as transport, insurance, and handling charges. For locally produced goods, the retail selling price is determined based on the manufacturer's price, plus any additional costs such as transport and handling charges.
For example, if you sell tobacco products with an excisable value of AED 1,000 within a designated zone, your excise tax liability would be calculated as follows:
Excise tax liability = 100% x AED 1,000
Excise tax liability = AED 1,000
Therefore, a taxable person would be required to pay AED 1,000 in excise tax on the tobacco products that would be sold within the designated zone.
What Are the Penalties for Non-compliance With Excise Tax Regulations Inside Designated Zones?
Businesses that fail to comply with excise tax UAE regulations inside designated zones may be subject to penalties, including fines and the seizure of goods. The exact penalties depend on the nature and severity of the non-compliance.
How Can Businesses Ensure Compliance With Excise Tax Regulations Inside Designated Zones?
To ensure compliance with excise tax regulations inside designated zones, businesses should follow these guidelines:
- Register for excise tax with the Federal Tax Authority (FTA) and obtain the necessary permits and licenses.
- Keep accurate records of all excise goods imported, stored, and released from the designated zone.
- Calculate and pay excise tax on all goods released from the designated zone for consumption in the UAE.
- Ensure that all invoices and other documents related to excise goods comply with the FTA's requirements.
- Train employees on excise tax regulations and procedures to ensure that they understand their responsibilities and obligations.
Consult UAE Tax Consultants!
Conclusively, to ensure compliance with excise tax regulations within UAE designated zones, businesses should register with the Federal Tax Authority, (FTA) and keep accurate records. Therefore, it is imperative for taxable persons to consult UAE tax consultants to effectively meet excise tax liabilities in UAE-designated zones and to stay compliant. Therefore, contact us today and we shall be happy to assist you.
Ahmad Al Zain
Ahmad is an accomplished legal associate with more than 5 years of experience, he is adept in navigating the complex tax codes at federal, state, and local levels. He has an immense aptitude for conducting tax investigations and tax litigation. He is well-versed in offering expert tax advisory and handling tax arbitration procedures in international and local jurisdictions. Further, he has comprehensive expertise in drafting a wide scope of tax documents and negotiating intricate tax disputes with the Federal Tax Authority.
Read More: Differences between Excise Tax & VAT in UAE