Penalties Imposed for Breaching Excise Law in UAE

Excise Law UAE was introduced by the UAE Government under Federal Decree-Law No. 7 of 2017 to control the use of harmful products and increase public health awareness. The law is administered by the Federal Tax Authority (FTA) to ensure proper Excise tax(levy) compliance.

Businesses that fail to follow the law can face financial penalties, legal repercussions, and reputational damage. The FTA closely monitors all transactions related to excise goods, ensuring every company follows the set procedures for registration, filing, and payment.

Understanding Excise Law in the UAE

The Excise Law is outlined under Federal Decree-Law No. 7 of 2017, amended by Federal Decree-Law No. 19 of 2022, complemented by the Executive Regulation and levy Procedures Law.

The law covers the production, importation, storage, and display of the excise goods in the UAE, which are:

• Tobacco and tobacco products
• Energy drinks
• Carbonated drinks
• Sweetened drinks
• E-cigarettes and related smoking paraphernalia

 

Excise Tax is a charge imposed on goods that are harmful to health and the environment. Businesspersons are supposed to keep accurate price lists including inclusive prices of amounts of excise levy.

 

Example:

If an energy drink cost is at AED 10 before the imposition of levy, it should be displayed with the excise tax, so that customers can see the final amount payable.

 

What Are the Common Excise levy Violations

 

The failure to follow Excise Tax legislation may cause levy violations or even tax evasion UAE cases.

Common violations under the Excise Law include:

 

• Late registration or late deregistration with the FTA.
• Failure to maintain proper accounting records.
• Late submission of levy return or errors in tax returns.
• Unauthorized movement or transfer of excise goods.
• Possession of non-marked excise goods (without digital tax stamps)
• Use of fraudulent documentation or incorrect data.
• Under-reported tax or concealment of excise goods.

 

Example:

If a business sells tobacco products without an excise mark, it will be considered levy violation and will carry both financial and criminal punishments.

 

What Are the Penalties Imposed by the FTA?

 

The Federal Tax Authority (FTA) has imposed quite stringent penalties for excise tax non-compliances. The fines will depend on the nature and frequency of the violation.

 

Common administrative punishments include:

 

• AED 10,000 fine: Failure to register to Excise Tax on time.
• AED 1,000 for the first offense and AED 2,000 for repeated offense – Late submission of tax return.
• 2% of unpaid tax – Immediate penalty for late payment.
• 4% of unpaid tax per month – Additional penalty for continued delay
• Deregistration fine – AED 10,000 for not applying within the deadline:
• Up to AED 50,000 – For incorrect records or repeated violations.

 

Severe penalties include:

 

• Confiscation of goods that involve the offense.
• Criminal prosecution for fraudulent acts.
• Imprisonment or a monetary fine up to three times the amount of evaded tax.
• Extended assessment period up to 15 years for proven levy evasion.

 

FTA keeps the penalties appropriate for the level of the offense so that the system is fair and there is compliance.

 

How Penalties Are Calculated ?

 

The penalties are determined by the FTA, taking into account the amount of tax due, the period of delay, and the nature of the violation.

 

• Base penalty structure:
• Immediate penalty: 2% of unpaid levy
• Monthly penalty: 4% of the unpaid levy is added each month.
• Maximum penalty: Up to 300% of the amount owed.

The following are some of the factors that affect the calculation of penalties:

1 Type of violation (first offense or repeated).

2 Whether there was intentional fraud or forgery.

3 Delay in payment or under-reporting of taxes.

4 Extended assessment periods for money laundering or concealment cases.

 

Example:

An excise tax of AED 10,000, if remaining unpaid for many months, may have its penalties grow rapidly from an immediate 2% plus 4% per month, up to a maximum of 300%.

 

How to Avoid Excise Tax Penalties

 

The best way to avoid penalties is by ensuring excise tax compliance. Companies build strong internal controls, offering accuracy in all the records.

 

Steps to stay compliant:

 

• Timely registration and deregistration via the EmaraTax portal.
• Accurate filing of returns within the FTA deadlines.
• Keep records of excise goods for at least seven years.
• Ensure correct storage and transport the excise goods correctly.
• Consult professional tax advisory firms in the UAE or corporate tax consultants for expert guidance

 

Procedural safeguards prevent errors and ensure long-term compliance with the Excise Law.

 

FAQ

 

1. What is the Excise Law in the UAE?

The UAE Excise Law is Federal Decree-Law No. 7 of 2017, which puts a tax on products that are harmful to health or the environment, including tobacco, energy drinks, and carbonated beverages.

2. Who enforces Excise Tax compliance in the UAE?

The Federal Tax Authority is responsible for enforcing Excise Tax compliance, from registration to filing to payment, and in laying penalties against non-compliance. 

3. What if I fail to register for Excise Tax in time?

You will be liable for a fine of up to AED 10,000 for late registration. Repeated delays or unregistered business activities attract heavier penalties and even criminal charges. 

4. How are the Excise Tax penalties calculated?

Penalties start at 2% of unpaid tax immediately and increase by 4% monthly. The maximum penalty can reach 300% of the unpaid tax amount. 

5. How can my business avoid Excise Tax penalties?

Moreover, timely registration, filing, and payment of all Excise Taxes via the EmaraTax portal is required. Records should be kept for seven years and a professional tax consultant should be consulted when needed.