Excise Tax UAE : All You Need to Know

Alongside the 5% VAT rate, the UAE introduced a separate tax, Excise Tax, applying to specific goods considered harmful to human health or the environment. Excise Tax applies to tobacco, energy drinks, and carbonated drinks, at rates of 100%, 100%, and 50% respectively. The goal is partly to encourage healthier consumption choices, given documented health concerns in the country such as obesity and related conditions, and partly to generate government revenue from these specific goods.

Excise Tax Law Applies to the Following Goods

• Carbonated drinks (50%). Beverages with carbon dioxide dissolved in them, such as cola or soda-type drinks. Concentrations, powder, gel, or extracts produced for making carbonated drinks are also covered. Flavored water is a notable exception, not treated as a carbonated drink for this purpose.
• Tobacco products (100%). Schedule 24 of the GCC Common Customs Tariff lists all entries covering tobacco and tobacco products subject to this rate.
• Energy drinks (100%). Products marketed as providing physical or mental performance enhancement, typically containing stimulants like caffeine, taurine, ginseng, or guarana that increase alertness. Products with comparable effects are treated the same way. Concentrations, powder, gel, or extracts produced for making energy drinks are also covered.

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When Does Excise Tax Liability Actually Arise?

Excise Tax liability arises in three situations:

1. At the time excise goods are produced in the UAE
2. At the time excise goods are imported into the UAE
3. At the time excise goods are released from a designated zone for consumption elsewhere in the UAE, where tax hasn’t previously been settled on them

In practice, the tax is generally charged at the point of release for consumption. The producer, manufacturer, or importer of the relevant goods pays Excise Tax at that point.

Excise Tax can be refunded in certain cases to prevent tax being collected twice within the same supply chain, for example, where raw tobacco already carried Excise Tax and is later manufactured into cigarettes.

What Is the Rate and Method of Charging Excise Tax?

Excise Tax can be charged using two methods:

Ad Valorem Excise Tax

Ad valorem is Latin for “according to value.” This method bases the tax charge on the value of the goods. For example, if a carbonated drink costs AED 1 and the applicable rate is 50%, the Excise Tax due is AED 0.50.

Specific Excise Tax

This method doesn’t base the charge on value, instead applying a specific fixed rate per unit of quantity, such as per pack or per kilogram, regardless of the item’s actual price.

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Worked Example: Calculating Excise Tax Under Both Methods

A distributor sells 1,000 cans of an energy drink priced at AED 5 per can. Using the ad valorem method at the 100% rate applicable to energy drinks, Excise Tax due is AED 5 x 100% x 1,000 units, AED 5,000 total. If the same product category instead used a specific rate of, say, AED 3 per unit under a specific charging structure, the calculation would instead be AED 3 x 1,000 units, AED 3,000 total, regardless of the AED 5 selling price per can. The method actually applied depends on which structure is designated for the specific product category under the Executive Regulation, businesses need to confirm which method applies to their specific goods rather than assume ad valorem applies universally.

How to Prepare for Excise Tax Compliance

The Federal Tax Authority (FTA) publishes guidance on Excise Tax implementation and compliance. Staying current with this guidance genuinely helps a business navigate its obligations correctly. Businesses found non-compliant during an FTA audit, which the FTA has full authority to conduct, face penal measures as a result.

Compliance With Excise Tax

The Executive Regulation of Federal Decree-Law No. 7 of 2017, the Excise Tax Law, sets out the timeframe for tax payment. Before a manufacturer removes locally produced goods from its place of production, it’s responsible for remitting the applicable Excise Tax to the tax authority. Before imported goods are released from the customs area, the importer is responsible for remitting the applicable Excise Tax.

Excise Tax returns are filed electronically on a monthly basis, and the FTA collects the amount due within 15 days of filing.

Excise Tax Registration

Any business involved in the following activities carries Excise Tax responsibility:

• Importing excise goods into the UAE
• Producing excise goods for consumption in the UAE
• Stockpiling excise goods in specific instances within the UAE
• Overseeing an excise warehouse or designated zone (a warehouse keeper)

A stockpile is a bulk supply stored for future use. A stockpiler is a person or business holding a significant quantity of excise goods for business purposes where it can’t be demonstrated that Excise Tax has already been paid on those goods. A business isn’t considered a stockpiler, and isn’t liable for Excise Tax, on goods it held before Excise Tax was implemented. Further detail on distinguishing stockpiler status is set out in the Excise Tax Executive Regulation.

Excise Tax applies to any business engaged in, or planning to engage in, the activities listed above, regardless of annual income, there’s no minimum revenue threshold that exempts a business from these obligations. Businesses falling into these categories need to register for Excise Tax with the FTA.

Frequently Asked Questions (FAQs)

How Farahat & Co. Can Help

Farahat & Co., a trusted Tax Firm in UAE, assists businesses with Excise Tax registration, compliance, and return filing.

Contact Farahat & Co. today to discuss your Excise Tax requirements.