How to Calculate UAE Excise Tax?

Excise tax in UAE is an indirect tax levied on specific goods produced, imported, stockpiled, or released from designated zones in the United Arab Emirates (UAE). The key authority responsible for the administration and collection of excise tax in the country is the Federal Tax Authority. This article discusses the various methods used for calculating excise tax on goods in UAE as per the relevant legislation.

Goods Subject to Excise Tax UAE

The excise tax in UAE is applicable on the following goods in the UAE:

• Tobacco and tobacco products
• Energy drinks
• Carbonated drinks
• Electronic smoking devices and tools
• Liquids used in electronic smoking devices and tools

Certain goods like drinks containing at least 75% milk are excluded from the definition of sweetened drinks subject to excise tax in UAE.

How to Calculate Excise Tax in UAE?

Once the excise price is determined, the amount of excise tax payable can be calculated based on the following tax rates:

For example, if the excise price of a tobacco product is AED 100, the excise tax payable will be AED 100 (i.e. 100% of the excise price of AED 100) as the tax rate for tobacco is 100%.

Similarly, if the excise price of an energy drink is AED 50, the excise tax payable will be AED 50 (i.e. 100% of the excise price of AED 50) since energy drinks attract the maximum tax rate of 100%.

On the other hand, if the excise price of a carbonated drink is AED 100, the excise tax payable will be AED 50 only (i.e. 50% of the excise price of AED 100) as carbonated drinks are taxed at the lower rate of 50%.

Methods of Calculating Excise Tax UAE

Excise tax is calculated as a percentage of the tax base, which is the excise price of the goods. The excise price is higher than the price listed by the Federal Tax Authority in the Standard Price List and includes all other taxes or duties imposed on the goods, except for VAT. The tax can be calculated using two main methods:

1. Specific Excise Method

The specific excise method involves applying a fixed tax rate per unit of a specific product. For example, the tax on energy drinks might be AED 0.1 per milliliter, while the excise tax on cigarettes might be a fixed amount per pack. This method disregards the price of the goods and focuses solely on the quantity or volume.

2. Ad Valorem Excise Method

On the other hand, the ad valorem excise method calculates the tax as a percentage of the value of the product. For instance, if an energy drink costs AED 10 in a retail store, and the ad valorem tax rate is 100%, the excise tax would be AED 10. This method takes into account the actual selling price of the goods.

Calculating the Excise Price

The excise price is important for figuring out how much excise tax needs to be paid. The excise price will be the higher of either:

1. The price published by the Federal Tax Authority in a standard price list for the excise good, if it's available. This ensures there is a minimum benchmark price used for taxation.
2. The designated retail sales price for the excise good minus the tax amount included in it. This means the tax already included in the retail price is subtracted to find the pre-tax excise price.

To subtract the tax amount from the designated retail sales price, the following calculations should be used based on the applicable tax rate:

• For goods taxed at 50% of the excise price, the tax is equivalent to one-third of the retail price.

Using the formula:

Tax Amount = 1/3 x Retail Price

Excise Price = Retail Price - Tax Amount

= Retail Price - (1/3 x Retail Price)

= 2/3 x Retail Price

• For excise goods taxable at a rate of 100% of the Excise Price, the tax amount is equivalent to half of its designated retail sales price.

Using the formula:

Tax Amount = 1/2 x Retail Price

Excise Price = Retail Price - Tax Amount

= Retail Price - (1/2 x Retail Price)

= 1/2 x Retail Price

For concentrates, powders, gels or extracts, the excise price shall be calculated based on the recommended retail selling price identified by the importer/producer after deducting VAT. This ensures consistency even for non-standardized products.

Excise Tax Registration in UAE

Any person conducting the following activities in the UAE must register for excise tax regardless of the quantity involved:

• Production of excise goods in the UAE in the course of business. This covers manufacturers and producers based in the UAE.
• Import of excise goods into the UAE. This applies to importers bringing excise goods into the country.
• Release of excise goods from excise tax designated zones. Specific zones may be designated where excise goods are stored or processed without immediate taxation.
• Stockpiling of excise goods in the UAE in the course of business. This targets wholesalers and distributors holding an inventory of excise goods.

The registration can be completed online through the Federal Tax Authority's EmaraTax platform. The application process involves:

1. Creating an EmaraTax account on the Federal Tax Authority portal if not already registered for other taxes
2. Accessing the taxable person profile
3. Clicking register under excise tax
4. Completing the registration form providing basic details of the applicant and activities
5. Uploading required supporting documents like trade licenses, articles of association etc.
6. Applying for review and approval

The Federal Tax Authority aims to process a complete application within 20 business days from receipt. An approval notification is sent upon successful registration with an excise tax registration number. The registration must be completed within 30 days from the end of any month in which the person carries out or intends to carry out activities subject to excise tax.

FAQs

Q. Who is responsible for excise tax administration in the UAE?

1. The Federal Tax Authority is responsible for the administration and collection of excise tax in the UAE. Key responsibilities of FTA include registration of liable persons, determination of excise prices, audit, and enforcement of excise tax laws.

Q. What is the deadline to register for excise tax?

1. As per the Federal Tax Authority, the registration must be completed within 30 days from the end of any month in which the person carries out or intends to carry out activities subject to excise tax.

Q3. How long does it take to process an excise tax registration application?

A3. The Federal Tax Authority aims to process a complete excise tax registration application within 20 business days from receipt.

Conclusion

In summary, adhering to excise tax regulations in the UAE encompasses various technical aspects, including registration, establishing excise prices, calculating tax obligations, and submitting returns promptly. Failure to comply may result in substantial financial penalties. Given the intricate nature of excise tax laws and their regular updates, it is recommended that businesses engaged in excisable goods seek the assistance of experienced tax consultants in UAE. Engaging a specialized tax advisor can facilitate a seamless navigation of regulatory requirements for businesses.

Read More: Guide to Excise Tax Deductions in UAE Designated Zones