Understanding Excise Tax in the UAE: A Comprehensive Guide
Excise Tax Overview: It is commonly understood that the Value Added Tax (VAT) in the UAE is set at 5%. However, a new form of taxation—Excise Tax—has recently been implemented. This tax specifically targets tobacco products, energy drinks, and carbonated beverages, with tax rates of 100%, 100%, and 50%, respectively. The intention behind the Excise Tax is to incentivize consumers to adopt healthier lifestyles. This comes as a response to growing health concerns in the country, such as increasing rates of cancer and obesity. One of the government’s primary objectives is to reduce, if not eliminate, these health issues within the nation.
What You Should Know: Registering and Paying in the UAE
Applicable Goods Subject to:
- Carbonated Drinks (50%):
- These are beverages infused with carbon dioxide. Examples include Pepsi, Coca-Cola, and Fanta. Additionally, substances like concentrates, powders, gels, or extracts intended for creating carbonated beverages are also taxed. The exception to this rule is flavored water.
- Tobacco Products (100%):
- All entries listed under Schedule 24 of the GCC Common Customs Tariff fall under this category.
- Energy Drinks (100%):
- These are marketed as products that enhance both physical and mental performance. Ingredients typically include stimulants such as caffeine, taurine, ginseng, and guarana. Other products producing similar effects are also subject to this tax rate.
Point of Taxation for Businesses
Excise Tax is levied in three specific scenarios:
- During the production of excise goods,
- Upon importing excise goods into the UAE,
- Or at the time of the goods’ release for consumption.
In general, the tax is collected at the point of release for consumption, and it is the responsibility of the producer, manufacturer, or importer to make the payment.
In certain instances, Excise Tax may be refunded to prevent double taxation within a single supply chain. For example, raw tobacco is taxed, and the tax is again applied when it’s manufactured into cigarettes.
By understanding these key points, businesses and consumers can better navigate the complexities of Excise Tax in the UAE.
Understanding the Structure and Implementation of Excise Tax in the UAE
Methods of Calculation in the UAE
Excise tax in the United Arab Emirates (UAE) can be levied through two principal mechanisms:
- Ad Valorem Excise Taxes:
The term “Ad Valorem” originates from Latin, meaning “according to value.” In this method, the tax is calculated based on the value of the goods or services in question. For example, if a soda is priced at AED 1 and the tax rate is 50%, the applicable excise tax would be AED 0.50.
- Specific Excise Taxes:
Unlike the Ad Valorem method, the Specific Excise Tax is imposed based on a fixed rate per unit quantity, such as per pack or per kilogram.
For the Gulf Cooperation Council (GCC) countries, the Ad Valorem Excise Tax Overview is the chosen methodology for imposing the tax.
Preparing for Implementation
The Federal Tax Authority (FTA) has disseminated essential guidelines concerning the forthcoming implementation of the Excise Tax in the UAE. Familiarity with these guidelines is crucial for businesses to effectively navigate the new tax landscape.
Excise Tax Overview: Businesses found non-compliant during FTA audits are subject to punitive measures, as the FTA holds the authority to conduct such audits.
Further Reading: Excise Tax Facts
The Executive Regulation of Federal Decree-Law Number 7 of 2017, commonly referred to as the Excise Tax Law, outlines the timeline for tax payments. Manufacturers are responsible for remitting the Excise Tax to tax authorities before removing locally produced goods from their production sites. Similarly, importers must pay the tax before releasing imported goods from customs.
Tax returns for Excise Tax should be filed electronically on a monthly basis. Payments are expected to be settled within 15 days following the filing.
Registration and Responsibilities
Businesses must register for excise tax if they engage in any of the following activities:
- Importing excise goods into the UAE
- Producing excise goods for local consumption
- Stockpiling excise goods under specific circumstances
- Operating an excise warehouse or designated facility (e.g., warehouse keeper)
A “stockpile” refers to a substantial inventory of goods stored for future use. A business is considered a stockpiler if it retains large quantities of excise goods and cannot demonstrate payment of the applicable excise tax.
Note: No minimum annual revenue threshold exists for excise tax liability. Therefore, all businesses falling within these categories must register for excise tax in the UAE prior to its implementation.
For additional guidance, consult with VAT and excise tax experts, such as those at MP Elites Consulting.
Disclaimer: This article is intended for informational purposes and should not be considered as legal or financial advice.