The United Arab Emirates implemented an Excise Tax across the nation to safeguard human health and the environment. It is a form of indirect tax imposed on specific goods that are perilous for human consumption and can negatively impact the environment as well. Therefore, as part of the UAE’s comprehensive tax strategy, the Federal Tax Authority (FTA) introduced the UAE Excise tax, governed by Federal Decree-Law No. 7 of 2017, to promote healthier lifestyles and generate revenue for public services.
Compliance with tax laws is mandatory in the UAE. Businesses that are engaged in the production, import, or stockpiling of excise goods are required to register for excise tax UAE, obtain their Tax Registration Number (TRN), ensure accurate excise tax UAE calculations, and file timely returns. This guide will offer a comprehensive understanding of how excise tax works in the evolving tax framework of the UAE.
UAE Excise Tax: Overview
Excise tax is an indirect tax levied on specific goods that are harmful to health or the environment. Unlike VAT, excise tax is charged only once at the point of import or production, typically at a rate of 50% - 100%. Entities dealing with excise goods are required to register, file returns, and pay the taxes to the FTA to avoid non-compliance issues.
Purpose of Excise Tax UAE:-
1. Public Health: To impose taxes on harmful products in order to reduce their consumption. For example, tobacco, energy drinks, and sweetened beverages.
2. Environmental Protection: To reduce the consumption of products that cause environmental dilapidation. For example, electronic smoking devices.
3. Diversification of Revenues: To contribute to the economic growth of the UAE through proceeds from non-oil sectors.
4. Regulatory Compliance: To establish a framework for monitoring and imposing taxes on harmful goods through excise tax registration and return.
5. Consumer Awareness: To enable better choices for consumers by demonstrating the effect of taxation on excise goods.
Goods subject to Excise tax UAE
The UAE Excise tax is applied to specific categories of goods, also known as “excise goods”, that are believed to be hazardous to consumer health or contribute to environmental harm. The authorities impose higher tax rates on such goods to discourage their consumption and promote healthier living choices among the general public.
Below listed are the categories of goods covered under the UAE’s excise tax framework:-
1. Tobacco and tobacco products (100%) – According to the GCC Common Customs Tariff’s Schedule 24, the list includes cigarettes, cigars, and various forms of smokeless tobacco such as chewing tobacco, snuff, and other alternatives.
2. Carbonated drinks (50%) - The carbonated drinks category encompasses any aerated beverages other than plain, unflavored sparkling water. In addition, all forms of carbonated soft drinks and their concentrated forms such as powders, gels, or extracts used to prepare such beverages are also included in this category. Since these products contain high levels of sugar, they may pose health risks such as obesity, diabetes, and other chronic health conditions.
3. Energy drinks (100%) – Energy drinks that include stimulants such as caffeine, taurine, ginseng, and guarana, are counted under the excise goods category. Additionally, concentrates, powders, and gels formulated to be mixed into energy beverages are also included in this category. These drinks carry high levels of caffeine and other stimulants, which may cause cardiovascular issues and increased stress levels in people.
4. E-cigarettes and related products (100%) - In December 2019, the UAE authorities added electronic smoking devices, their components, and liquids (both nicotine and non-nicotine-based), E-cigarettes, and vaping products to the excise tax list, as part of the UAE’s effort to keep pace with evolving consumption patterns. Research stated that these products led to various respiratory and cardiovascular health risks.
5. Sweetened beverages (50%) - In 2019, the UAE expanded the list of excise goods to cover sweetened beverages including drinks with added sugar or other sweeteners (in ready-to-drink form or concentrates such as powders and gels). However, beverages with at least 75% milk content, baby formula, and products for special medical or dietary needs are exempt from this category in order to encourage healthy nutritional alternatives.
Excise Tax Regulations in the UAE
Businesses subject to UAE Excise tax must ensure to comply with the following obligations:
1. Excise Tax registration
Businesses that are engaged in the import, production, stockpiling, or oversight of excise goods within the UAE are required to register with the FTA for excise tax. The entities eligible for this process include:
- Entities that import excise goods into the UAE.
- Businesses that produce excise goods for consumption.
- Entities that stockpile excise goods.
- Enterprises that manage excise goods at warehouses or designated zones.
2. Excise Tax payments
All the registered businesses in the UAE are required to calculate the excise tax due on their goods based on the relevant rates and established guidelines. Accordingly, they must pay the excise tax to the FTA within the specified timeframe.
3. Excise Tax return filing
Businesses must ensure to regularly submit excise tax returns by the 15th day following the end of each tax period, specifying the tax due and ensuring adherence to all relevant regulations.
Benefits of Excise Tax Compliance
There are multiple benefits of complying with the excise tax obligations:-
1. Compliance with UAE Laws: Fulfilling the UAE excise tax obligations ensures that businesses adhere to local regulations and stay protected from penalties and legal issues.
2. Accurate Tax Calculation: Excise tax compliance allows businesses to calculate and pay excise tax on excise commodities accurately, thereby preventing any financial discrepancies and ensuring that all dues are settled on time.
3. Enhanced Business Reputation: Compliance with UAE excise tax laws enhances the credibility and reputation of the business in the market, thus validating adherence to legal requirements.
4. Avoiding Penalties: Proper registration and timely payment of excise tax ensure smooth business operations and help businesses avoid hefty fines.
Goods exempted from UAE Excise tax
Under Federal Decree-Law No. (7) of 2017 and guidelines related to excise tax UAE, there are specific exemptions and reliefs:
1. Exported Excise Goods - Goods exported outside the UAE (Article 12, Federal Decree-Law No. (7))
2. Specific Product Categories - Medical drinks, baby formula, dietary products, & unmanufactured tobacco (Section 3.4.6, Guide; Schedule 24, GCC)
3. Diplomatic Missions/Organizations - Foreign entities used for official purposes (Article 21, Federal Decree-Law No. (7))
4. Travelers' Allowances - Personal imports below duty-free limits (Article 6(3), Federal Decree-Law No. (7))
5. Non-Regular Importers - Infrequent importers with imports ≤1 in 6 months or ≤3 in 24 months (Section 4.3.2, Taxable Persons Guide)
6. Stockpiling Exceptions - Stockpiles up to 2 months' sales volume (Section 5.3, Taxable Persons Guide)
7. Designated Zones - Goods in designated zones, until released for free circulation (Article 13, Federal Decree-Law No. (7))
Non-compliance consequences
Non-compliance with excise tax regulations such as late registration, failure to deregister on time, delayed filing of tax returns, or late payment of taxes can lead to significant penalties.
1. Late Registration/Deregistration - AED 10,000 (registration) AED 1,000/month (deregistration, max AED 10,000)
2. Late Tax Return Submission - AED 1,000 (first time) AED 2,000 (repeat within 24 months)
3. Late Payment of Taxes - 2% of unpaid tax (immediate) 4% per month (max 300% of unpaid tax)
Conclusion
We specialize in guiding businesses through the complexities of excise tax compliance in the UAE. Our experienced tax consultants ensure to provide end-to-end support to businesses, making sure that they stay fully compliant with UAE regulations.
Contact us today to learn comprehensively about UAE excise tax.
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