Excise Tax in the UAE: A Complete Overview

In the UAE, goods harmful to human health or the environment are subject to an additional excise tax. Introduced through a Federal Decree Law in 2017 and implemented from December 1, 2019, this tax aims to discourage the consumption of such products while generating extra revenue for the government. 

This blog offers a comprehensive overview of excise tax in the UAE, detailing its definition, the range of taxable goods, applicable rates, registration requirements, return filing, and more.

What is Excise Tax?

Excise tax is an indirect tax levied on “excise goods” which are specific goods harmful to health or the environment, such as cigarettes and sugary drinks. Excise Tax is charged at the point of import or production, typically at a rate of 50% to 100%, and applied only once, unlike VAT, which is charged at each stage of the supply chain. 

Businesses dealing with excise goods must register, file returns, and pay the tax to the Federal Tax Authority, with non-compliance resulting in penalties.

Goods subject to Excise Tax in UAE

The following goods are included in the definition of “Excise Goods” are subject to Excise tax 

Tobacco and Tobacco Products: Includes items under Schedule 24 of the GCC Common Customs Tariff, such as:

• Cigarettes, cigars, and cigarillos
• Chewing tobacco
• Hand-rolling tobacco
• Herbal smoking products
• Snuff and expanded tobacco
• Reconstituted tobacco sheets

Carbonated Drinks: Covers all aerated beverages and any concentrates, powders, gels, or extracts intended for making such drinks, excluding unflavoured aerated water.

Energy Drinks: Applies to beverages marketed as energy drinks with stimulants like caffeine, taurine, ginseng, and guarana. This also includes similar substances and any concentrates, powders, gels, or extracts for energy drinks.

Electronic Smoking Devices and Liquids: Includes all electronic smoking devices and tools, whether containing nicotine or not. All liquids used in these devices, with or without nicotine, are also taxed.

Sweetened Drinks: This includes any beverage with added sugar or sweeteners, including:

• Ready-to-drink beverages
• Concentrates, powders, gels, or extracts for making sweetened drinks
• Sources of sugar like white, brown, and powdered sugar, glucose syrup
• Sweeteners such as saccharin, aspartame, sorbitol, and neotame

Exemptions from Sweetened Drink Tax:

• Beverages containing at least 75% milk or milk substitutes
• Baby formula and baby food
• Foods for special medical or dietary needs
• Alcoholic beverages

Rate of Excise Tax

Excise goods are taxed as per the following rates

Excise Tax Regulations

Businesses covered by excise tax must ensure compliance with the following obligations:

Registration:  Any business engaged in the import, production, stockpiling, or oversight of excise goods within the UAE is required to register with the Federal Tax Authority (FTA). This includes entities involved in:

• Importing excise goods into the UAE.
• Producing excise goods for consumption within the UAE.
• Stockpiling excise goods in the UAE.
• Managing excise goods at warehouses or designated zones.

Tax Calculation and Payment: Once registered, businesses must calculate the excise tax due on their goods based on the applicable rates. The excise tax must be paid to the FTA according to the established guidelines.

Filing Excise Tax Returns: Businesses are required to file excise tax returns regularly. The return must be submitted by the 15th day following the end of each tax period, detailing the amount of excise tax due and ensuring compliance with all relevant regulations.

Responsibilities and Powers of the FTA

The Federal Tax Authority (FTA) is required to implement and oversee the Excise Tax in UAE. It is committed to providing thorough support and guidance, including facilitating registration and return filing.

The FTA also has the authority to:

• Conduct Audits: Audit businesses to ensure compliance with tax regulations and impose penalties for non-compliance.
• Verify Product Classification: Determine the procedures needed to classify a product as an excise good. If classification is unclear, this may involve requesting documents, laboratory tests, or other evidence to verify the product’s ingredients.
• Update Price Lists: Set procedures for adding products to the published price list.

If a business fails to provide the required documents within the specified timeframe, the FTA may classify the product as an excise good until proven otherwise.

Comparison of Excise Tax vs VAT in the UAE

Conclusion

Excise tax, often referred to as a "sin tax," is levied on harmful consumables at a single point in the supply chain, typically during manufacturing or import. While businesses handling these goods are responsible for registration, payment, and filing returns, the ultimate burden of this consumption tax falls on the buyer. This tax serves as a deterrent against the consumption of products that pose risks to health and the environment, while also generating revenue for public services.