Excise Tax FAQs

What is the excise tax in the United Arab Emirates?

Excise tax is an indirect tax that is imposed on certain items. These are usually things that are hazardous to people's health or the environment. The main goal of the tax is to discourage the consumption of certain goods while simultaneously generating income for the government to spend on important public services. According to Federal Decree-Law No. (7) of 2017, the excise tax came into effect on October 1, 2017.

What do you mean by excise goods?

Excise goods are carbonated beverages, energy drinks, and tobacco products.

• Carbonated drinks such as aerated beverages, except for unflavored aerated water. This will also include concentrations, powder, gel, or any other extracts that can be made into an aerated beverage.
• Energy drinks are sold and marketed as energy drinks that contain stimulant substances to boost mental and physical stimulation. This includes, without limitation, caffeine, ginseng, taurine, and guarana. It also includes ingredients that are identical and carry a similar effect to the above ingredients.
• Tobacco or tobacco products

Which products are subject to an excise tax?

In the UAE, excise tax is imposed on certain products that are considered harmful to human health or the environment. Here are the main categories of products subject to excise tax:

• Tobacco and Tobacco Products: This includes all forms of tobacco, such as cigarettes, cigars, and shisha.
• Carbonated Drinks: This includes all aerated beverages, except for unflavored carbonated water.
• Energy Drinks: Drinks containing stimulant ingredients such as caffeine, taurine, ginseng, or any other substances that provide similar effects.
• Sweetened Beverages: Any product with added sugar or other sweeteners, whether in the form of a drink or a concentrate (e.g., syrups or powders used for making drinks).
• Electronic Smoking Devices and Tools: Includes e-cigarettes and other vaping devices.
• Liquids Used in Electronic Smoking Devices: Any liquids designed for use in electronic smoking devices, even if they do not contain nicotine.

These products are subject to an excise tax to discourage consumption due to their potential health and environmental impacts. The excise tax rate can range from 50% for carbonated drinks to 100% for tobacco products, energy drinks, and electronic smoking devices.

What are the excise tax rates in the UAE?

 Here are the excise tax rates in the UAE

• Carbonated drinks – 50%
• Energy drinks – 100%
• Tobacco – 100%

What is the threshold registration for excise registration in the UAE?

There is no minimum turnover threshold for excise tax registration. Any person (producer, importer, stockpiler) handling excise goods must register. In certain cases where the FTA is satisfied that the person does not regularly deal with excise goods, they may apply for an exemption or relief from registration obligations.

What is a stockpiler?

A stockpiler is someone who holds excise goods but is unable to provide proof that they have already paid excise duty. 

Who must register for excise tax, and what are the related compliance requirements?

The following groups are required to register for excise tax

• Producers of excise goods.
• Importers of excise goods.
• Stockpilers of excise goods.

Warehouse keepers oversee areas designated for excise tax purposes (where applicable).

How can businesses register for excise tax with the UAE Federal Tax Authority (FTA)?

Businesses can register for excise tax with the UAE Federal Tax Authority (FTA) through the following steps:

• Create an Account: Register on the FTA's e-Services portal by providing the necessary business details.
• Provide Information: Businesses must submit information such as their activity, tax obligations, and whether they import or manufacture excise goods.
• Submit Required Documents: Documents like trade licenses and proof of business activities may be required.
• Receive Approval: After successful registration, the business will receive a Tax Registration Number (TRN) and be officially registered for excise tax.

Registration is mandatory for any business dealing with excise goods, and businesses must file excise tax returns regularly once registered. Submit excise tax returns on a monthly basis and Pay the excise tax due on the same date as submitting a tax return.

What documents are required for excise tax registration?

• The manager, owner, and senior management should all have a copy of their passport
• Manager, owner, and senior management‘s Emirates ID 
• Trade license
• Certificate of Incorporation (where appropriate)
• Customs number provided by the Customs Department (if appropriate)
• Authorized signatory documents
• Partnership Agreement / Articles of Association / Club or Association 
• Registration/Law or Decree (where appropriate)
• Bank Account Details:
• Business information includes the position for which you are enrolling for excise tax (producer, importer, etc).
  • Details about the excise items that the company deals in.
  • Customs Authority registration (where applicable).
  • If you have already registered for excise tax in another GCC state, the TRN.

When is the Excise Tax due?

In the UAE, excise tax is owed when products are "released for consumption," or when they go into free circulation. Excise tax is due when:

• Excise goods are imported into the UAE.
• Excise goods are released for consumption in the UAE (e.g., produced and released from a designated zone, such as an excise warehouse); or
• Excise goods are acquired by a stockpiler, where tax has not previously been paid on these goods.

Because excise tax is not a transaction-based tax, it can be collected without the sale of products.

Which areas can be registered as a designated zone for Excise Tax purposes?

Any area recognized by the FTA as being under the supervision of a warehouse keeper and a gated area meant to be a free zone that can only be entered or exited by a designated route should be considered a designated zone.

Are refunds of the Excise Tax available?

Refunds of Excise Tax in the UAE are limited and subject to Federal Tax Authority (FTA) approval. They are generally allowed only to avoid double taxation or undue financial burden. Refunds may be claimed in the following cases:

• Excise Goods Used to Produce a New Excise Good:If excise tax has been paid on an excise good later used to manufacture another excise good, a refund may be requested to prevent double taxation.
  
• Exported Excise Goods: When excise goods on which tax has been paid are exported outside the UAE, a refund may be available upon submission of export proof and related documentation.
  
• Excise Goods Returned to a Tax Warehouse:  Refunds may be granted when excise goods are returned to a designated tax warehouse under specific FTA-approved conditions.

Refunds are not automatic; businesses must submit an application with supporting documents, and the FTA must approve the claim before any refund is issued.

Is the Excise Tax payable by travelers entering the UAE?

Travelers entering the UAE with excise goods for non-business purposes do not need to register as importers of excise goods. However, they may need to pay excise tax depending on the value of the items they are bringing in. Specifically:

• Below the Customs Duty Threshold: If the value of the excise goods is below the exemption threshold outlined in the UAE Customs Laws, no excise tax is required.
• Above the Threshold: If the value of the excise goods exceeds the exemption limit, the traveler may need to pay the applicable excise tax on those goods.

These rules ensure that while individuals can bring personal items without significant tax burdens, higher-value imports still contribute to excise tax collection.

Will there be bad debt relief for excise goods?

Since excise is not a transaction-based tax, providers who have sold a customer excise goods but have not yet received payment from that client would not be eligible for any relief. Excise tax is due based on the date the goods are released for consumption (i.e., enter free circulation) in the UAE, regardless of whether they are subject to an onward sale.

 Will excise tax apply to goods released for consumption in a Freezone?

Yes, an excise tax will apply to goods released for consumption in a free zone, including those in free zones registered as designated zones. If goods are intended for retail sale or consumption within the freezone, the importer or producer who releases the goods will be responsible for paying the excise tax 

 Will samples be subject to an excise tax?

Yes, samples of excise goods that are distributed for free will still be subject to excise tax. Since excise tax is not based on the transaction but on the release of goods for consumption, the tax is due when the goods enter free circulation in the UAE, regardless of whether they are intended for sale or given away as samples

What is a Designated Zone, and how does it work?

A designated zone is any fenced area designed to be a free zone that can only be entered or exited through an authorized route, as well as any place defined by the Authority as being under the control of a Warehouse keeper. For example, the Jebel Ali Free Zone and the SAIF Free Zone. Even if sold in a free zone, excise goods are not subject to tax until they leave the designated zone or are introduced for consumption. For excise tax reasons, a designated zone is considered as if it were outside the UAE.

What is the process for calculating excise tax on imported and locally manufactured goods?

Excise tax is applied to specific goods that are harmful to health or the environment, such as tobacco, energy drinks, and carbonated drinks.

• Imported Goods: Excise tax is calculated based on the cost, insurance, and freight (CIF) value of the goods at the time of import. The tax rate depends on the product category, typically ranging from 50% to 100%.
• Locally Manufactured Goods: Manufacturers must calculate excise tax at the time of production based on the quantity produced. They need to register with the Federal Tax Authority (FTA) and file returns for excise duty.

Both types of goods are subject to the excise tax, and the applicable tax rate must be applied according to the specific classification of the product.

How can a declaration request be submitted for lost or damaged excise goods, including physical loss, natural shortages, or laboratory samples?

A declaration request for lost or damaged excise goods can be submitted through the EmaraTax portal.

Procedure for Handling a Natural Shortage:

• Log in to the EmaraTax system.
• Select “Request for Declaration of Lost and Damaged Goods.”
• Complete the online form and attach the required supporting documents.
• Submit the request and await approval from the relevant authority.
  
  

What penalties exist for non-compliance with excise tax regulations?

Contact Reyson Badger today to know more and avail of our audit service