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What is Excise Tax in UAE? A Comprehensive Guide

What is Excise Tax in UAE? A Comprehensive Guide

The excise tax in the UAE is an indirect tax imposed on specific goods that are harmful to human health or the environment. This tax was introduced as part of the UAE’s commitment to enhancing public health, environmental sustainability, and diversifying the economy.

Table of Contents

1. Understanding Excise Tax in the UAE

The excise tax was introduced in the UAE in October 2017 to discourage the consumption of products that are detrimental to both human health and the environment. The aim is to reduce the prevalence of diseases caused by unhealthy habits, particularly those related to sugar and tobacco consumption.

The excise tax is applied to the import, production, and storage of specific goods in the UAE, increasing their retail prices, which helps discourage their consumption.

2. Goods Subject to Excise Tax

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

  • Tobacco Products: This includes all forms of tobacco, such as cigarettes, cigars, and shisha tobacco.
  • Carbonated Drinks: All carbonated beverages except sparkling water are subject to a 50% tax.
  • Energy Drinks: Beverages with stimulant ingredients like caffeine or taurine are taxed at 100%.
  • Sweetened Drinks: In December 2019, the UAE expanded excise tax to include beverages with added sugar or other sweeteners.

Businesses handling these products must factor in the tax when setting retail prices, which significantly increases the final price for consumers.

3. How Excise Tax Affects Businesses

The excise tax impacts several areas of a business's operation, from pricing to supply chain management:

  • Pricing: Businesses must include the excise tax in the price of the goods they sell, which often leads to an increase in retail prices. This adjustment requires careful consideration to maintain competitiveness.
  • Compliance: Companies involved in the production, import, or storage of excisable goods need to register with the Federal Tax Authority (FTA) and file monthly excise tax returns.
  • Supply Chain Adjustments: Businesses might need to reconsider the procurement and logistics of excisable goods, as the tax increases costs throughout the supply chain.

For more guidance on business tax compliance, Zahads offers taxation consultancy services to help businesses stay compliant with UAE regulations.

4. Steps to Comply with Excise Tax in the UAE

Businesses involved in the import, production, or storage of excise goods must comply with certain regulatory measures. The process includes the following steps:

a) Register for Excise Tax

Businesses must register with the FTA through the online portal. Registration is mandatory for all businesses handling excisable goods, whether they are importing, producing, or holding stock.

b) File Regular Tax Returns

Companies are required to file excise tax returns on a monthly basis, ensuring they report the correct value of goods and the corresponding tax. Any delays in filing returns can result in penalties.

c) Maintain Accurate Records

Businesses must maintain comprehensive records of excise goods, including details on imports, sales, and stock. Proper record-keeping helps businesses ensure accurate tax filings and avoid fines.

For companies struggling with excise tax compliance, Zahads' tax services provide expert support in registration and filing.



5. Penalties for Non-Compliance

Failure to comply with excise tax regulations in the UAE can lead to heavy fines and penalties. Common non-compliance penalties include:

  • Failure to register for excise tax: AED 20,000
  • Late filing of tax returns: AED 1,000 for the first offense, and AED 2,000 for subsequent offenses within 24 months.
  • Inaccurate tax filing: Depending on the severity, fines range from AED 5,000 to 50% of the unpaid tax.

6. FAQs on Excise Tax in the UAE

1. What is the current excise tax rate for tobacco products?

Tobacco products are subject to a 100% excise tax in the UAE.

2. Can small businesses be exempt from excise tax?

No, all businesses dealing with excisable goods must register and comply with the excise tax regulations regardless of their size.

3. What happens if a business doesn't file its excise tax return on time?

If a business fails to file its excise tax return on time, it faces penalties ranging from AED 1,000 to AED 2,000 for recurring delays.

4. How is excise tax different from VAT?

Excise tax is applied to specific goods deemed harmful to health or the environment, whereas VAT (Value Added Tax) is applied more broadly to most goods and services at a flat rate of 5%.

Conclusion

Excise tax plays a crucial role in the UAE’s effort to promote public health and reduce the consumption of harmful products. For businesses dealing with excisable goods, understanding and complying with excise tax regulations is essential to avoid hefty penalties. If you need professional assistance, Zahads offers comprehensive tax services to ensure your business remains compliant and competitive in the UAE market.



Last Updated: 19-10-2024