Here's everything you need to know about Excise Tax in the UAE: FAQs

What is excise tax?

An excise tax is an indirect tax charged on the sale of a particular commodity. The government has announced the implementation of excise tax on selective items such as tobacco, energy drinks and fizzy drinks. The rate of excise tax will be 100% on tobacco products and energy drinks and 50% on carbonated drinks.

How is Excise Tax different from VAT?

The Excise Tax is different and separate from the Value Added Tax (VAT).

VAT is applied at each level in the supply chain whereas the Excise tax is applied only once either at the initial stage or at the consumption level.

Also, the introduction of the Excise Tax will meet two fundamental Government policy objectives, to raise Government revenues and also to discourage the consumption of goods considered harmful to health or the environment. This is an important policy reform in the UAE aimed at promoting economic growth and fiscal stability.

Who needs to register for Excise tax?

Businesses that are involved in the following activities will be required to register for Excise tax:

• Manufacturers of excise goods.
• Importers of excise goods.
• Stockpilers of excise goods.
• Warehouse keepers responsible for excise goods.

When does excise tax go into effect ?

The Federal Tax Authority(FTA) has decided to introduce excise tax in the UAE from 01 October, 2017.

What are the Excise Tax Rates?

The following goods will be excisable in the UAE, and their rates are :

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

When is Excise tax due?

The Excise tax is due in these following scenarios:

• Excise goods are imported into the UAE;

• Excise goods are released for consumption in the UAE (e.g., manufactured and released from a designated zone/excise warehouse, etc.); or

• Excise goods have been acquired by a stockpiler, (the tax has not previously been paid on those goods).

As the excise tax is not a transaction-based tax, goods do not have to be sold in order for the tax to be due.

What is a stockpiler?

If person or business that deals with excisable goods has stocked excisable goods and cannot prove that the Excise tax has been already paid for the same, then they are known as a stockpiler.

What is a designated zone/excise warehouse?

A designated zone is a warehouse, zone or area inside the UAE where the Excise tax will not be applicable. It is also known as an excise warehouse.

Goods held in these designated zones and the transfer between them will not be subject to Excise tax. The tax will be only imposed when these goods leave the designated zone and enter free circulation in the UAE.   The FTA takes the responsibility to register and approve an area to be a designated zone. FTA will also appoint warehouse keepers for particular zones, and thus they will be in-charge over that zone.

How will Excise tax be levied?

There are two methods of charging Excise Tax on goods, Specific or Ad valorem basis.

Specific excise taxes are charged by quantity regardless of price, i.e., per unit, pack, or kilogram.

Ad valorem excise taxes are charged as a percentage of the value of the product: Ad valorem tax = Number of units or other measurement x Selling price at any specific value per unit x Ad valorem tax rate.

The levy of Excise Tax in the GCC will be on the ad valorem basis. For example, if 100 kg of taxable products are sold at AED 100/kg and if the tax rate is 50%, the excise tax will be AED 5,000 [ 100kgX AED 100/ X 50%].

Which transactions are exempt from Excise tax?

Some transactions that are typically exempt from Excise Tax are, for example, when supplies are sent to diplomatic missions or when a travellers’ allowance is issued.

Also, business which does not regularly import excisable goods may apply to the FTA for an exemption from registration and thus will only have to pay the Excise Tax when they import goods into the UAE.

When does the registration for Excise Tax start?

Registrations for Excise tax will open 17 September 2017. Manufacturers and importers of excisable goods will have to register for Excise tax purposes through an online system provided by the Federal Tax Authority (FTA).

What is the threshold limit for Excise Tax registration?

Excise Tax doesn’t have any registration threshold. Hence, any business that is engaged in importing, exporting, manufacturing, trading, storing or transporting of excisable goods must register for the excise tax.

What will businesses have to do if they are required to pay excise tax?

Businesses those who are required to pay excise tax, have to:

• Register with the FTA
• Submit excise tax returns on a monthly basis; and
• Pay the excise tax due on the same date as submitting a tax return.

How will businesses file Excise Tax?

The business should electronically file Excise Tax returns on a monthly basis and, within 15 days of this filing, the tax due should be electronically paid to the UAE Federal Tax Authority (FTA).

When will Excise tax be refunded?

Excise tax is paid only once in the supply chain. Hence, all businesses that deal in excisable goods cannot obtain a refund of the excise tax paid on those goods, unlike VAT.

Still there are some cases where a refund of excise tax will be available:

• If Excise tax has been already paid on an excise good, which is then produced in to a ‘new excise good’, on which excise tax is again due (e.g., Excise tax will be due on both the import of raw tobacco and once the tobacco has been manufactured into cigarettes).
• If Excise tax has been already paid on an excise good which is then exported outside the UAE.
• If there is an error while paying tax to the FTA.

In these scenarios, a business registered for excise tax can get the refund of the excise tax paid. The refund will be granted by allowing a deduction of the refundable amount from the tax due in the next excise tax return period.

Can I get a refund, if I’m not registered for excise tax?

There are a limited number of cases where businesses can get refunds if they are not registered for excise tax. Those are:

• If excise tax has been paid by certain international governments, diplomatic missions and international organizations in the course of their official activities, where a reciprocal agreement is in place between the UAE and the entity’s home country.

• If business owner who is registered for excise tax in another GCC country, has paid the excise tax in the UAE, and has exported the excise goods out of the UAE.

A refund request form will be available on the FTA website that can be used to request refunds.

When will Excise tax be suspended?

Excise Tax is normally waved off when excisable goods are located in a tax warehouse or transported between tax warehouses. The Excise Tax shall be imposed upon release of the excisable goods for consumption from the tax warehouse.