What is Excise Tax?

Excise Tax is a form of indirect tax levied on specific goods. These goods are typically those that are harmful to human health or the environment. The intent of Excise Tax is to reduce the consumption of these commodities while also raising revenues for the government that can be spent on public services.

Is Excise Tax chargeable on all products?

The excise tax was introduced across the UAE in 2017. Below is a list of goods on which it was initially applied:
Tobacco products (rate of Excise tax 100%)
Carbonated drinks (note that this excludes sparkling water) (rate of Excise tax 50%)
Energy drinks (rate of Excise tax 100%)

From 1 December 2019, below items are additionally added to this list of Excisable products,
Sweetened Drinks (rate of Excise tax 50%)
E-cigarettes, liquids & tools (rate of Excise tax 100%)

When is Excise Tax payable?

The Federal Decree-Law No. 7 of 2017 on Excise Tax stipulates that businesses/persons that are engaged in any of the below activities must register for Excise tax;
Importing of excise goods;
Production of excise goods;
Releasing goods from an excise tax designated zone;
Stockpilers of excise goods, in certain cases; and
Warehouse keepers, in certain cases.
At the point that excise goods are either imported, stockpiled, produced or released for consumption in the UAE, the importer, stockpiler, producer or person releasing those goods at the time must register for excise tax.

When to register?

There is no registration threshold for excise tax, therefore any person who has been involved or has the intention to be involved in any of the activities listed above must register an account for excise tax.

Any person involved or forming the intention to be involved in any of the activities listed above must notify the FTA within 30 days of the end of the month in which they were involved or formed the intention to be involved, that they have a liability to be registered for excise tax. The person will then be registered with effect from the first day of the month in which they were involved or the intention was formed.

If you fail to notify the FTA of a requirement to register for excise tax within the specified timeframe, the FTA may issue a tax assessment to collect any potentially underpaid excise tax. You may also be charged an administrative penalty.

Businesses involved in chargeable activities relating to excise goods will not be authorized to conduct such activities without being registered for excise tax. Therefore, if you fail to notify the FTA of your requirement to register for excise tax then you should not conduct that aspect of your business.

When to de-register?

A taxable person may apply to deregister from excise tax when he is no longer engaged in taxable activities i.e. the import, production or stockpiling of excise goods in the UAE.

He must notify the FTA that he is no longer engaged in taxable activities within 30 days from the date his taxable activity ceases. The FTA will deregister the taxable person with effect from the date his taxable activity ceased. In order to deregister, a taxable person must be up to date with all tax return submissions and payments of tax and penalties.

What all is included under tobacco products and electronic smoking devices and tools? The definition of tobacco and tobacco products for excise tax purposes shall be any products that fall under Schedule 24 of the GCC Common Customs Tariff, including electrically-heated cigarettes. Those products include products such as Chewing tobacco, Cigars, Cigarettes, Cigarette rag, Cigarillo, Expanded tobacco, Hand rolling tobacco, Herbal smoking products, Reconstituted tobacco sheets, Snuff.

Liquids used in electronic smoking devices and tools shall include all liquids used in such devices and tools and the like, whether or not containing nicotine, which would be classified on import under the Customs HS codes determined by a decision issued by the Minister of Finance.

What all is included under carbonated drinks?

The definition of carbonated drinks for excise tax purposes shall include any aerated beverage except for unflavoured aerated water. This will include any concentrates, powder, gel or extracts intended to be made into an aerated beverage. Carbonated drinks do not include those containing alcohol. Note: Where a concentrate which is to be made into a carbonated drink at the point of retail has already been subject to excise tax in the UAE, the drink which is then made from that concentrate at the point of retail sale is not considered to be an excise good for the purposes of applying the tax. This is where the concentrate has already been taxed, and the concentrate itself is only capable of being made into a carbonated drink at the point it is mixed with an aerating agent at the point of retail sale.

What all is included under energy drinks?

The definition of energy drinks for excise tax purposes includes any beverages which are marketed, or sold as an energy drink, and which may contain stimulant substances that provide mental and physical stimulation. Such ingredients can include caffeine, taurine, ginseng, and guarana, but could also include others. Energy drinks also include not only the beverage itself but also any concentrates, powder, gel or extracts intended to be made into an energy drink. Similarly to carbonated drinks, where a concentrate which is to be made into an energy drink at point of retail has already been subject to excise tax in the UAE, the drink which is then made from that concentrate at the point of retail sale is not considered to be an excise good for the purposes of applying the tax. Energy drinks do not include those beverages containing alcohol. What all is included under sweetened drinks? The definition of sweetened drinks shall include any products to which a source of sugar or sweetener is added that is produced in either as: A ready-to-drink beverage that is intended to be used as a drink Concentrates, powders, gel, extracts or any form that can be converted into a sweetened drink

Sugar includes any type of sugar determined under Standard 148 of the GCC Standardization Organization under the heading “Sugar” and any subsequent and relevant standards. Some examples according to Standard 148 would include but are not limited to white sugar, soft white sugar, powdered sugar, soft brown sugar, glucose syrup and other, as these are defined within the Standard and subject to the respective requirements for their composition, quality, packaging, and other. Sweeteners include any type of sweeteners determined under Standard 995 of the GCC Standardization Organization under the heading “Sweeteners Permitted in Food” and any subsequent and relevant standards. Some examples according to Standard 995 would include but are not limited to saccharin and its salts, aspartame, sorbitol, neotame, and others, as these are defined within the Standard and subject to the respective requirements for their composition, quality, packaging, and other.

It should be noted that sweetened drinks do not include the following:
Ready to drink beverages containing at least 75% milk;
Ready to drink beverages containing at least 75% milk substitutes;
Baby formula, follow up formula or baby food;
Beverages consumed for special dietary needs as determined under Standard
654 of the GCC Standardization under the heading “General Requirements for Prepackaged Foods for Special Dietary Uses” and any subsequent and relevant standards;
Beverages consumed for medical uses as determined under Standard 1366 of the GCC Standardization Organization under the heading “General Requirements for Handling of Foods for Special Medical Purposes”, and any subsequent and relevant standards.

How Excise goods are valued?

Excise tax is calculated as a percentage of the excise price of the goods. The excise price of the goods (i.e. the ‘tax base’ before excise is calculated) is the higher of:
The price stated in a list published by the FTA confirming the excise price of excise goods; or
The designated retail sales price of the goods, less any excise tax already included in that price.

The designated retail sales price shall be the higher of: The recommended selling price of the Excise Goods in the course of its retail sale that is identified declared and affixed to the goods by the Importer or Producer after deducting VAT. “The recommended selling price of the Excise Goods in the course of its retail sale” shall mean the price achieved when the Excise Good is sold for retail purposes directly to the consumer and does not include the cases where the price is increased as a result of selling the Excise Good in a hotel, restaurant or similar establishment for the purpose of consumption inside these premises. the average retail selling price of the goods in the market after deducting VAT.

The average retail selling price of the goods in the market shall be calculated pursuant to procedures specified by the Authority. When are excise goods considered “stockpiled” in the UAE? Excise goods are considered stockpiled in the UAE if the following conditions are met: The goods are held in free circulation in the UAE, intended to be sold in the course of business and Excise Tax on those goods has not been paid, remitted, relieved or deferred; and They are ‘excess’ excise goods

Where excise goods meet the above conditions, they become subject to Excise Tax on the later of the date they are acquired by the stockpiler, the date an increase in tax obligation arose or the date the Decree-Law comes into force in respect of the relevant excise goods. For ‘excess’ excise goods calculation, the guidance of FTA needs to be adhered to which currently states as below, Excise goods are considered to be excess excise goods if they meet ALL of the following conditions, The goods are owned by a person on the date cabinet decision comes into effect such as cabinet decision No. 52 of 2019 comes into effect in respect of sweetened drinks, and The goods are acquired by the stockpiler prior to the date above The goods are intended to be sold by the person in the course of business; and The quantity of each type of excise goods owned exceeds the Average Monthly Stock level held by the person, based on the person’s Average Monthly Stock holding level of that excise good. The average monthly stock holding is calculated by reference to the previous 12-month period prior to the date of cabinet decision comes into effect in respect of those goods such as in case of sweetened drinks as 1 December 2019 (i.e. 1 December 2018 to 30 November 2019).

The average monthly stock level for the abovementioned period should be calculated in units, as the sum of the total number of units of stock of a particular product over the 12-month period, divided by 12. As an exception to the above, where the person holds a quantity of goods higher than two times the average monthly sales volume of excise goods (calculated by reference to the 12-month period prior to date of cabinet decision comes into effect in respect of those goods such as in case of sweetened drinks as 1 December 2019 i.e. 1 December 2018 to 30 November 2019), then any volume of goods exceeding this value shall be considered excess excise goods and Excise Tax shall be due on the excess. This exception applies regardless of whether the volume of goods held is below the average monthly stock level outlined above.

Calculations can be summed in the below steps,

Step 1: Populate monthly stock level for the last 12 months (quantity and value). It should be noted that where a person holds the stock for less than 12 months, the calculation should still be performed on the basis of a 12-month period and any months without actual stock being held or sold should be included in the calculation with a value of ‘zero’.

Step 2: Calculate the average monthly stock level from above

Step 3: Populate monthly sales for the last 12 months. It should be noted that where a person holds the stock for less than 12 months, the calculation should still be performed on the basis of a 12-month period and any months without actual stock being held or sold should be included in the calculation with a value of ‘zero

Step 4: Calculate two times average monthly sales level from above

Step 5: Where the stock held by a person on date of cabinet decision comes into effect in respect of those goods such as in case of sweetened drinks 1 December 2019 is considered ‘excess’ under either Step 2 or Step 4, then Excise Tax shall be due based on that Calculation, and shall be calculated on that ‘excess’. In case it is found excess in both calculations then the one with higher is considered. These calculations are at the individual product level

Example: Sweet LLC held 150 units of a specific Sweetened Drink each month from December 2018 – April 2019. From May 2019 onwards it held 200 units of this Sweetened Drink per month. Juice LLC sold 50 units of the Sweetened Drink per month for 4 months of the year and 125 units per month for 8 months of the year. On 1 December 2019, the business has 300 units of the same Sweetened Drink on hand.

Calculation A: Its average monthly stock holding for the period 1 December 2018 – 30 November 2019 is as follows:
150 units x 5 months = 750 and 200 units x 7 months = 1,400
Average monthly stock level = (750 + 1,400) / 12 = 179 units

Calculation B: During the period 1 December 2018 – 30 November 2019 Juice LLC sells:
50 x 4 = 200
125 x 8 = 1,000
Average monthly sales volume = (200+1,000)/12 = 100 units
Two times average monthly sales volume = 200 units.

Calculation C:
The stock held on 1 December 2019 is then compared to the results of Calculation A and Calculation B:
Calculation A :300 units – 179 units = 121 units of excess excise goods
Calculation B : 300 units – 200 units = 100 units of excess excise goods
Therefore, Excise Tax shall apply on the higher ‘excess’, which in this example is Calculation A, i.e. on 121 units.

What are the major areas to pay attention to? Designated zones in case of Excise Goods are different than the designated zones in case of VAT, so a Company should assess whether to register itself as a designated zone or to hold stock in any existing designated zone (cost and benefit analysis shall be done). Reporting requirements increase when in a designated zone What are reporting requirements for a warehouse keeper in case registering as a designated zone? Guarantee amount to be placed with FTA while registering as designated zone Stock audits to be conducted on the date of application of Excise Tax How to calculate the retail selling price? How to calculate Excess Excise Goods? Conditions for claiming Input Tax deductible There are many differences between how VAT works and how Excise Tax works IT system changes for the Excise Goods The procedure for listing new products on Excise portal