A Guide on How To Calculate Excise Tax in UAE

Since October 2017, the UAE has implemented an excise tax on a range of commodities, indirectly affecting specific items throughout production, importation, and sale. This taxation initiative serves dual purposes: generating revenue for the government and discouraging consumption of harmful products such as cigarettes, fizzy drinks, and energy drinks. Understanding how to calculate excise costs and the applicable tax rates in the UAE is essential for businesses to ensure compliance with excise tax regulations.

Registered businesses in the UAE are obligated to regularly file excise tax returns and pay the applicable tax on their excisable goods. Accurate calculation of excise tax is crucial for determining the company’s liability correctly. Failure to register for excise tax or neglecting to pay the due tax can lead to penalties and fines imposed by the Federal Tax Authority (FTA).

Excise Tax Rates in UAE

The UAE imposes excise taxes on various products and services, including tobacco, energy drinks, and sugary beverages, with specific tax rates applied to each category:

1. Tobacco Products:
Excise tax on tobacco products is set at 100% of the retail price in the United Arab Emirates.

2. Energy Drinks:
– Energy drinks, characterized by their stimulant properties due to ingredients like caffeine, taurine, ginseng, and guarana, are subject to excise tax at a rate of 100% of the retail price.
– This category also includes products with similar effects to traditional energy drink ingredients and those capable of being transformed into energy beverages, such as concentrated versions, powders, gels, or extracts.

3. Carbonated Drinks:
– Carbonated drinks, excluding aerated water, fall under this category.
– This encompasses all granules, powders, gels, and extracts intended for the preparation of carbonated beverages.
– Excise duty on carbonated beverages is set at 50% of the suggested retail price in the UAE.

These high excise tax rates in the United Arab Emirates aim to reduce the consumption of harmful products such as tobacco and carbonated drinks, reflecting the government’s commitment to public health and wellness.

Methods of Calculating Excise Tax in the UAE

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The indirect Excise Tax in UAE on alcohol, tobacco, and soft drink supplies at rates of 50% to 100%, calculated using the Specific and Ad Valorem Method. The Specific Method and the Ad Valorem method are both used in the UAE to determine excise prices.

Specific Method: The Application of a fixed tax rate per unit of a certain product is the specific approach used. For instance, the tax on energy drinks might be AED 0.1/milliliter whereas the excise price on cigarettes might be AED 0.4/cigarette. The specific method is simple to use and offers clarity for both businesses and customers as they are aware of the precise amount of tax that applies to each unit.

Ad Valorem Method: This approach bases the excise duty calculation on a part of the product’s value.

As an example, based on the retail price high-end automobiles may be subject to a 50% excise tax, whereas jewelry may be subject to a 5% excise tax based on its retail value. The value of the goods must be established to determine the taxable amount using the Ad Valorem Method.

Excise Tax Calculation Example in UAE

Let’s illustrate excise tax calculations in the UAE with examples:

1. Cigarettes:
– If a pack of cigarettes costs AED 20 at a retail outlet, using the Specified tax method, the excise price would be AED 20 plus AED 8, totaling AED 28.

2. Energy Drinks:
– For an energy drink priced at AED 10 in a retail store, utilizing the Ad Valorem tax system, the excise cost would be AED 10 plus 100% x AED 10, resulting in AED 20.

3. Carbonated Drinks:
– Assuming a carbonated drink has a suggested retail price of AED 5, applying the ad valorem tax method, the excise cost would be AED 5 plus 50% x AED 5, totaling AED 7.5.

These examples demonstrate how excise tax is calculated in the UAE, with different tax methods applied based on the product category and pricing structure.

Excise Tax UAE Implementation Challenges

The greatest challenge in implementing excise tax in the UAE is the enforcement of the tax, specifically in cross-border transactions. This shows that it can be challenging to ensure compliance and obtain the required amount of tax in such situations.

In addition, businesses, especially SMEs may visibly be affected by the adoption of excise tax. The excise tax may be difficult to deal with for SMEs, which might cause one of two outcomes: either higher pricing for customers to make up the rising costs, or less profit for the businesses themselves. As a result, SMEs are negatively impacted, and striking a balance that doesn’t hamper or overburden the business becomes a difficult task.

Excise Tax Advisory in UAE

For sound compliance with taxation laws in the UAE, seeking guidance from qualified tax advisors is paramount. These professionals aid in ensuring adherence to tax regulations, mitigating the risk of hefty penalties for non-compliance.

As a trusted Excise Tax Consultant based in Dubai, Unicorn Global Solutions stands ready to assist you in comprehending, computing, and filing excise taxes accurately. Our seasoned team is dedicated to delivering tailored advice tailored to your unique requirements. Feel free to reach out to our experts for further information, inquiries, or assistance with excise tax matters or any other tax-related concerns. We’re here to navigate you through the intricacies of taxation, ensuring compliance with all pertinent regulations. Text us on WhatsApp or call us today

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