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Understanding the Regulations and Calculating Excise Tax in UAE

 

The UAE implemented an excise tax in UAE on various commodities in October 2017, aiming to generate government revenue and discourage the consumption of harmful products like tobacco, energy drinks, and carbonated beverages. Alliance Prime Accounting & Tax Consultancy sheds light on the different approaches to calculating excise costs and the specific tax rates used in the UAE.

Compliance with Excise Tax Regulations in the UAE

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

Excise Tax Rates in UAE

The UAE levies excise taxes on tobacco products, energy drinks, and carbonated beverages at specific rates:

  1. Tobacco Products: The excise tax in UAE on tobacco products is 100% of the retail price.
  2. Energy Drinks: Energy drinks, containing stimulants like caffeine and taurine, attract a 100% excise tax.
  3. Carbonated Drinks: All aerated drinks, excluding aerated water, are subject to a 50% excise tax.

 

Methods of Calculating Excise Tax in the UAE

The UAE uses two methods to calculate excise prices:

  1. Specific Method: This method applies a fixed tax rate per unit of the product. For instance, energy drinks may have a specific excise tax rate of AED 0.1 per milliliter, while cigarettes may have a rate of AED 0.4 per cigarette.
  2. Ad Valorem Method: This approach calculates the excise duty based on a percentage of the product’s value. For example, high-end automobiles may attract a 50% excise tax based on their retail price, while jewelry may have a 5% excise tax based on its retail value.

 

Example for Calculating Excise Tax in UAE

Using the specific tax method, a pack of cigarettes costing AED 20 will have an excise price of AED 8 (AED 20 x 100%).

For energy drinks priced at AED 10, the excise price using the ad valorem tax method will be AED 20 (AED 10 + 100% x AED 10).

Similarly, a carbonated drink with a suggested retail price of AED 5 will have an excise price of AED 7.5 (AED 5 + 50% x AED 5) using the ad valorem tax method.

Challenges in Implementing Excise Tax in UAE

Enforcing excise tax, particularly in cross-border transactions, presents challenges in ensuring compliance and collecting the required amount of tax. SMEs may also face difficulties with the excise tax adoption, leading to higher pricing for customers or reduced profits for businesses. Striking a balance to minimize the impact on SMEs becomes crucial.

Advisory for Excise Tax in UAE

To navigate the complexities of taxation and ensure compliance with excise tax regulations, it is vital for liable entities to seek advice from qualified tax advisors in the UAE. Alliance Prime Accounting & Tax Consultancy offers expert guidance on understanding, calculating, and filing excise taxes. Our team is dedicated to providing tailored advice to meet your specific needs and ensure adherence to all relevant rules and regulations. For excise tax assistance or other tax-related matters, contact Alliance Prime Accounting & Tax Consultancy for reliable support.


Why is Alliance Prime the best Tax Consultancy in Dubai?

Alliance Prime is a leading provider of auditing, accounting, taxation, and advisory services in the UAE. Our expert team will guide you through the complex laws and regulations of UAE, including Corporate Tax, VAT, Excise Tax, Accounting and Bookkeeping, ESR, Financial Advisory, ERP, etc. We stay up-to-date with the latest changes in laws and regulations in the UAE. If you’re looking for reliable and professional auditing, accounting, taxation, and advisory services in the UAE, look no further than Alliance Prime. 

If you would like additional information or clarity on Excise Tax or require assistance to Register for Excise Tax,  visit alliance-acc.com or contact us at- +971 58 825 7795 or Email us at:- contact@alliance-acc.com

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