Excise Tax in UAE Explained: Everything Businesses Need to Know

Excise tax in the UAE is a key part of the country’s taxation system, designed to reduce the consumption of harmful goods while generating government revenue. Unlike VAT, which applies to most goods and services at a standard rate of 5%, excise tax targets specific products that are considered harmful to human health or the environment.

Many businesses struggle to understand how excise tax works, who needs to register, and how to comply with reporting and payment requirements. Failing to comply can lead to hefty fines, supply chain disruptions, and financial losses. Whether you are a manufacturer, importer, distributor, or retailer dealing with tobacco, energy drinks, or sweetened beverages, it is essential to understand your excise tax obligations.

This guide explains everything businesses need to know about excise tax in the UAE, including how it applies, who must register, how to file returns, and strategies to ensure compliance.

What is Excise Tax and Why is It Applied?

Excise tax is a selective tax imposed on products that are harmful to public health or the environment. The UAE introduced excise tax in October 2017 as part of its efforts to promote healthier lifestyles and reduce the consumption of products that lead to chronic diseases such as obesity, diabetes, and heart disease.

The tax applies before the sale to the consumer, meaning businesses that manufacture, import, or store excise goods must pay the tax upfront before distributing these products in the market. The cost is often passed down to consumers through higher retail prices, discouraging excessive consumption of these products.

In addition to generating revenue, excise tax helps the UAE meet global health and sustainability goals by regulating harmful products and encouraging businesses to explore healthier and environmentally friendly alternatives.

Which Products Are Subject to Excise Tax?

Excise tax applies to specific categories of products. The UAE government has outlined the tax rates for each category, ensuring that businesses correctly apply the tax when importing, manufacturing, or selling these goods.

1. Tobacco and Tobacco Products

All tobacco products, including cigarettes, shisha, cigars, and electronic smoking devices, are subject to a 100% excise tax. This means that the retail price of tobacco products doubles due to excise tax, making them more expensive for consumers.

2. Energy Drinks

Energy drinks containing caffeine, taurine, ginseng, or other stimulants are subject to 100% excise tax. This includes popular brands that are marketed as boosting energy, improving focus, or enhancing physical performance.

3. Carbonated and Sweetened Beverages

The UAE expanded excise tax to include carbonated and sweetened drinks in December 2019. This category includes:

1. Soft drinks and sodas with added sugar or sweeteners (subject to 50% excise tax).
2. Flavored water, sports drinks, and any non-alcoholic beverages with sugar additives.
3. Concentrates and powders that can be mixed to create sweetened beverages.

4. Electronic Smoking Devices and Liquids

Vapes, e-cigarettes, and all liquids used in electronic smoking devices are taxed at 100%. This includes nicotine and non-nicotine-based vaping products.

Businesses dealing with these products must carefully calculate and apply excise tax when importing or selling them to consumers.

Who Needs to Register for Excise Tax?

Any business involved in manufacturing, importing, distributing, or storing excise goods in the UAE must register with the Federal Tax Authority (FTA) for excise tax. Registration is mandatory for:

1. Manufacturers of Excise Goods

Businesses that produce tobacco, energy drinks, or sweetened beverages within the UAE must register for excise tax before production begins. If a company manufactures excise goods without registration, it can face severe fines and legal consequences.

2. Importers of Excise Goods

If a business imports excise goods into the UAE, it must declare and pay excise tax before the goods are released from customs. Importers must register with the FTA to obtain customs clearance for excise products.

3. Stockpilers of Excise Goods

Businesses that store large quantities of excise goods for resale must register for excise tax. This rule applies to distributors, warehouses, and retailers that hold taxable goods. The FTA may audit stock levels to ensure that tax has been correctly applied.

4. Warehouse Keepers of Excise Goods

Warehouse operators that store excise goods for third parties must also register for excise tax. These businesses must maintain detailed inventory records and ensure that all stored products comply with tax regulations.

How to Register for Excise Tax in the UAE

Excise tax registration is mandatory for businesses involved in the production, import, storage, or distribution of excise goods. Any company that deals with tobacco products, energy drinks, sweetened beverages, or electronic smoking devices must register with the Federal Tax Authority (FTA) before engaging in business activities related to these goods.

Failure to register on time can result in penalties of up to AED 20,000, restrictions on customs clearance, and difficulties in trading excise goods. Many businesses underestimate the complexity of excise tax registration, leading to delays, compliance issues, and unnecessary costs.

To ensure a smooth and successful excise tax registration, businesses should follow these strategic and actionable steps:

1. Determine Whether Your Business Needs Excise Tax Registration

Before starting the registration process, businesses must evaluate whether their operations fall within the scope of excise tax. This includes:

1. Companies that manufacture excise goods within the UAE.
2. Importers bringing excise goods into the UAE for resale or distribution.
3. Warehouse operators storing excise goods on behalf of businesses.
4. Distributors holding large stocks of excise goods for commercial purposes.

Retailers that only sell excise goods directly to consumers do not need to register. However, if they store significant stock for resale or import their own supplies, they may be required to register.

Before proceeding, businesses should analyze their business model, supply chain, and tax obligations to confirm whether excise tax registration is necessary. If unsure, consulting a tax expert can help avoid compliance mistakes.

2. Gather the Required Documents for Registration

Excise tax registration requires businesses to submit detailed company information and supporting documents to the FTA. Having all documents ready before starting the application process ensures faster approval and avoids delays.

To register, businesses must prepare:

1. A valid trade license with activity details related to excise goods.
2. Business owner’s Emirates ID and passport copy (for UAE nationals and residents).
3. A copy of the business’s Memorandum of Association (MOA) to confirm legal structure.
4. Details of business activities related to excise goods, including production, import, or storage.
5. A clear explanation of excise goods handled by the business, including descriptions, brands, and expected sales volumes.
6. Customs registration details (if applicable) for businesses involved in importing excise goods.

Incomplete applications are one of the main reasons for registration delays. Businesses should ensure all documents are accurate and up to date before applying.

3. Register on the FTA e-Services Portal

Excise tax registration is completed entirely online through the FTA’s e-Services portal. Businesses must first create an FTA account if they do not already have one.

Once logged in, they must access the Excise Tax Registration Form and fill out the required details, including:

1. Company name, trade license number, and business address.
2. Nature of business activities (manufacturing, importing, distributing, or storing excise goods).
3. Details of excise goods handled and their estimated market volume.
4. Warehouse or storage facility locations if the business holds excise goods in stock.
5. Customs registration numbers for importers of excise goods.

Businesses must double-check all information before submitting, as errors can lead to rejection of the application or delays in approval.

4. Submit the Excise Tax Registration Application and Await Approval

After completing the application, businesses must submit it to the FTA for review. The approval process typically takes five to ten working days, but delays can occur if additional information is required.

During this period, the FTA may:

1. Request clarifications or supporting documents for verification.
2. Conduct an audit or site inspection if necessary.
3. Approve the registration and issue an Excise Tax Registration Number (TRN).

Businesses should regularly check their FTA portal dashboard for status updates and respond promptly to any additional requests to avoid delays.

5. Activate Your Excise Tax Account and Understand Compliance Obligations

Once the FTA approves the registration, businesses receive their Excise Tax Registration Number (TRN). This number must be used in all excise tax filings, customs declarations, and tax-related transactions.

After registration, businesses must immediately:

1. File excise tax returns regularly to report taxable goods and payments.
2. Pay excise tax on time to avoid penalties.
3. Maintain accurate inventory and sales records for audit purposes.
4. Ensure compliance with pricing regulations, as excise tax must be included in product pricing structures.

Excise tax compliance does not end with registration—it requires ongoing tax management and reporting to avoid penalties and maintain smooth business operations.

6. Register for Import and Customs Clearance for Excise Goods

For businesses importing excise goods, excise tax registration alone is not enough. They must also:

1. Register with UAE Customs and link their Excise Tax TRN to their customs account.
2. Ensure all excise goods are declared when imported to prevent clearance delays.
3. Pay excise tax upfront at customs or ensure the correct payment structure is in place.

Without a valid excise tax registration linked to customs, businesses cannot import excise goods legally.

7. Conduct Internal Compliance Checks After Registration

Many businesses complete excise tax registration but fail to implement compliance measures, leading to penalties later. After registration, companies should:

1. Conduct an internal tax audit to confirm that excise tax is applied correctly.
2. Train employees on proper tax record-keeping and filing procedures.
3. Ensure that excise tax is calculated and charged correctly on all relevant goods.
4. Regularly review stock levels and sales records to maintain compliance with FTA regulations.

If businesses fail to maintain proper documentation and compliance, they may face FTA audits and significant financial penalties.

8. Seek Professional Guidance for Ongoing Compliance

Excise tax laws can be complex, and errors in registration, tax filings, or stock reporting can lead to financial and legal risks. Businesses should consider working with tax advisors to ensure:

1. Proper excise tax registration and documentation.
2. Accurate tax filings and reporting.
3. Compliance with import, customs, and tax laws.

A tax expert can save businesses from costly mistakes, ensure full excise tax compliance, and help with strategic tax planning to minimize financial impact.

How to Calculate Excise Tax

Excise tax is calculated based on the retail selling price of the product, including customs duties and any additional costs. The tax amount is determined by applying the 100% or 50% tax rate to the final retail price.

For example, if a pack of cigarettes is priced at AED 10 before excise tax, a 100% excise tax is applied, making the final price AED 20.

If a soft drink is priced at AED 5 before excise tax, a 50% tax increases the price to AED 7.50.

Businesses must ensure that excise tax is applied correctly at the time of import, manufacture, or sale. Incorrect calculations can lead to audit issues and penalties from the FTA.

How to File and Pay Excise Tax

Excise tax returns must be filed monthly, and businesses must report all excise goods imported, produced, or stored.

To file excise tax returns, businesses must:

1. Log in to the FTA e-Services portal and access the excise tax return form.
2. Report taxable goods with detailed descriptions, quantities, and tax amounts.
3. Calculate total tax payable based on applicable tax rates.
4. Submit the tax return before the deadline to avoid late penalties.
5. Pay the tax amount electronically through the FTA portal.

Failure to file excise tax returns on time can result in fines starting at AED 1,000 for late submissions, increasing with repeat offenses.

Common Excise Tax Compliance Mistakes to Avoid

Many businesses unknowingly make errors in excise tax compliance, leading to penalties and financial losses. The most common mistakes include:

1. Failing to register for excise tax despite dealing with taxable goods.
2. Incorrectly calculating excise tax, leading to underpayment or overcharging.
3. Missing excise tax return deadlines, resulting in automatic fines.
4. Not maintaining proper tax records, making audits difficult.
5. Failing to update stock levels, leading to discrepancies in tax filings.

Avoiding these mistakes requires strict compliance with FTA regulations, accurate record-keeping, and regular tax reviews.

How Protax Advisors Can Help with Excise Tax Compliance

Excise tax can be complex, and many businesses struggle with registration, tax calculations, filings, and compliance audits. At Protax Advisors, we help businesses:

1. Register for excise tax with the FTA to avoid penalties.
2. Calculate excise tax correctly to ensure compliance.
3. File excise tax returns on time, preventing fines and legal issues.
4. Conduct internal tax audits to ensure proper stock tracking and tax reporting.

If your business deals with tobacco, energy drinks, sweetened beverages, or vaping products, you must comply with UAE excise tax laws.

Book a free consultation with Protax Advisors today and let our tax experts handle your excise tax compliance while you focus on growing your business.