Excise Tax in UAE for Tobacco & Vape Products: New Rules & Compliance Tips

Excise tax in the UAE applies to products that are considered harmful to health, and tobacco and vape products are at the top of that list. Since its introduction, excise tax has significantly impacted the pricing, sales, and distribution of these products. The goal is simple—reduce consumption, increase government revenue, and promote public health.

However, recent changes in tax regulations have made compliance more challenging for businesses dealing in cigarettes, shisha, e-cigarettes, and vaping liquids. Whether you are a manufacturer, importer, wholesaler, distributor, or retailer, understanding the latest rules is essential to avoid FTA penalties, tax audits, and disruptions in business operations.

This guide explains everything you need to know about excise tax on tobacco and vape products in the UAE, along with strategic compliance tips to keep your business running smoothly.

How Excise Tax Applies to Tobacco & Vape Products in the UAE

Excise tax is a selective tax imposed on goods that pose health risks, with tobacco and vape products among the most heavily taxed items in the UAE. The government aims to reduce smoking rates, discourage vaping among youth, and align with global health standards.

For businesses dealing in cigarettes, shisha, and vaping products, excise tax is applied at a 100% rate. This means that the final price of these products doubles due to tax before they even reach the consumer.

Excise tax is applied before the sale to consumers, meaning businesses that import, manufacture, or distribute tobacco and vape products must pay the tax upfront. The tax is calculated based on either the retail selling price (RSP) or the import cost, whichever is higher.

If a business fails to register, declare, or pay excise tax correctly, the Federal Tax Authority (FTA) can impose severe penalties, fines, and trading restrictions.

Which Tobacco & Vape Products Are Taxed in the UAE?

Businesses must ensure they apply excise tax correctly to all taxable products. The UAE excise tax covers:

1. Cigarettes & Tobacco Products

Cigarettes, cigars, loose tobacco, and heated tobacco sticks are taxed at 100%. This includes:

1. All standard cigarette brands and variants.
2. Shisha (hookah) tobacco, whether flavored or unflavored.
3. Heated tobacco products used in smoke-free alternatives.

2. E-Cigarettes & Vape Devices

The UAE government has classified all electronic smoking devices as taxable. This includes:

1. E-cigarettes and vape pens, whether disposable or refillable.
2. Advanced vaping mods and pod-based systems.
3. Any electronic smoking hardware designed for nicotine consumption.

3. Vaping Liquids (Nicotine & Non-Nicotine)

Excise tax applies not just to nicotine-based vape juices but also to non-nicotine alternatives. Any liquid used for vaping, whether freebase nicotine, nicotine salts, or flavored e-liquids, is subject to 100% excise tax.

This means that even businesses selling zero-nicotine e-liquids must register for excise tax and comply with FTA regulations.

How to Calculate Excise Tax on Tobacco & Vape Products

Excise tax in the UAE is calculated based on the higher value between two factors:

1. Retail Selling Price (RSP)

This refers to the price at which the product is sold to consumers, including VAT and any additional charges. The FTA sets minimum price guidelines to ensure that products cannot be sold below a certain price after tax is applied.

2. Import Cost (CIF Value)

For importers, excise tax is calculated based on the Cost, Insurance, and Freight (CIF) value, plus any applicable customs duties. If a pack of cigarettes costs AED 10 at import, excise tax adds AED 10, making the final cost AED 20 before VAT is applied.

Example Excise Tax Calculation

For a vape juice bottle imported at AED 50, the excise tax would be:

1. 100% of AED 50 = AED 50 excise tax
2. The total cost before VAT: AED 100
3. After VAT (5%): AED 105 final cost

Businesses must ensure their pricing structures include excise tax correctly to avoid financial losses or incorrect filings.

How Businesses Must Pay Excise Tax in the UAE

Once a business is registered for excise tax, it is responsible for ensuring that tax is calculated, reported, and paid correctly. Tobacco and vape products are among the most heavily taxed goods in the UAE, and failure to comply with Federal Tax Authority (FTA) regulations can lead to severe penalties, supply chain disruptions, and potential business restrictions.

Many businesses assume that excise tax is applied automatically, but the reality is that they must actively manage tax declarations, payment processes, and compliance obligations. A structured approach ensures that tax is paid on time, accurately recorded, and fully compliant with UAE laws.

1. Identify When Excise Tax Becomes Payable

Excise tax is not paid at the point of sale like VAT. Instead, it must be settled before the products are sold or distributed. The business becomes liable for excise tax when:

1. It imports tobacco or vape products into the UAE, meaning tax must be paid at customs before the goods are cleared.
2. It manufactures tobacco or vape products locally, with tax due as soon as the goods are transferred for sale or distribution.
3. It removes excise goods from a tax warehouse, where the tax must be settled before the products enter the market.

Understanding when excise tax is due is crucial to avoid delays. Businesses should integrate tax compliance into their supply chain process, ensuring that payments are planned well in advance.

2. Calculate Excise Tax Accurately Before Payment

Excise tax is calculated based on the higher value between the retail selling price (RSP) and the import cost (CIF + customs duties). Miscalculations can lead to underpayment, triggering penalties, or overpayment, causing unnecessary financial strain.

To ensure tax is calculated correctly:

1. Review FTA guidelines on minimum retail prices for tobacco and vape products.
2. Check the import cost of the products, ensuring that all associated charges (CIF, customs duties, insurance) are included.
3. Apply the correct excise tax rate of 100% on all taxable products.

If a pack of cigarettes has a retail price of AED 30, but the import cost is AED 20, excise tax is calculated based on AED 30. The 100% excise tax adds AED 30, making the pre-VAT price AED 60. Businesses must structure their pricing and financial planning accordingly to manage the impact of excise tax.

3. Declare Excise Goods & Tax Payments in the FTA Portal

All excise-taxed products must be declared to the FTA before they are sold or distributed. This is done through the FTA e-Services portal, where businesses submit a detailed excise tax return. The declaration should include:

1. The total quantity of excise goods imported, produced, or stored.
2. The excise tax rate (100%) for each product.
3. The total excise tax payable for the reporting period.

Declarations must be submitted on time and with accurate details to avoid penalties. Businesses should implement an internal compliance system to collect the necessary data and ensure accurate reporting before submission deadlines.

4. Make Excise Tax Payments Before Goods Enter the Market

Excise tax must be paid in full before excise goods can be sold, distributed, or transferred. Any delays in payment can result in FTA penalties, restrictions on imports, and supply chain disruptions.

To ensure timely payment:

1. Schedule tax payments in advance to prevent last-minute issues.
2. Use the correct payment method through the FTA portal to avoid transaction delays.
3. Verify payment records to ensure that all tax liabilities are fully cleared.

If a business is unable to pay excise tax on time due to cash flow issues, it should immediately contact the FTA to discuss possible solutions. Ignoring outstanding tax payments can result in compounded fines and legal consequences.

5. Ensure That Excise Tax Is Properly Applied to Pricing

Retailers and distributors must ensure that excise tax is correctly factored into the selling price of tobacco and vape products. Many businesses underestimate the tax impact, leading to either incorrect pricing that affects profits or compliance violations that result in penalties.

To apply excise tax correctly:

1. Update product pricing structures to include excise tax before setting retail prices.
2. Train sales teams and cashiers to ensure tax is correctly reflected at the point of sale.
3. Implement automated pricing systems to prevent manual calculation errors.

If excise tax is not correctly included in pricing, businesses may end up absorbing the tax cost instead of passing it on to customers, reducing profit margins significantly.

6. Keep Detailed Excise Tax Records for Five Years

The FTA requires businesses to maintain excise tax records for a minimum of five years. If an audit is conducted, companies must provide detailed documentation to prove that excise tax was correctly paid and reported.

Essential tax records that must be maintained include:

1. Tax invoices and payment receipts proving excise tax was settled.
2. Import and customs clearance documents for excise goods.
3. Excise tax return filings and declarations submitted to the FTA.
4. Warehouse stock reports and movement records.

Failure to maintain proper records can result in FTA penalties, additional tax assessments, or trading restrictions. Businesses should implement a digital tax record-keeping system to prevent compliance risks.

7. Conduct Internal Audits to Ensure Excise Tax Compliance

Businesses should regularly audit their excise tax filings, payments, and stock records to identify any errors or inconsistencies before an official FTA audit occurs. An internal tax audit should verify:

1. That excise tax calculations match the latest pricing regulations.
2. That all tax payments are accounted for in financial statements.
3. That stock levels and inventory records align with tax declarations.

If any discrepancies are found, businesses should correct them immediately and, if necessary, file an amended tax return to the FTA. Conducting quarterly or semi-annual tax audits ensures compliance is maintained throughout the year.

8. Stay Updated on Excise Tax Law Changes

Excise tax regulations in the UAE are subject to updates and amendments. Businesses must stay informed to ensure that tax calculations, payments, and filings align with the latest rules.

To remain compliant:

1. Follow FTA announcements and guidelines for any tax rate or compliance changes.
2. Attend industry workshops or tax compliance training sessions.
3. Consult with tax professionals to conduct periodic compliance reviews.

By staying proactive, businesses can avoid penalties due to outdated tax practices and ensure that they continue to operate smoothly within UAE tax laws.

Common Mistakes That Lead to Excise Tax Penalties

Many businesses fail to comply with excise tax regulations, leading to FTA penalties and fines. The most common mistakes include:

1. Failing to Register for Excise Tax

Businesses that manufacture, import, or distribute excise goods must register before trading. Non-registration can result in fines of up to AED 20,000.

2. Underreporting Excise Goods to Avoid Higher Tax Payments

Some businesses try to reduce tax liability by underreporting their excise goods. The FTA conducts random audits, and any discrepancies can lead to hefty fines and back taxes.

3. Incorrectly Calculating Excise Tax on Imports

If businesses use the wrong taxable value (choosing the lower of RSP or CIF instead of the higher), they risk tax reassessments and penalties.

4. Not Keeping Proper Excise Tax Records

The FTA requires businesses to maintain excise tax records for five years. If a company cannot provide proper tax documentation, it may face fines and compliance investigations.

How Protax Advisors Can Help Your Business Stay Compliant

With strict tax regulations and heavy penalties, managing excise tax on tobacco and vape products can be complex. Many businesses struggle with tax filings, customs clearances, and compliance audits, which can result in costly fines and trading restrictions.

At Protax Advisors, we help businesses:

1. Register for excise tax and obtain FTA approval.
2. Calculate and file excise tax correctly to avoid penalties.
3. Ensure customs clearance for excise goods without delays.
4. Maintain tax records and prepare for FTA audits.

If your business deals with cigarettes, shisha, vape devices, or e-liquids, you must comply with UAE excise tax laws.

Book a free consultation today with Protax Advisors and let our tax experts ensure your business stays fully compliant while minimizing tax risks and maximizing efficiency.