Excise Tax Rates in UAE: What’s Taxed & How Much You Need to Pay

Excise tax in the UAE is a government-imposed tax on products that negatively impact health or the environment. The primary purpose of this tax is to reduce the consumption of harmful goods, such as tobacco, energy drinks, and sweetened beverages, while also generating revenue for public services and healthcare.

For businesses that manufacture, import, distribute, or store excise goods, understanding excise tax rates and how much needs to be paid is crucial. Miscalculating tax obligations or failing to comply with regulations can lead to penalties, customs delays, and financial losses.

This guide provides a detailed breakdown of excise tax rates in the UAE, explaining which products are taxed, how much you need to pay, and how to ensure compliance with the Federal Tax Authority (FTA).

How Excise Tax Works in the UAE

Excise tax is applied at the point of production, import, or release for consumption in the UAE. Businesses dealing with excise goods must calculate and pay the tax upfront, even before the products reach consumers.

Unlike VAT, which is charged at a standard rate of 5% on most goods and services, excise tax applies only to specific products and is charged at significantly higher rates—50% or 100%—to discourage consumption.

The tax is calculated based on the retail selling price (RSP) or the imported cost (whichever is higher). This means businesses must ensure that excise tax is correctly included in the pricing structure of affected products.

Understanding the correct tax rate for each category of excise goods is essential to ensure compliance and avoid financial risks.

What Products Are Subject to Excise Tax in the UAE?

Excise tax applies to specific categories of products, all of which are considered harmful to public health or the environment. Businesses dealing with these goods must calculate tax correctly to avoid penalties for underpayment or incorrect filings.

1. Tobacco and Tobacco Products

The UAE has one of the highest excise tax rates on tobacco products, applying a 100% tax on all tobacco-based goods. This includes:

1. Cigarettes
2. Cigars
3. Shisha (molasses tobacco)
4. Heated tobacco products
5. Any alternative smoking products containing nicotine

The high tax rate aims to discourage smoking and reduce tobacco-related diseases, making the UAE’s excise tax system one of the strictest in the region.

For example, if a pack of cigarettes costs AED 20 before excise tax, the 100% excise tax adds another AED 20, bringing the final retail price to AED 40.

2. Electronic Smoking Devices and Liquids

In addition to traditional tobacco products, the UAE has imposed a 100% excise tax on:

1. E-cigarettes and vaping devices
2. Nicotine and non-nicotine vaping liquids

This tax applies regardless of whether the liquid contains tobacco. The goal is to discourage vaping, which is seen as an alternative but still potentially harmful habit.

3. Energy Drinks

All energy drinks containing caffeine, taurine, ginseng, guarana, or other stimulants are taxed at 100%. The tax applies to ready-to-drink energy beverages and concentrated energy formulas.

Since energy drinks are often consumed in large quantities by younger people and athletes, the UAE government introduced the tax to limit excessive consumption and promote healthier beverage choices.

A AED 10 energy drink will cost AED 20 after excise tax, doubling its price.

4. Carbonated and Sweetened Beverages

Carbonated and sweetened beverages are taxed at 50%. This includes:

1. Soft drinks and sodas with added sugar or sweeteners
2. Sports drinks, flavored waters, and artificially sweetened juices
3. Any liquid, powder, or concentrate that can be mixed into a sweetened beverage

Natural juices, dairy-based drinks, and unsweetened sparkling water are exempt from excise tax.

A AED 5 soda will cost AED 7.50 after excise tax, making sugary drinks more expensive to reduce consumption.

How the UAE’s Excise Tax Rates Compare to Other Countries

The UAE’s excise tax system follows global trends but has some of the highest rates in the GCC region. Neighboring countries like Saudi Arabia, Bahrain, and Oman have introduced similar excise taxes, but rates and product categories may differ.

For example, Saudi Arabia also applies 100% tax on tobacco and energy drinks, but only 50% on soft drinks. Meanwhile, Bahrain has a 100% excise tax on alcohol, which is not part of the UAE’s excise tax system.

Businesses operating across multiple GCC countries must check local excise tax laws to ensure compliance in each market.

How to Calculate Excise Tax on Products

Excise tax is calculated based on the higher of the following two values:

1. The retail selling price (RSP)—the price at which the product is sold to consumers, including VAT.
2. The imported cost, which includes CIF (cost, insurance, and freight), customs duties, and any other applicable charges.

If a business imports a case of energy drinks at AED 100, and the retail price is AED 200, excise tax is calculated based on the higher amount (AED 200).

For 100% tax categories (e.g., tobacco and energy drinks), the tax payable would be AED 200.

For 50% tax categories (e.g., carbonated drinks), the tax payable would be AED 100.

Businesses must carefully calculate tax to avoid underpayment or overcharging customers, which can lead to compliance issues or financial losses.

How Businesses Must Pay Excise Tax in the UAE

Once a business is registered for excise tax, it is legally required to calculate, report, and pay excise tax before excise goods can be sold or distributed in the UAE. Excise tax is not collected from customers at the point of sale, like VAT, but is paid upfront by businesses before the goods enter the market.

Many companies struggle with excise tax payments due to miscalculations, missed deadlines, or incorrect reporting, which can lead to penalties, supply chain delays, and financial losses. To ensure full compliance and smooth operations, businesses must follow a structured tax payment process.

1. Identify When Excise Tax Becomes Payable

Excise tax must be paid before excise goods are released for consumption in the UAE. A business becomes liable to pay excise tax when:

1. It imports excise goods into the UAE, meaning tax must be paid at customs before the goods are cleared for entry.
2. It produces excise goods locally, in which case tax is due when the goods are transferred for sale or distribution.
3. It removes excise goods from a tax warehouse, requiring the business to pay tax before the goods are made available in the market.

Knowing when excise tax is due helps businesses plan cash flow and avoid last-minute issues with tax payments. Companies should integrate excise tax into their supply chain process to ensure that all tax payments are scheduled and accounted for.

2. Calculate Excise Tax Accurately Before Payment

Excise tax is calculated based on the higher of two values—the retail selling price (RSP) or the imported cost plus duties and insurance. Miscalculations can lead to underpayment, triggering penalties, or overpayment, causing financial strain.

To calculate excise tax correctly, businesses must:

1. Determine the retail price of the excise goods, including VAT and other applicable costs.
2. Verify the imported cost of the goods, factoring in customs duties, freight, and insurance.
3. Apply the correct excise tax rate (50% or 100%) based on the product category.

For example, if an energy drink has a retail price of AED 200 and an import cost of AED 150, the excise tax is based on the higher amount (AED 200). At a 100% tax rate, the business must pay AED 200 in excise tax for each unit before selling it.

Businesses should conduct monthly reviews of their tax calculations to ensure they are applying the correct tax rates and values. Using an FTA-compliant tax accounting system can help prevent errors and ensure tax calculations match the latest excise tax regulations.

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

Excise tax payments must be reported to the Federal Tax Authority (FTA) via the e-Services portal. Businesses must submit a detailed declaration outlining:

1. The total quantity of excise goods imported, manufactured, or removed from warehouses.
2. The applicable tax rate for each product.
3. The total excise tax due for the reporting period.

If a business imports excise goods, the declaration must also include customs clearance documents proving that tax was paid at the time of import.

Submitting the excise tax declaration on time and with accurate details prevents delays in processing and ensures compliance with tax regulations. Businesses should create internal tax reporting procedures to collect the necessary data and submit declarations before deadlines.

4. Make Excise Tax Payments Before the Due Date

Excise tax must be paid before excise goods can be sold, distributed, or transferred. Late payments can result in financial penalties, restrictions on imports, or disruptions in supply chains.

To ensure timely payment:

1. Businesses should schedule tax payments at the start of each reporting period to avoid missing deadlines.
2. The correct payment method must be used, as payments through the FTA e-Services portal must align with the business’s registered tax account.
3. Payment receipts should be kept as proof of tax settlement in case of an audit.

If a business cannot pay the full excise tax amount on time, it should immediately contact the FTA to discuss possible solutions. Ignoring outstanding tax payments can result in compounded fines and legal consequences.

5. Ensure All Excise Tax Returns Are Filed Correctly

Businesses must submit excise tax returns every month, reporting all taxable activities related to excise goods. The tax return must match the payments made, goods declared, and stock movements recorded during the reporting period.

Common mistakes businesses make in tax returns include:

1. Underreporting excise goods, leading to tax shortfalls and penalties.
2. Mismatched tax amounts due to incorrect calculations.
3. Late submissions, triggering automatic fines from the FTA.

To avoid these issues, businesses should audit their tax data before filing returns. Using a tax consultant or digital tax reporting system can help ensure that tax filings are error-free and submitted on time.

6. Maintain Tax Records for at Least Five Years

The FTA requires businesses to keep all excise tax records for a minimum of five years. If a company is audited, it 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 receipts for all excise tax payments.
2. Import and customs clearance documents for excise goods.
3. Excise tax returns and declarations filed with the FTA.
4. Warehouse stock reports and movement records.

Businesses that fail to maintain tax records risk heavy penalties and tax reassessments. Organizing records digitally and ensuring they are easily accessible can prevent compliance issues.

7. Conduct Internal Excise Tax Audits to Identify Risks

Regular internal audits help businesses detect compliance gaps before the FTA does. Audits should verify that:

1. Excise tax is calculated correctly for all taxable goods.
2. Tax payments match declared quantities in excise returns.
3. All tax documents and payment receipts are properly recorded.

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

8. Stay Informed on Excise Tax Law Updates

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

To keep up with tax law changes, businesses should:

1. Regularly check FTA announcements and guidelines.
2. Attend tax compliance training or industry seminars.
3. Work with tax advisors who monitor regulatory changes.

Staying proactive helps businesses avoid penalties due to outdated tax practices and ensures that they continue to operate smoothly within UAE tax laws.

How Protax Advisors Can Help with Excise Tax Compliance

Excise tax laws in the UAE can be complex, and mistakes in registration, tax calculation, or filing can result in financial penalties and operational delays.

At Protax Advisors, we help businesses:

1. Register for excise tax and ensure compliance with FTA regulations.
2. Calculate excise tax correctly to avoid overpayments or underpayments.
3. File excise tax returns on time to prevent penalties.
4. Maintain accurate tax records for audits and compliance checks.

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

Final Thoughts: Excise Tax Payment is a Critical Compliance Requirement

Paying excise tax correctly and on time is essential for businesses dealing with taxable goods in the UAE. Delays, errors, or miscalculations can lead to severe penalties, operational disruptions, and potential legal action.

By following a structured approach to excise tax payments, businesses can:

1. Avoid fines and penalties for late or incorrect tax filings.
2. Ensure smooth customs clearance and stock movement.
3. Maintain accurate financial records for audits and compliance checks.
4. Prevent unnecessary tax overpayments that impact cash flow.

For businesses that need assistance with excise tax calculations, payments, or compliance, Protax Advisors provides expert tax solutions.

Book a free consultation today and let Protax Advisors help you streamline your excise tax payments, minimize risks, and maintain full compliance with UAE tax laws.