Recent Updates to UAE Excise Tax Laws: What’s New for 2025?

In 2025, the United Arab Emirates (UAE) has introduced significant updates to its excise tax regulations, aiming to refine tax structures and enhance compliance. These changes, effective from January 3, 2025, impact businesses dealing with specific goods such as electronic smoking devices, liquids, and certain consumables. Understanding these updates is crucial for businesses to ensure adherence to the new laws and to optimize their tax strategies.

1. Introduction of Ministerial Decision No. 1 of 2025

On January 3, 2025, the UAE’s Ministry of Finance issued Ministerial Decision No. 1 of 2025, updating the framework governing excise tax implementation. This decision focuses on refining the classification and pricing mechanisms for excise goods, particularly those related to electronic smoking devices, liquids, and concentrates. The goal is to align the UAE’s excise tax system with international standards and address emerging products in the market.

2. Expanded Taxation on Electronic Smoking Products

The new decision broadens the scope of excise tax to include all liquids used in electronic smoking devices, regardless of their nicotine content. This means that even nicotine-free e-liquids are now subject to excise tax. Additionally, electronic smoking devices and tools, whether containing nicotine or tobacco, are classified under specific harmonized system codes, ensuring a standardized approach to taxation. Businesses involved in the import, production, or sale of these products must now account for these items in their excise tax calculations.

3. Revised Pricing Mechanism for Certain Consumables

Ministerial Decision No. 1 of 2025 introduces comprehensive rules for determining the excise price of concentrates, powders, gels, and extracts that can be transformed into drinks like carbonated beverages, energy drinks, or sweetened drinks. The excise price for these products is determined by the higher of two values: the standard price published by the Federal Tax Authority (FTA) or the designated selling price declared by the importer or producer before applying discounts. This approach ensures uniformity in excise tax application and prevents ambiguity in pricing structures.

4. Mandatory Record-Keeping Requirements

To comply with the updated regulations, taxable persons are now required to maintain detailed records substantiating the declared selling price of excise goods, any deductions applied, and the quantities sold. Accurate documentation is essential to demonstrate compliance during audits and to avoid potential penalties. Businesses should implement robust record-keeping systems to track all relevant transactions and ensure that all excise tax filings are accurate and timely.

5. Revocation of Previous Decisions

The implementation of Ministerial Decision No. 1 of 2025 supersedes the earlier Ministerial Decision No. 236 of 2019, effectively rendering it void. Any provisions conflicting with the new rules are officially repealed, streamlining the legislative framework and reducing potential confusion. Businesses should review their current practices to ensure they align with the latest regulations and make necessary adjustments to their compliance strategies.

6. Alignment with GCC Standards

A significant aspect of the new decision is the alignment of the UAE’s excise tax system with the Gulf Cooperation Council (GCC) standards. By adopting harmonized system codes and standardized classifications, the UAE aims to facilitate smoother intra-GCC trade and ensure consistent tax treatment across member states. This harmonization benefits businesses operating in multiple GCC countries by providing a unified regulatory environment.

7. Impact on Businesses and Compliance

The expanded scope of excise tax and the revised pricing mechanisms necessitate that businesses reassess their product classifications, pricing strategies, and compliance processes. Companies dealing with electronic smoking products and related consumables must ensure that their systems are updated to reflect the new tax rates and classifications. Regular training for staff and consultations with tax professionals can aid in navigating these changes effectively.

8. Introduction of the 15% Domestic Minimum Top-Up Tax (DMTT)

In addition to the excise tax updates, the UAE has announced the implementation of a 15% Domestic Minimum Top-Up Tax (DMTT) on large multinational companies, effective January 1, 2025. This move aligns with the Organisation for Economic Co-operation and Development’s (OECD) global minimum corporate tax agreement, aiming to ensure that large enterprises pay a minimum tax rate and to curb tax avoidance. The DMTT applies to companies with consolidated global revenues of at least €750 million in at least two of the four preceding financial years. Businesses meeting this criterion must prepare for the additional tax liability and adjust their financial planning accordingly.

9. Steps for Businesses to Ensure Compliance

To adapt to these updates, businesses should:

1. Review Product Portfolios: Identify all products now subject to excise tax under the new regulations, including previously exempt items like nicotine-free e-liquids.

2. Update Pricing Strategies: Adjust pricing models to incorporate the excise tax, ensuring competitiveness while maintaining compliance.

3. Enhance Record-Keeping Systems: Implement or upgrade systems to maintain detailed records of sales, pricing, and tax calculations as mandated by the FTA.

4. Train Staff: Educate employees about the new regulations to ensure accurate implementation in daily operations.

5. Consult Tax Professionals: Seek expert advice to navigate complex scenarios and ensure all aspects of the business are compliant with the updated laws.

10. Proposed Corporate Tax Incentives

To foster innovation and attract high-value activities, the UAE’s Ministry of Finance is considering introducing several corporate tax incentives:

1. Research and Development (R&D) Tax Credit: A refundable tax credit ranging from 30% to 50% of eligible R&D expenditures, depending on the company’s size and operations. This incentive aims to encourage investment in innovation and technological advancement.

2. High-Value Employment Tax Credit: A refundable tax credit granted to companies based on a percentage of eligible income costs for employees engaged in high-value activities. This measure seeks to attract and retain top talent within the UAE.

Conclusion

The 2025 updates to the UAE’s excise tax laws represent a significant shift towards a more comprehensive and standardized taxation system. Businesses must proactively engage with these changes, adapting their operations to remain compliant and competitive. Staying informed and seeking professional guidance will be key to navigating this evolving tax landscape successfully.

For personalized assistance and expert advice on excise tax compliance, Protax Advisors offers specialized consulting services tailored to your business needs. Book a free consultation today to ensure your business aligns with the latest regulations and optimizes its tax strategy.