What Happens If You Fail to Register for Excise Tax in UAE?

Excise tax in the UAE is mandatory for businesses that manufacture, import, store, or distribute excise goods, including tobacco, vaping products, energy drinks, and sweetened beverages. The Federal Tax Authority (FTA) enforces strict regulations, requiring businesses to register for excise tax before engaging in any taxable activities.

Some businesses overlook or delay registration, assuming they can handle tax obligations later. Others may misunderstand excise tax laws, believing they are not required to register. However, failing to register on time can lead to serious financial penalties, legal risks, and disruptions in business operations.

If your business deals with excise goods but has not yet registered, it is essential to act immediately. Here’s what happens if you fail to register for excise tax in the UAE and how to avoid costly mistakes.

Immediate Penalties for Failing to Register for Excise Tax

The FTA imposes a fixed penalty of AED 10,000 on businesses that fail to register for excise tax when required. This fine applies even if no excise goods have been imported, manufactured, or sold yet. The penalty is a one-time fine, but delaying registration can lead to additional financial consequences.

Once a business is identified as dealing with excise goods without registration, it will be forced to complete registration immediately and pay any outstanding excise tax liabilities. If the company continues operating without registering, the FTA may escalate penalties and take further action.

Additional Fines for Late Tax Payments

Businesses that fail to register for excise tax are also not paying the required excise tax on their goods, leading to cumulative tax liabilities. The FTA enforces penalties for late tax payments, which increase over time.

If excise tax remains unpaid, businesses may face:

1. A penalty of 2% of the unpaid tax per day for the first seven days.
2. A 4% daily penalty from the eighth day onward, up to a maximum of 300% of the original tax due.

For example, if a business owed AED 100,000 in excise tax but failed to register and pay on time, the penalties could quickly escalate to hundreds of thousands of dirhams.

These fines do not replace the original excise tax liability, meaning businesses must still pay the full tax amount owed on top of penalties.

Restrictions on Importing and Selling Excise Goods

Unregistered businesses cannot legally import excise goods into the UAE. Customs authorities require a valid Excise Tax Registration Number (TRN) before clearing any shipments containing taxable goods.

Without registration, businesses may experience:

1. Customs clearance delays, preventing excise goods from entering the UAE.
2. Increased storage costs, as goods remain held at ports due to unpaid taxes.
3. The possibility of confiscation, where goods may be seized by authorities if tax obligations are not met.

Even if a business manages to bring excise goods into the UAE without proper registration, selling or distributing these goods is illegal, and retailers will refuse to work with unregistered suppliers.

FTA Audits and Backdated Tax Assessments

The FTA conducts random and targeted audits to identify businesses dealing with excise goods without proper registration. If an audit finds that a company has been selling, storing, or distributing excise goods without paying tax, the business will be required to:

1. Register for excise tax immediately.
2. Pay all excise tax due on past transactions, including tax on previously sold stock.
3. Settle penalties for late tax payments and non-compliance.

The FTA has the authority to assess backdated tax liabilities, meaning that businesses could be forced to pay excise tax on all taxable transactions from the date they first began handling excise goods.

For example, if a company has been selling excise-taxed beverages for two years without registration, it will be required to pay the full excise tax for all past sales, along with penalties.

This unexpected tax burden can severely impact cash flow and may even force businesses to halt operations if they cannot afford the sudden financial strain.

Legal Consequences and Business License Risks

Failing to register for excise tax can lead to legal actions by the FTA, especially if a business repeatedly ignores tax obligations. Authorities may impose:

1. Trading restrictions, preventing further sales of excise goods.
2. Legal notices, requiring businesses to settle unpaid tax liabilities within a strict deadline.
3. Business license suspensions or cancellations, stopping companies from operating legally.

If a business is found to have intentionally avoided registration and tax payments, it could face heavier financial penalties or even criminal liability in extreme cases.

How to Correct Non-Registration and Avoid Further Penalties

If a business has been operating without excise tax registration, the best course of action is to register immediately and settle outstanding liabilities before the FTA takes further enforcement steps.

To correct non-registration:

1. Apply for Excise Tax Registration Immediately

Businesses must submit an excise tax registration application through the FTA e-Services portal. The application requires:

1. A valid trade license with business activities related to excise goods.
2. Company ownership details, including Emirates ID and passport copies of shareholders.
3. Customs registration records if the business imports excise goods.
4. Warehouse location details if excise goods are stored before sale.

Registration approval typically takes a few working days, but businesses must prepare for backdated tax assessments once registered.

2. Declare and Pay Outstanding Excise Tax

After registration, businesses must calculate all excise tax owed on past taxable transactions and pay the required amount to the FTA. Businesses should:

1. Review historical sales and imports of excise goods to determine unpaid tax amounts.
2. Use FTA-compliant accounting software to calculate excise tax correctly.
3. Work with a tax consultant to assess potential penalties and plan a repayment strategy.

Settling outstanding excise tax quickly prevents additional penalties and avoids further legal complications.

3. Implement a Compliance Plan to Prevent Future Violations

Once registered, businesses must ensure they:

1. File monthly excise tax returns on time to avoid late payment fines.
2. Keep proper tax records for at least five years, including invoices, customs declarations, and stock reports.
3. Train employees on excise tax requirements, ensuring all tax calculations and filings are accurate.
4. Conduct internal audits to identify any tax reporting errors before the FTA does.

Taking a proactive approach to excise tax compliance helps businesses avoid further penalties and ensures smooth operations.

4. Understand the Impact of Backdated Tax Assessments on Business Finances

When a business registers late for excise tax, the FTA does not waive past tax obligations. Instead, the company must pay excise tax on all taxable goods handled before registration. This means businesses that imported, manufactured, or distributed excise goods before registering will have to pay excise tax on all past transactions.

Backdated tax assessments can be financially overwhelming because they include:

1. Excise tax on all previous sales and imports, which may go back months or even years.
2. Late payment penalties, increasing the total tax burden significantly.
3. Interest on overdue excise tax, compounding the financial impact.

Businesses must prepare for a sudden, large tax liability when registering late. Without a structured repayment plan, this could cause serious cash flow problems.

5. Negotiate a Payment Plan for Outstanding Excise Tax

If a business owes a large amount of backdated excise tax, the FTA may allow a structured payment plan instead of demanding full payment upfront. However, the FTA does not automatically grant payment extensions—businesses must proactively request one.

To negotiate a payment plan, businesses should:

1. Submit a formal request to the FTA, explaining financial difficulties and proposing a repayment schedule.
2. Provide supporting financial documents, demonstrating why a lump-sum payment is not feasible.
3. Commit to regular monthly payments, ensuring that all outstanding tax is settled within an agreed timeframe.

The FTA may approve installment payments if the business demonstrates financial hardship but remains committed to full tax compliance. Seeking professional tax advice during this process increases the chances of approval.

6. Avoid Repeat Non-Compliance to Prevent Heavier Penalties

Once a business has resolved its excise tax registration issue, it must remain fully compliant going forward. The FTA monitors businesses closely after identifying previous non-compliance, and any further violations can result in escalated penalties and legal action.

To prevent repeat offenses, businesses should:

1. Ensure that excise tax returns are filed accurately and on time every month.
2. Keep proper records of all tax transactions for at least five years to be ready for audits.
3. Train staff on excise tax regulations, ensuring that everyone involved in tax reporting understands their responsibilities.
4. Conduct regular internal tax reviews to catch errors before they lead to compliance issues.

Once flagged for non-registration, a business cannot afford another compliance failure. The FTA is likely to conduct future audits, and repeat violations could result in heavier financial penalties or business restrictions.

7. Seek Professional Tax Assistance to Correct Non-Compliance Issues

Excise tax laws are complex, and businesses that have failed to register often struggle with backdated tax calculations, penalty negotiations, and long-term compliance planning. Seeking help from tax professionals can reduce financial risks and ensure smooth registration and reporting.

A tax consultant can help businesses:

1. Review past transactions to calculate outstanding excise tax liabilities accurately.
2. Negotiate with the FTA for penalty reductions or structured payment plans.
3. Set up proper tax filing systems to prevent future compliance issues.
4. Represent the business during FTA audits, ensuring that all tax matters are handled correctly.

For businesses facing complex excise tax issues, professional assistance can prevent costly mistakes and ensure full regulatory compliance.

Final Thoughts: Excise Tax Registration is Not Optional

Excise tax is a legal obligation for businesses dealing with tobacco, vape products, energy drinks, and sweetened beverages. Failing to register for excise tax leads to severe financial penalties, legal risks, and disruptions in operations.

If a business does not register, it faces:

1. An immediate AED 10,000 fine for non-registration.
2. Late tax payment penalties that can reach up to 300% of the unpaid tax.
3. Import restrictions and customs clearance delays.
4. FTA audits and backdated tax liabilities for all past transactions.
5. Potential business license suspension for repeated non-compliance.

For businesses that have not yet registered or are unsure about their excise tax obligations, the best step is to act now before penalties increase.

For expert assistance with excise tax registration, backdated tax assessments, and compliance strategies, Protax Advisors provides professional tax solutions.

Book a free consultation today and let Protax Advisors help you register for excise tax, correct past mistakes, and ensure full compliance with UAE tax laws.