Who Needs to Pay Excise Tax in the UAE? A Business Owner’s Guide

Excise tax in the UAE applies to businesses that manufacture, import, store, or distribute specific goods that are considered harmful to health or the environment. Since its introduction in 2017, excise tax has played a key role in reducing the consumption of tobacco, energy drinks, and sugary beverages, while also generating government revenue.

Many business owners do not realize they are required to register and pay excise tax until they face customs delays, financial penalties, or compliance issues. Whether you run a trading company, a distribution business, or a warehouse facility, it is essential to understand who needs to pay excise tax, how it is calculated, and how to stay compliant with the Federal Tax Authority (FTA).

This guide explains everything business owners need to know about excise tax liability in the UAE, ensuring that you avoid costly mistakes while maintaining full compliance.

Understanding Excise Tax in the UAE

Excise tax is different from VAT because it only applies to specific categories of goods. Unlike VAT, which is charged at a flat rate of 5% on most goods and services, excise tax is imposed at either 50% or 100% on certain harmful products.

Businesses dealing with excise goods must pay tax upfront, before these goods enter the market. The tax is calculated based on the higher value between the retail selling price (RSP) and the import cost. This means businesses must carefully plan their pricing and cost structures to account for the tax.

If a company fails to pay excise tax correctly, it risks FTA penalties, tax audits, and business restrictions. Understanding which businesses are liable is the first step toward ensuring compliance.

Who is Required to Pay Excise Tax in the UAE?

Not all businesses are required to register for and pay excise tax. However, any company that is involved in manufacturing, importing, storing, or distributing excise goods is legally required to comply. Business owners should evaluate their operations to determine whether their company falls under any of the four key categories of excise taxpayers.

1. Manufacturers of Excise Goods

Companies that produce excise goods in the UAE must pay excise tax when the goods are moved from the production facility into the market. This applies to businesses that manufacture:

1. Cigarettes, shisha, and other tobacco-based products.
2. Electronic smoking devices and vaping liquids.
3. Energy drinks containing caffeine, taurine, or other stimulants.
4. Carbonated and sweetened beverages with added sugar or artificial sweeteners.

Even if a manufacturer does not sell the goods directly to consumers, it must still register for excise tax, declare the goods produced, and pay the applicable tax before the products are distributed.

Business owners must ensure they have the correct excise tax registration before starting production, as failing to register can lead to severe financial penalties and potential shutdowns.

2. Importers of Excise Goods

Businesses that import excise goods into the UAE are required to pay excise tax before the goods clear customs. This tax applies regardless of whether the goods are:

1. Imported for direct sale in the UAE market.
2. Brought into the country for distribution to wholesalers or retailers.
3. Temporarily stored in the UAE before being re-exported.

Excise tax is due as soon as the goods arrive at UAE borders, meaning that importers must declare taxable goods, calculate excise tax, and ensure payment is made before customs clearance.

Many importers experience delays at customs due to incomplete tax payments or missing declarations. To avoid disruptions, importers must register with the FTA, ensure accurate excise tax calculations, and maintain proper documentation for every shipment.

3. Stockpilers of Excise Goods

A stockpiler is any business that holds excise goods for commercial purposes, even if they do not manufacture or import them. This includes:

1. Warehouses that store excise goods for distribution.
2. Retailers with large amounts of excise stock before sale.
3. Distributors and wholesalers keeping inventory for future sales.

If a business holds a significant quantity of excise goods, it may be required to register for excise tax and declare the goods in stock. The FTA may conduct audits or inspections to verify whether tax has been paid on all stored excise products.

If a stockpiler fails to declare excise goods properly, it can face penalties and tax reassessments, leading to unexpected financial liabilities. Business owners should implement strict inventory tracking systems to ensure excise tax compliance.

4. Warehouse Keepers Handling Excise Goods

Warehouses that store excise goods for third parties may also be required to register for excise tax and maintain detailed tax records. If a warehouse operates as a designated zone for excise goods, it must comply with FTA regulations, including:

1. Keeping detailed stock records of all excise goods stored.
2. Ensuring that tax is paid before goods are released for sale or distribution.
3. Submitting excise tax reports to the FTA when required.

Many warehouse operators mistakenly believe that excise tax is only the responsibility of manufacturers and importers. However, if a warehouse handles excise goods on behalf of taxable businesses, it may also have tax obligations under UAE law.

How Excise Tax is Calculated and Paid

Excise tax in the UAE is calculated based on specific rules set by the Federal Tax Authority (FTA) to ensure that businesses pay the correct amount before excise goods are sold or distributed. Unlike VAT, which is applied as a percentage of the sale price, excise tax is determined based on either the retail selling price (RSP) or the import cost, whichever is higher.

Miscalculating excise tax can result in financial losses, tax reassessments, and penalties, so it is essential for businesses to get it right the first time. A structured approach to tax calculation and payment ensures smooth operations and full compliance with UAE regulations.

1. Identify the Correct Tax Rate for Each Product

Excise tax rates differ depending on the type of product. Businesses must first identify the correct tax rate applicable to their goods to ensure that calculations are accurate. The UAE excise tax rates are:

1. 100% for tobacco products, electronic smoking devices, vaping liquids, and energy drinks.
2. 50% for carbonated drinks and sweetened beverages.

If a business handles multiple types of excise goods, it must apply different tax rates correctly to avoid tax miscalculations that could lead to penalties.

2. Determine the Taxable Value of the Product

The taxable value of an excise good is determined by whichever is higher between:

1. The Retail Selling Price (RSP): The final price at which the product is sold to consumers, including VAT and any additional costs.
2. The Import Cost: The total value of the product when imported into the UAE, including cost, insurance, freight (CIF), and customs duties.

If a business imports a case of energy drinks at AED 100, but the retail price in stores is AED 200, excise tax will be calculated based on AED 200 since it is the higher amount.

To prevent errors, businesses should:

1. Regularly review pricing structures to ensure that tax calculations reflect the latest retail prices.
2. Monitor import costs and customs duties to avoid discrepancies in taxable value.
3. Maintain accurate records of pricing documentation to justify tax calculations in case of an FTA audit.

3. Apply the Correct Excise Tax Rate

Once the taxable value is determined, businesses must apply the relevant tax rate.

For a case of energy drinks with a taxable value of AED 200, and an excise tax rate of 100%, the excise tax due is AED 200.

For a box of soft drinks with a taxable value of AED 150, and an excise tax rate of 50%, the excise tax due is AED 75.

To prevent mistakes, businesses should use FTA-approved accounting software that automatically applies the correct tax rate based on product classification.

4. Declare Excise Goods to the FTA Before Selling or Distributing

Businesses must declare all excise goods before selling or distributing them in the UAE. This is done through the FTA e-Services portal, where companies must submit a detailed tax return that includes:

1. The total quantity of excise goods imported, manufactured, or stored.
2. The applicable excise tax rate for each product.
3. The total excise tax amount payable for the reporting period.

Declarations must be submitted accurately and on time to avoid fines. Businesses should implement a tax filing schedule to ensure they do not miss reporting deadlines.

5. Pay Excise Tax Before Goods Are Released for Sale

Excise tax must be paid before excise goods can enter the market. Late payments result in FTA penalties, potential customs delays, and additional compliance reviews.

To ensure tax payments are made on time, businesses should:

1. Set up automated tax payment reminders to track deadlines.
2. Ensure sufficient cash flow reserves to cover excise tax payments.
3. Use the correct payment method linked to the FTA portal to avoid processing delays.

If a business fails to make the correct payment, it may face restrictions on importing or selling excise goods until outstanding tax liabilities are settled.

6. Keep Detailed Excise Tax Records for Five Years

The FTA requires businesses to keep all excise tax records for at least five years. These records must include:

1. Invoices for excise tax payments
2. Customs declarations for imported goods
3. Warehouse stock reports
4. Excise tax return filings

Failing to maintain proper records can result in FTA audits, fines, or additional tax assessments. To avoid compliance risks, businesses should implement a digital tax record-keeping system that ensures all documents are stored safely and can be retrieved easily if required.

7. Conduct Internal Audits to Prevent Compliance Issues

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

1. Excise tax is calculated correctly based on the latest retail prices or import costs.
2. Tax payments match declared quantities in excise returns.
3. Stock levels and inventory records align with tax filings.

If discrepancies are found, businesses should correct errors immediately and, if necessary, file an amended tax return with the FTA.

8. Stay Updated on Excise Tax Law Changes

Excise tax laws in the UAE are subject to updates and amendments. Businesses must stay informed about any new changes to tax rates, filing requirements, or compliance obligations to avoid penalties.

To remain compliant, businesses should:

1. Subscribe to FTA tax updates and announcements.
2. Attend excise tax training and compliance workshops.
3. Consult with tax professionals to ensure ongoing compliance.

By staying proactive, businesses can prevent unexpected tax liabilities and maintain smooth operations.

What Happens if a Business Fails to Pay Excise Tax?

The FTA enforces strict penalties for non-compliance, including fines and legal actions against businesses that fail to register, declare, or pay excise tax correctly.

Common penalties include:

1. AED 10,000 fine for failing to register for excise tax.
2. AED 20,000 fine for failing to file tax returns on time.
3. Penalties for underreporting or miscalculating excise tax.
4. Customs restrictions or import bans for unpaid excise tax.

To avoid fines, business owners should ensure their tax filings are accurate, payments are made on time, and all excise goods are properly declared.

How Protax Advisors Can Help Your Business Stay Compliant

Understanding excise tax laws and ensuring compliance can be challenging for business owners, especially those dealing with imports, distribution, and warehousing.

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 tobacco, energy drinks, sweetened beverages, or electronic smoking devices, 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.