UAE introduces excise tax
On 17 August 2017 the UAE adopted Federal Decree-Law No. 7 of 2017 on Excise Tax, which enters into force on 1 October 2017 (Excise Tax Law). A cabinet resolution is expected to be issued in the near future providing guidance in relation to certain provisions of the law.
The excise tax is imposed on goods considered harmful to human health and the environment. The tax is forecast to generate AED 7 billion (USD 1.9 billion) annually for the UAE federal budget.
The Excise Tax Law does not contain the list of goods that will be subject to excise tax or applicable rates, which will be determined later by a Cabinet decision. It does however provide that the excise tax shall not exceed 200% of the price of the goods. The advertised price of the excise goods shall be inclusive of tax unless indicated otherwise in the executive regulations.
The UAE Federal Tax Authority (FTA) states on its recently launched website that the excise tax is expected to apply as follows:
- 50% for carbonated drinks (except sparkling water);
- 100% for tobacco products;
- 100% for energy drinks.
According to the Excise Tax Law the excise tax is imposed at the following stages of the supply chain: production, import, release from a designated zone and stockpiling. The products exported from the UAE are exempt from the excise tax. It is envisaged that the executive regulations will be issued by the government and will contain details of further exceptions. Reportedly, the excise tax will apply on goods sold in free trade zones and airports, although products purchased in airports by those travelling abroad will be exempt.
The Excise Tax Law provides for exemption within the designated zones (not necessarily equivalent to UAE free trade zones), which are defined as fenced areas that cannot be entered or exited except through a designated road as well as any other area which may be designated by the FTA as being under supervision of a warehouse keeper. The executive regulations will provide further details regarding the designated free zones. A designated zone meeting these requirements is treated as being outside the UAE for tax purposes and goods can move from one designated zone to another without being subject to excise tax.
The producers, importers and stockpilers of excisable goods must register with the FTA to ensure compliance with the Excise Tax Law. There is no turnover threshold for registration for the excise tax and so anyone involved in the above activities must register with the FTA. The FTA may exempt an importer from registration if certain conditions are met, but the exempted person will still have to pay the excise tax upon import. The registration is also mandatory for anyone intending to operate as a warehouse keeper who has responsibility to pay the excise tax upon release of the goods from a designated zone unless the tax has already been previously paid. The registration is expected to open on 15 September 2017.
The businesses liable to pay the excise tax shall keep records in accordance with the Excise Tax Law, including records of all produced, imported, stockpiled and exported (including evidence of such export) excise goods, records of stock levels (including lost or destroyed items) as well as detailed tax records.
The Excise Tax Law is meant to work within the framework set by the Federal Law No. 7 of 2017 on Tax Procedures, which sets out consequences for non-compliance with the registration requirements and any other administrative tax violations. The Excise Tax Law establishes additional administrative violations (e.g. failure to display prices inclusive of tax) and tax evasion offences (e.g. bringing or attempting to bring excise goods into or out of the UAE without payment of the relevant due tax).
The adoption of the Excise Tax Law was swiftly followed by the adoption of the UAE Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT) on 23 August 2017, which will enter into force on 1 January 2018 and will work in parallel with the Excise Tax Law.
Rita Jansen, Anna Fomina