Excise tax is the UAE’s selective levy on products considered harmful to health or the environment — tobacco, vaping products, energy drinks and sweetened drinks — introduced under Federal Decree-Law No. 7 of 2017. It is narrow in scope but heavy in rate, and it changed materially on 1 January 2026, when the flat 50% rate on sweetened and carbonated drinks gave way to a tiered, sugar-based levy charged per litre. For importers, producers and distributors, classification and systems now matter more than ever.
What Is Taxed, and at What Rate
Tobacco and tobacco products are taxed at 100%, as are electronic smoking devices, the liquids used in them, and energy drinks — all on an ad valorem basis. Sweetened drinks moved on 1 January 2026 to a tiered volumetric model: drinks with 8 grams or more of sugar per 100ml are taxed at AED 1.09 per litre, drinks with at least 5 but less than 8 grams at AED 0.79 per litre, and drinks below 5 grams — or sweetened only with artificial sweeteners — attract no excise. Carbonated drinks no longer form a separate 50% category; they are assessed under the same sugar-content test as other sweetened drinks. The FTA provided transitional adjustments during the first half of 2026 for tax already paid under the old model.
Why the Redesign Matters
A percentage of price taxes expensive products hardest; a per-litre rate tied to sugar content taxes sugar itself. The new model rewards reformulation — cutting a recipe below a band boundary changes the tax — and it makes laboratory evidence of sugar content part of the compliance file. Product registrations, declarations and ERP master data all need the sugar-per-100ml figure, and a wrong figure now means a wrong tax rate across every litre sold.
Who Must Register
Registration is mandatory for any person who produces excise goods in the UAE, imports them, stockpiles them where tax has not previously been paid, or operates as a warehouse keeper of a designated zone. There is no minimum threshold equivalent to VAT’s: if the activity is in scope, registration is required — and one-off importers are caught as readily as established distributors.
Designated Zones
Excise goods can be held in FTA-approved designated zones with the tax suspended, provided an approved warehouse keeper is in place and inventory controls meet the required standard. The suspension lasts only as long as the controls hold: reconciliation gaps, unexplained stock movements and weak system trails are among the most common audit findings, and a failed designated zone review can convert an entire warehouse of suspended goods into an immediate liability.
Valuation: Ad Valorem and Volumetric
For the 100% ad valorem categories, the tax base is generally the higher of the price published by the FTA for the product and the declared retail selling price — the RSP being the price to the final consumer, inclusive of excise but exclusive of VAT. Declaring and maintaining RSPs is a governance exercise in its own right: informal price changes that never reach the FTA create retroactive exposure. For sweetened drinks the calculation is now volume multiplied by the applicable per-litre rate, which shifts the audit focus from pricing to product data and volumes.
Returns, Records and Payment
Registered businesses file excise returns monthly, covering releases for consumption, imports, adjustments such as exports or certified destruction, and stockpiling events. Records — import files, production logs, warehouse movements, RSP and product declarations — must be retained for at least five years. With rates at these levels, even small reporting errors compound quickly into material exposure.
Where Businesses Get Caught
Five risk areas recur in practice. Product misclassification, now including sugar-band errors where the laboratory evidence does not support the declared tier. RSP governance failures on the ad valorem categories. Stockpiling rules triggering tax on goods held for business purposes where excise was never paid. Designated zone control failures that invalidate suspension. And ERP systems still configured for percentage-based logic that cannot handle per-litre, sugar-banded calculation — a new failure mode the 2026 reform introduced.
Interaction with VAT
Excise and VAT stack. Excise tax is calculated first and embedded in the price; VAT at 5% is then charged on the excise-inclusive value. The tax-on-tax effect must be built into pricing and margin models, because excise — unlike VAT — is not recoverable downstream: it is a final cost in the chain, borne wherever the contract puts it.
Frequently Asked Questions
What are the current UAE excise tax rates?
100% on tobacco, electronic smoking devices and liquids, and energy drinks. Sweetened drinks are taxed per litre by sugar content: AED 1.09 per litre at 8g or more per 100ml, AED 0.79 between 5g and 8g, and zero below 5g or for artificially sweetened drinks.
What changed for carbonated and sweetened drinks in 2026?
From 1 January 2026 the flat 50% rate was replaced by the tiered volumetric model, and carbonated drinks ceased to be a separate category — their treatment now depends on sugar content alone.
Is there a registration threshold for excise tax?
No. Anyone producing, importing or stockpiling excise goods, or keeping an excise warehouse, must register regardless of value or volume.
Is excise tax recoverable like VAT?
No. Excise is levied once and embedded in the cost of the goods. VAT at 5% is then calculated on the excise-inclusive price, so the two taxes compound in the final consumer price.