UAE President issues federal excise tax law for tobacco, soft drinks

A federal decree-law on excise tax – set to be imposed on tobacco products, soft drinks and energy drinks – has been issued by UAE President Sheikh Khalifa bin Zayed Al Nahyan, it was announced on Monday.

The move comes after the GCC countries agreed last year to impose the excise tax on products deemed harmful to human health.

Sheikh Hamdan bin Rashid Al Maktoum, deputy ruler of Dubai, UAE Minister of Finance, and chairman of the Federal Tax Authority (FTA) said: “We are making remarkable progress in our plans to establish a sound legislative infrastructure to support the UAE’s tax system and make sure it meets and exceeds international best practices.

“The project diversifies the government’s revenue streams and boosts its resources, which, in turn, will strengthen the economy and ensure its sustainability.

“The excise tax, in particular, will help us build a healthier and safer society. This tax is set to discourage the consumption of products that negatively impact the environment and, more importantly, people’s health, while the revenues it generates will go towards supporting advanced services for all members of society,” he added.

The law does not specify the rate of the tax. However it states that the excise tax rates are subject to a decision by the Council of Ministers, but should not exceed 200 per cent of the excise price, official news agency WAM reported.

The tax rates are widely expected to be 100 per cent for tobacco and energy drinks and 50 per cent for soft drinks following implementation in Saudi Arabia in June.

Read: Saudi importers, wholesalers accused of hoarding as new tobacco tax comes into effect

Also read: UAE issues new tax procedures law ahead of VAT

Taxing tobacco in the GCC

Registration, procedures under the law

The new legislation covers the production or importation of the excise goods into the UAE, as well as the stockpiling of such goods in the country.

The responsibility for the tax falls upon the the person who conducts any of these activities, or a person involved in any of the activities.

If the excise goods are released from a designated zone (where the tax has not been paid previously), the onus is on the warehouse keeper to pay the tax, the law states.

It also states that any person operating or intending to operate a designated zone must first apply for registration as a warehouse keeper.

The FTA may exempt a person from registration, but not the payment of tax, if they can demonstrate that they will not regularly import excise goods.

However, anyone who has been exempted from tax registration must inform the FTA of any changes to his/her circumstances that would make them subject to tax, and they must do so within the allotted timeframe and in accordance with the procedures stated in the executive regulation of the law.

Under the new ruling, the executive regulation shall determine the procedures, controls and conditions for tax registration, tax deregistration, and rejecting registration and deregistration applications.

The law also determines the specific dates for accounting for the tax, namely: the date on which the excise goods are imported, the date on which the they were acquired by the stockholder, and the date on which the excise goods were released for consumption.

The release for consumption shall further be clarified in the law.

The stated prices of excise goods at points of sale must include the excise tax mandated by the law, but the executive regulation shall state when this is not the case.

Exemptions

The law specifies instances where goods could be exempt from tax – excise goods that are exported. A designated zone meeting the conditions specified in the executive regulation of the law shall be treated as being outside the UAE for excise tax purposes.

Excise goods may therefore be transferred from one designated zone to another without incurring any excise tax.

Payment details

The payable tax of a taxable person shall be the total sum of due tax for that period less the total deductible tax.

The deductible tax is made up of tax paid on excise goods that have been exported; tax paid on goods that have been incorporated into other goods where tax is or will be payable; and any amounts paid in error.

The taxable person must submit a tax return to the FTA at the end of each tax period and settle the amount within the specific timeframe and according to procedures determined in the executive regulation.

Refunds

Any excess refundable tax can be carried forward to subsequent tax periods.

If there remains any excess for any tax period after being carried forward for a period of time, the person may apply to the FTA for a refund of the remaining excess as per the timeframe and procedures stated in the law.

The FTA may refund the tax based on an application submitted by foreign governments, international organisations, diplomatic bodies and missions – on condition of reciprocity – for tax paid in the course of their official activities.

Tax may also be refunded to persons registered in another GCC country implementing excise tax, provided they have paid the amount in the UAE, exported the products to the other GCC country and paid the tax to that country.

Violations

The new law determines a set of violations that will entitle the FTA to issue an administrative penalty assessment to the taxable person and notify them within five business days.

Such violations consist of:

* Failure by the taxable person to display prices inclusive of tax

* Failure to comply with the conditions and procedures related to moving the excise goods from one designated zone to another, as well as with the procedures of keeping, storing and processing the goods

* Failure by the person to provide the FTA with price lists of excise goods they produce, import or sell

The law also outlines penalties for tax evasion.

A person shall be deemed to have committed tax evasion if they – 

* Bring or attempt to bring excise goods into or out of the UAE without payment of due tax in part or in full

* Produce, transfer, acquire, store, transport or receive excise goods where due tax was unpaid with the intention of avoiding its payment

* Place false distinguishing marks on excise goods, with the intent of evading the payment of due tax or of receiving unlawful refunds

* Submit false or counterfeit documents, returns or records, with the intent of evading the payment of due tax or of receiving unlawful refunds

Records

The taxable person is required to retain the following records:

* Records of all produced, imported or stockpiled excise goods

* Records of exported excise goods and evidence of that export

* Records of stock levels, including details of items lost or destroyed

* Tax Records that include information regarding the due tax on imported and excise goods, excise goods that have been stockpiled, and deductible tax specified by the law

The taxable person, or any other person with a written authorisation, must include the Tax Registration Number (TRN) on all correspondence and transactions with the FTA, as well as on all tax returns and any document related to tax.