Tax in UAE is pretty straightforward. The country does not levy income tax on individuals but exact corporate tax and excise tax on businesses, like oil companies, banks, etc. While VAT (value-added tax) is implemented on all goods and services, an excise tax is imposed on the sale of those goods and services that are imported, manufactured, or stockpiled in the UAE and considered harmful to the environment and human life. The purpose of excise tax in the UAE is to decrease the consumption of such goods to limit unhealthy practices. The country has its own legislation regarding excisable goods. So, if you have a business in the UAE or aspire to run one, in this post, we’re going to talk about all the how’s and why’s around excise tax rates in UAE and excise tax return in UAE.
On Which Products is an Excise Duty Charged?
If you are wondering which products are subject to excise duty in the UAE, take a look at the points below:
- Sweetened beverages (not unflavoured aerated water) and products used to make aerated beverages, such as powders, extracts, gels, and concentrates, are subject to excise taxes.
- Energy drinks or energizers, like ginseng, guarana, caffeine, taurine, etc., used to improve physical endurance and offer mental stimulation are levied with excise taxes. Additionally, any powder, gel, concentrate, or extract used to create these energizers is also subjected to excise duty.
- Tobacco and other vaping products.
What is the Scope of Excise Tax in the UAE?
A person requires to enroll for and pay excise tax if they perform the following activities:
- Produce or manufacture excisable products.
- Transfer of excise products from a designated area.
- Import of excise products.
- Storage of excise goods.
- Sale of excise goods in the UAE. The excise duty is borne by the seller, and the tax amount is included in the total price of the excise product.
How to File Excise Tax Return in UAE?
An excise tax return contains the record of the excise amount paid every tax period. Since manual payment of tax in UAE is not acceptable anymore, businesses now use the FTA portal to file excise tax return in UAE. They can fill the online return form in either English or Arabic as it is available in both languages.
When Are Excise Returns Filed?
After excise tax registration, businesses need to file their excise tax returns via the FTA portal within 15 days of the tax period.
How to Submit Excise Tax Return In UAE?
Complete your excise tax declaration, liability, and deductible forms before filling out the excise returns form. Filling each of these forms is essential as they are relevant to your business activities. You also need to check the latest tax rates in UAE so you know what to expect.
Once you are through with that, you can start filing your monthly excise tax return form. This won’t take much time as the deductibles, liabilities, and declarations will be pre-filled. You will only have to enter the total value of the stockpiled excise good and the tax due on the stockpiling.
Even the authorized signatory details will be auto-filled. You will, however, be able to change the email address.
Before submitting the Excise Tax Returns form, make sure to review all the entered details on the form. Check if all the mandatory fields are complete and confirm the declaration. Once you are sure that everything is correct, click on the Submit button in the right corner of the screen.
Remember, once the excise tax return in UAE is filed for a certain period, other forms related to that particular return are also locked. This includes:
- EX202B form and EX202C for the production or release of goods from designated zones.
- EX203 for deductible excise tax.
If you need to fix an error or add more details in the Excise Tax Return form after it has been filed, you have to submit a Voluntary Disclosure against it. However, you should go through all the Voluntary Disclosure conditions first.
Import of Excise Goods
The importer requires paying the tax on or before the date of import of excise goods. The process to import excise goods is different for registered and non-registered importers. Let’s have a look at both these processes in detail below.
An individual importing excise goods but exempted from registration under excise tax is called a non-registered importer.
These importers require logging in to the FTA portal and filling an import declaration to pay the excise tax. This declaration form includes all the essential details related to the goods that are getting imported.
The declaration calculates any tax liability on the imported goods as per the price list issued by the FTA. In case the price of a particular good is not available on the FTA list, the importer is required to self-declare the tax based on that good’s retail sale price.
The importer needs to pay the excise tax due before the goods pass through customs. During import, the Customs Department asks for the transaction ID and checks the import declaration. After verifying the details in the declaration, they clear the goods and allow them to enter the UAE.
An importer who is registered and is taxable under the excise tax is called a registered importer. The process of paying tax liabilities for a registered importer is similar to that of a non-registered importer. However, the difference here is that a registered member pays the tax liability only after the excise tax return in UAE is filed.
The customs department checks the declaration details and clears the goods to enter the UAE. They record the import declaration information associated with the importer’s TRN (Tax Registration Number) and maintain it in the FTA system.
Once recorded, the taxable person doesn’t have to fill out these details while filing returns. They are automatically populated by the system.
The excise tax payment workflow goes like this:
- The business owner uses FTA’s official online portal to pay the excise tax.
- The payment is redirected to the eDirham Payment Gateway by the FTA.
- Every taxpayer receives a confirmation message or email as soon as the payment is processed.
Late Filing of Tax Return In UAE
Many businesses pay their excise taxes on time but forget to file excise tax returns. Non-payment or late filing of excise tax in UAE results in them paying penalties charged by the FTA.
In April this year, the UAE Cabinet issued amends in the rules related to penalties for tax violations for excise tax and VAT purposes. Take a quick look at the table below to know more.
|Day on Which Penalty is Applicable||Old Rules||New Rules|
|A day after the deadline for tax payment||2%||2%|
|7 days after the tax payment deadline||4%||–|
|A month after the tax payment deadline||1% daily (with a maximum limit of 300%)||4% monthly (with a maximum limit of 300%)|
Penalty in the Case of Errors
In case there is an error in the submitted tax returns, refund applications, or tax assessments, a percentage-based penalty is imposed. The new rules state that the penalty amount will be charged as per the timeframe within which the taxpayer notifies those errors.
The penalties will increase, starting from 5% (error disclosed within a year), and can eventually reach 40% (errors disclosed after 4 years). These penalties will be imposed on the difference between the tax that was imposed and the tax that should have been calculated during tax return submission.
The above scenario is for taxpayers who disclose tax errors voluntarily. Things are different for those who do not submit tax errors voluntarily. In that case, the person will be charged a 50% penalty on the total amount of the error. Additionally, the person will require paying a 4% penalty for each month the tax is unpaid.
To avoid any penalties, keep the following deadlines in mind:
- Excise tax return in UAE must be filed within 15 days after the relevant tax period.
- Payment of excise taxes must be done 15 days after the calendar month’s end.
- If the tax return in UAE filing falls on a National Holiday or weekend, it will move to the first working day that follows the holiday or the weekend.
What Businesses Need to Know About Excise Taxes?
The UAE’s excise tax law recommends businesses, importers, producers, warehouse keepers, and importers to register their goods in the new FTA system. Even businesses who have already registered for excise tax returns will require re-registering their goods.
The new FTA system comprises two phases:
Phase 1: Tax registration on sweetened drinks/beverages.
Phase 2: Tax registration on electronic devices and the liquidity amounts used in them.
How UAE – Based Small Businesses Can Save Taxes?
Are you a small business owner in the UAE who is worried about paying taxes?
If yes, don’t worry too much. Get in touch with a tax specialist to gain insight into the tax system and learn about the current tax rates in UAE. They will guide you through the annual process and make sure you don’t suffer any penalties.
To make things easier, we’ve listed a few tips that will help you in the tax season:
Hire an Experienced Accountant
An accountant does not just prepare financial statements and do your taxes. If that is all your accountant does, it’s time for you to change. The right accountant will work with you throughout the year and keep track of your spending’s and income.
They will ensure that you don’t face any cash flow problems and oversee your net and gross profits. You should work with your accountant from day one of commencing your business and not just during the tax season.
Maintain Proper Records
Maintaining accurate records all through the year is a great way to ensure error-free tax return filing. Improper maintenance of records could result in deductions or may as well put your business at risk for an audit.
It is thus advisable that every business invests in at least a basic version of accounting software. It is inexpensive, easy to use, and helps maintain your income and expenses in one place.
Having a casual approach to personal taxes is fine, but you cannot do that for your business. You need to collect and store all business records/receipts. If you are not sure how to store them, use a file system. It will allow you to categorize your receipts and keep things a little less complicated.
Business owners who use their vehicles for business-related meetings and events need to track their mileage. They can do so in a diary or download an app for it. If you have employees using their vehicles for your business, reimburse them for those expenses and ask them to maintain those records as well.
Don’t Miss Out on the Carryovers
Certain credits and deductions do not allow you to use them in the current year but lead to a carryover for future years. These carryovers help you reduce your taxable income. So, make sure you keep complete track of them to gain profits in the future. You can rely on any accounting software for it or ask your tax professional.
Carryovers generally include:
- General business credits
- Capital losses
- Home office deduction
- Charitable contribution deductions
- Net operating losses
Switch to a Different Business Structure
Do you own your business as a sole proprietor or as a partner? If it’s either of the two options, it’s time you change your business structure.
A better option would be to own an LLC (Limited Liability Company). It’s because an LLC provides you with great tax treatment flexibility. It is one of the major reasons why many small business owners choose to do business as an LLC.
We know making a switch like this is not easy. You will have to consider various factors before making this decision. However, it is a wise switch, especially if you want to decrease your taxable responsibilities.
Avoid Late Payments and Penalties
This is something you may already know about. There are plenty of ways to avoid penalties. One such method is getting all your documents together before the tax season knocks at your door. You can hire a temporary tax professional for it, and you’ll be all set. And if you already have an accountant, just ask them to do it. It will help you save time and avoid any unforeseen expenses.
When running your business in the UAE that involves the manufacture, sale, or import of goods and services that come under its excise legislation, ensure that you are completely aware of its rules and regulations and pay your excise taxes on time.
Maintain a file system so that you never miss out on any of your expenditures or production costs. Remodel your business structure if needed and hire an experienced accountant to ensure that all your transactions are well-taken care of.
Whether you are an established business or an entrepreneur planning to start a business in the UAE, we hope our guide cleared your doubts regarding excise taxes.
Watch this space for more details regarding taxes, properties, and traveling in the UAE. We update informative blogs regularly to keep our readers informed.
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