The United Arab Emirates (UAE) introduced excise tax in 2017 to reduce the consumption of harmful products and generate additional revenue for public services. Businesses dealing with excise goods must understand how to calculate and file excise tax to ensure compliance with the Federal Tax Authority (FTA). This guide provides a step-by-step approach to calculating excise tax in the UAE.
1. Understand Excise Goods and Tax Rates
Excise tax applies to specific goods deemed harmful to health or the environment. The current excise tax rates in the UAE are:
- 50% on carbonated drinks (excluding sparkling water).
- 100% on energy drinks.
- 100% on tobacco products and related goods.
- 100% on electronic smoking devices and liquids used in such devices.
- 50% on sweetened drinks containing added sugar or other sweeteners.
2. Determine the Taxable Value
The excise tax is calculated based on the higher of:
- Retail Selling Price (RSP): The price at which the goods are sold to consumers, inclusive of all taxes.
- Declared Price: The price declared by the importer or producer to the FTA.
For accurate calculations, ensure that the taxable value reflects the actual market value of the goods.
3. Calculate the Excise Tax
The formula for calculating excise tax is straightforward:
For example:
- If the taxable value of energy drinks is AED 1,000 and the tax rate is 100%, the excise tax will be:
- Similarly, if the taxable value of sweetened drinks is AED 500 and the tax rate is 50%, the excise tax will be:
4. File the Excise Tax Return
Businesses registered for excise tax must file their returns with the FTA within the specified deadlines. The steps include:
- Log in to the FTA portal.
- Navigate to the excise tax return form.
- Enter the details of taxable goods and their values.
- Calculate the total excise tax due.
- Submit the return and pay the tax amount.
5. Maintain Accurate Records
Compliance with excise tax regulations requires maintaining detailed records, including:
- Import and production documents.
- Sales invoices showing excise tax charges.
- Stock reports and inventory levels.
These records must be retained for a minimum of five years and made available for FTA audits.
6. Common Challenges and Tips
- Accurate Valuation: Ensure the taxable value is correctly calculated to avoid penalties.
- Timely Filing: File returns within the FTA’s deadlines to avoid fines.
- Software Tools: Use accounting software that integrates excise tax calculations and reporting.
- Professional Assistance: Engage tax consultants to navigate complex scenarios.
Conclusion
Calculating excise tax in the UAE is a straightforward process if businesses understand the applicable rates, determine the taxable value accurately, and adhere to FTA regulations. By maintaining precise records and staying compliant, businesses can avoid penalties and contribute to the UAE’s efforts to promote healthier consumption patterns. For complex cases, consulting with a tax expert ensures accuracy and compliance.