UAE Excise Tax Explained: Which Products Are Affected?

Most businesses operating in the UAE are familiar with VAT and, increasingly, corporate tax. But excise tax remains one of the least understood components of the country’s fiscal framework — even among businesses that are directly exposed to it. Unlike VAT, which casts a wide net across the economy, excise tax is deliberately narrow. It targets a specific set of goods considered harmful to public health or the environment, applying at rates far higher than VAT and with compliance obligations that are entirely separate from the broader tax system. For importers, producers, distributors, and warehouse operators dealing in affected products, understanding how this tax works is not optional — it is a fundamental business requirement.

What Is Excise Tax and Why Does the UAE Have It

The UAE introduced excise tax under Federal Decree-Law No. 7 of 2017, with the first collections beginning in October of that year. The policy rationale was twofold: to reduce the consumption of goods that place a burden on the public health system, and to generate revenue that could be directed toward health and social initiatives. The Federal Tax Authority serves as the primary body responsible for registration, collection, enforcement, and audit. Since its introduction, the framework has expanded in scope and complexity — and 2025 brought one of the most consequential changes the system has seen since its launch.

Products Subject to Excise Tax — The Full Breakdown

The products currently subject to excise tax in the UAE fall into several distinct categories, each with its own applicable rate. Tobacco products — including cigarettes, cigars, loose tobacco used in waterpipes, and heated tobacco — attract a 100% excise tax on the retail price. Electronic smoking devices and the liquids used in them are taxed at the same 100% rate, reflecting the government’s position that these products carry health risks comparable to conventional tobacco. Energy drinks, defined as any beverage marketed as providing mental or physical stimulation through ingredients such as caffeine, taurine, or ginseng, are also taxed at 100%. Carbonated drinks — non-alcoholic beverages containing carbon dioxide, with sparkling water explicitly excluded — carry a 50% excise tax. Sweetened beverages, meaning drinks that contain added sugar, artificial sweeteners, or other sweetening agents, have historically been taxed at a flat 50% rate as well. That, however, is changing significantly.

The 2026 Sweetened Drinks Reform — A Major Shift

Cabinet Decision No. 197 of 2025, issued by the Ministry of Finance, replaces the previous flat-rate model for sweetened drinks — Cabinet Resolution No. 52 of 2019 — with a tiered, sugar-based volumetric system effective January 1, 2026. The old framework taxed beverages simply on the basis of whether they qualified as a sweetened drink, with no distinction made according to how much sugar a product actually contained. The new system directly connects the tax rate per litre to the sugar content per 100 millilitres of the beverage. Products with low sugar content will attract no excise liability under the volumetric model. Those falling into the moderate sugar band will be taxed at AED 0.79 per litre, while products classified as high-sugar will carry a liability of AED 1.09 per litre. Certain product categories are explicitly excluded from the sweetened drinks definition altogether — beverages containing at least 75% milk, infant formula, and drinks formulated to meet specific medical or dietary needs are not caught by this category regardless of their sweetener content.

The practical implications of this reform are considerable. Businesses importing or producing sweetened beverages can no longer rely on a blanket product classification to determine their liability. They must now obtain a laboratory report from an FTA-accredited testing body that confirms the precise sugar and sweetener content of each product, and register or re-register those products on the EMARATAX portal under the appropriate tier. Any sweetened drink that does not have a valid UAE Certificate of Conformity in place will automatically default to the high-sugar classification — and the associated AED 1.09 per litre rate — until an authorized laboratory report is submitted demonstrating otherwise. For manufacturers, this reform also creates a direct commercial incentive to reformulate products: reducing sugar content to reach a lower tier translates into a measurable reduction in excise liability. A transitional relief mechanism is available, allowing businesses to claim deductions for excise tax paid in excess during the period from January 1 to June 30, 2026, as the industry adjusts to the new regime.

How Excise Tax Is Calculated

Beyond the product categories, understanding how the tax is actually calculated matters for accurate pricing and financial planning. For most excisable goods — tobacco, energy drinks, carbonated beverages, and electronic smoking devices — excise tax is calculated using the ad valorem method, applied as a percentage of the excise price. The excise price is defined as the higher of the product’s retail selling price excluding VAT or the standard price published by the FTA for that product category. From January 2026, sweetened drinks depart from this methodology and are calculated purely on a per-litre basis according to their sugar tier. Every excisable product must be individually registered in the FTA’s system through the EMARATAX portal before it can be imported, produced, or traded within the UAE.

Filing Returns and Payment Deadlines

Excise tax returns are filed monthly through EMARATAX, with both the return and the corresponding payment due by the 15th day following the end of each tax period. Returns must capture all excisable activity during the period — imports, local production, releases from designated zones, and any shortages discovered in stock. A nil return is required even when no activity occurred. The EMARATAX portal handles product registration, return filing, payment, and correspondence with the FTA, making it the single point of contact for all excise obligations.

Designated Zones — What They Are and How They Work

Designated zones play an important role in the excise framework, particularly for importers and distributors managing high-volume stock. These are FTA-approved warehouses — typically located at ports, logistics centers, and free zones — where excise goods can be held without triggering an immediate tax liability. The liability crystallizes only when goods leave the designated zone and enter free circulation within the UAE. Any shortfall in inventory within a designated zone is treated as a taxable release, meaning that warehouse keepers must maintain precise records and comply with strict FTA reporting requirements.

Penalties for Non-Compliance

The penalty regime for non-compliance is firm. Operating without registration, filing late, understating liability, or maintaining inadequate records all attract administrative penalties. Submitting false information or deliberately evading excise tax can result in criminal referral. Prices for excisable goods must be displayed inclusive of excise tax under the law — failure to do so is itself a separate infringement. The FTA’s voluntary disclosure mechanism remains available for businesses that identify errors before an audit is initiated, and proactive correction consistently results in reduced penalties compared to errors discovered during an FTA examination.

What Businesses Should Do Now

For businesses currently in scope, the immediate priority is clear. Importers and producers of sweetened drinks must commission accredited laboratory testing and update product registrations on EMARATAX ahead of the January 2026 transition. All excise-registered entities should audit their current product classifications, review their monthly return processes, and ensure their designated zone reporting is fully compliant. Those entering the excise space for the first time must register before a single unit is imported or produced. The UAE’s excise tax framework has been evolving at pace — and in 2026, that evolution takes a leap forward. The businesses that move early will be best positioned to manage the cost, the compliance, and the commercial opportunity that comes with it.