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Excise tax in UAE was introduced as part of the government’s efforts to reduce the consumption of goods that negatively impact public health and the environment. Implemented in October 2017, this tax targets specific products, such as tobacco, energy drinks, carbonated drinks, sweetened beverages, and electronic smoking devices. The rates are substantial, with a 100% tax on tobacco products, energy drinks, and electronic smoking devices and a 50% tax on carbonated and sweetened beverages.

Businesses must determine the “Excise Price” to calculate UAE excise tax. This price includes the cost of the goods, shipping, and insurance (CIF). Once the Excise Price is established, the tax rate applicable to the product is applied. For example, if a company imports energy drinks with an Excise Price of AED 100, the excise tax would be 100%, resulting in an additional AED 100 tax, making the total cost AED 200.

Businesses dealing with excisable goods must register with the Federal Tax Authority (FTA) and regularly file excise tax returns. Failing to adhere to these regulations could result in significant fines. By accurately calculating and paying excise tax, businesses not only avoid penalties but also contribute to the UAE’s broader health and environmental goals.

What is Excise Tax in UAE? 

Excise Tax in the UAE is a form of indirect tax levied on specific goods deemed harmful to human health or the environment. It was introduced to discourage the consumption of these goods and generate additional revenue for the government, which can be used to fund public services.

Key Points about Excise Tax in the UAE:

1. Introduction Date: The UAE introduced the Excise Tax on October 1, 2017.

2. Taxed Goods: The Excise Tax applies to:

• Tobacco products (including e-cigarettes and similar devices): 100% tax rate.
• Energy drinks: 100% tax rate.
• Carbonated drinks: 50% tax rate.
• Sweetened beverages: 50% tax rate (introduced later in December 2019).

3. Purpose: The tax aims to reduce the consumption of unhealthy goods, promote healthier lifestyles, and raise revenue for health-related initiatives.

4. Registration: Businesses involved in the import, production, or storage of excise goods are required to complete excise tax registration in UAE with the Federal Tax Authority (FTA) and must file periodic tax returns.

Implementing the Excise Tax is part of the UAE’s broader strategy to diversify its revenue sources and reduce its reliance on oil revenues.

Excise Tax Rates in the UAE

The UAE has implemented an excise tax on certain products and services, particularly those considered harmful to human health, such as tobacco, energy drinks, and sugary beverages. The UAE excise tax list is set as follows:

• Tobacco Products: A 100% excise tax is imposed on tobacco products while doubling their retail price. This high tax rate aims to discourage tobacco use due to its well-documented health risks.

• Energy Drinks: These beverages are marketed as stimulants for the body and mind and typically contain caffeine, taurine, ginseng, and guarana. The UAE applies a 100% excise tax on energy drinks. It includes any product that can be converted into beverages, such as concentrates, powders, gels, or extracts. This tax doubles the retail price of energy drinks.

• Carbonated Drinks: The excise tax on carbonated beverages includes all aerated drinks except carbonated water. The price is set at 50% of the retail price. This category also covers products intended to be converted into carbonated drinks, such as powders, gels, or extracts.

The UAE has implemented these high excise tax rates as part of a broader strategy to reduce the consumption of harmful products and promote healthier lifestyles among its residents.

How to Calculate Excise Tax in UAE?

The UAE employs two distinct methods for calculating excise tax on specific goods:

Specific Method

The specific method involves applying a fixed tax rate per product unit. This straightforward approach makes the tax amount predictable and easy to administer. For example:

• Cigarettes: A fixed excise tax of AED 0.4 per cigarette.

• Energy Drinks: A tax of AED 0.1 per millilitre.

This method clarifies businesses and consumers by ensuring the tax amount remains consistent regardless of the product’s price.

Ad Valorem Method

The ad valorem method determines excise tax based on the product’s value. This method is typically used for goods where the value fluctuates significantly. For example:

• Luxury Cars: A 50% excise tax on the retail price.

• Jewellery: A 5% tax on the retail value.

The ad valorem method is more complex, requiring an accurate product valuation to determine the taxable amount. This method is often applied to high-value or luxury items whose prices vary widely.

Examples of Excise Tax Calculation in UAE

Let’s examine some examples to better understand the excise tax calculation in UAE using the specific and ad valorem methods.

Specific Method

The specific method applies a fixed tax rate per product unit, making the calculation straightforward.

Example 1: Cigarettes

• Product: A pack of 20 cigarettes

• Excise Tax Rate: AED 0.4 per cigarette

Calculation:

Total Excise Tax = 20 cigarettes × AED 0.4 per cigarette = AED 8

So, the excise tax on a pack of 20 cigarettes would be AED 8, regardless of the pack’s retail price.

Example 2: Energy Drinks

• Product: A 250ml can of energy drink

• Excise Tax Rate: AED 0.1 per millilitre

Calculation:

Total Excise Tax = 250ml × AED 0.1 per ml = AED 25

The excise tax on a 250ml energy drink would be AED 25.

Ad Valorem Method

The ad valorem method calculates the excise tax based on the product’s value, making it a percentage of the retail price.

Example 1: Luxury Car

• Product: A luxury car with a retail price of AED 500,000

• Excise Tax Rate: 50% of the retail price

Calculation:

Total Excise Tax = AED 500,000 × 50% = AED 250,000

The excise tax on the luxury car would be AED 250,000.

Example 2: Jewellery

• Product: A piece of jewellery with a retail price of AED 10,000

• Excise Tax Rate: 5% of the retail price

Calculation:

Total Excise Tax = AED 10,000 × 5% = AED 500

The excise tax on the jewellery would be AED 500.

These examples illustrate how the UAE uses specific and ad valorem methods to calculate excise tax, depending on the nature of the product. The specific method is used for items with a fixed unit measure, while the ad valorem method is applied to goods with variable values.

Challenges in Implementing Excise Tax in the UAE

Implementing the excise tax in the UAE presents key challenges:

• Cross-Border Transactions: Enforcing tax compliance and collecting revenue in cross-border transactions is difficult, requiring robust border controls and international cooperation.

• Impact on SMEs: Small and Medium-sized Enterprises (SMEs) may struggle with increased costs, needing to balance higher prices or lower profits. Addressing this impact requires careful policy adjustments.

Documents Required for Excise Tax Registration

To complete your excise tax registration, you must provide several key documents to verify your information. The required supporting documents include:

• Passport Copy: For personal identification.

• Emirates ID: This is for proof of residency and identity.

• Trade License: To confirm your business operations in the UAE.

• Other Official Records: Any additional documents that verify your business’s eligibility to conduct activities within the UAE.

Business Details Required for Registration

You will also need to provide specific information about your business, including:

• Your Role: Indicate whether you register as a producer, importer, or another role.

• Details of Excise Goods: Information about the excise goods your business handles.

• Customs Authority Registration: Provide details if applicable.

• GCC TRN: If registered for excise tax in another GCC state, include your Tax Registration Number (TRN).

Make sure that all documents and details are accurate to facilitate a smooth registration process.

Excise Tax Advisory Services in the UAE

Dealing with the complexities of excise tax in the UAE can be challenging. To have smooth compliance and avoid substantial fines, it is important to seek guidance from qualified tax advisors.

At Shuraa Tax, we specialise in excise tax consulting in Dubai. Our expert team is dedicated to helping you understand, calculate, and file your excise taxes with precision. We provide personalised advice to your specific needs, ensuring you stay compliant with all regulations.

For expert support and the intricacies of excise tax, contact us at +971 50 891 2062 or email info@shuraatax.com. Let us help you manage your tax obligations smoothly and efficiently.

Calculating VAT in UAE might sound tricky, but with the right approach, it’s surprisingly simple. Understanding the process is essential for business owners trying to stay on top of their financial responsibilities. VAT, or Value Added Tax, is a tax on goods and services that’s added at each stage of production or distribution. The good news is that you don’t need to be a financial expert to calculate it.

In this guide, we’ll walk you through the basics of VAT in the UAE, showing you exactly how to calculate VAT in the UAE without any hassle. We’ll cover what VAT is, why it’s important, and the simple steps you can follow to ensure you’re calculating it correctly.

Along the way, we’ll also provide practical examples to make the process even clearer. By the end of this guide, you’ll feel confident in your ability to manage VAT calculations, whether for your business or personal understanding.

What is VAT in UAE?

VAT (Value Added Tax) in the UAE is a consumption tax levied on most goods and services. Introduced on January 1, 2018, at a standard rate of 5%, VAT is applied at each stage of the supply chain where value is added. Businesses collect VAT on behalf of the government, and consumers ultimately bear the cost when purchasing goods or services.

The tax is part of the UAE government’s efforts to diversify revenue sources beyond oil. Under specific conditions, some goods and services, such as education and healthcare, may be exempt or zero-rated.

How to Calculate VAT in UAE

Businesses registered for VAT in the UAE must maintain accurate records of their income and VAT payments. VAT is charged at a rate of 5% on the invoice value for all customers of registered businesses. Additionally, businesses pay 5% VAT on the goods and services they purchase from suppliers.

To manage VAT efficiently, it’s important to understand the difference between the VAT collected on sales (Output VAT) and the VAT paid on purchases (Input VAT). The VAT owed to the tax authorities or eligible for a refund is determined by the following formula:

VAT=Output VAT−Input VAT 

• Output VAT: The VAT collected on sales and services.

• Input VAT: The VAT paid on raw materials and purchases.

To use this formula, calculate the total Output VAT collected during the taxable period and the total Input VAT paid. Subtract the Input VAT from the Output VAT to determine your VAT liability.

• If Output VAT exceeds Input VAT, the difference is the amount you owe to the tax authorities.

• If Input VAT exceeds Output VAT, you are entitled to a refund, and no VAT is due.

Understanding this process is essential for managing VAT effectively and ensuring compliance with UAE tax regulations.

VAT Calculation Formula

There are two methods for calculating VAT in the UAE, depending on whether VAT is included in or excluded from the sale price. Here’s how to apply each method:

Adding VAT to the Sale Price

Use this method when VAT is not included in the sale price. To calculate the VAT amount and the total price, including VAT, use the following formulas: 

VAT Amount

Gross Amount (Including VAT)

Excluding VAT from the Sale Price

Use this method when VAT is included in the sale price. To find the VAT amount and the net sale amount (excluding VAT), use these formulas:

VAT Amount:

Net Sale Amount (Excluding VAT):

VAT Calculation Example

Let’s calculate VAT using an example with a sale amount of AED 1,000 and a VAT rate of 5%.

When VAT is Part of the Sale Price:

VAT Amount:

Net Sale Amount (Excluding VAT):

When VAT is Excluded from the Sale Price:

VAT Amount:

Gross Amount (Including VAT):

These methods will help you accurately calculate VAT based on whether it is included in or excluded from the sale price.

How Business Owners Can Calculate VAT in the UAE

In the UAE, the VAT rate is set at 5%, one of the lowest globally. Instead of the government collecting VAT directly, businesses are responsible for charging their customers and remitting the collected VAT to the authorities.

To calculate VAT, use the following formula: 

VAT Payable = Output Tax – Input Tax

Output Tax

Output tax is the VAT collected by a seller from customers on the selling price of the final product or service. In the UAE, VAT is 5%. For example, if the selling price of a product or service is AED 200, the output tax (VAT collected) would be:

Output Tax=200×5%= AED10.00

Output tax is also known as VAT Collected.

Input Tax

Input tax is the VAT a business pays on the cost price of goods or services used to produce a final product. The standard VAT rate is 5% in the UAE. For example, if the cost price of goods or services is AED 100, the input tax (VAT paid) would be:

Input Tax=100×5%=AED5.00

Input tax is also referred to as VAT Credit or Recoverable VAT.

VAT Payable

To determine the VAT payable to the government, subtract the input tax from the output tax:

VAT Payable=Output Tax−Input Tax

For example, if your output tax is AED 10.00 and your input tax is AED 5.00, the VAT payable would be:

VAT Payable=10.00−5.00=AED5.00

All businesses must collect VAT on sales (output tax) and recover VAT on purchases (input tax). The difference between the two amounts must be paid to the government.

How to Register for VAT in the UAE

In the UAE, VAT registration depends on your annual revenue:

1. Mandatory Registration: If your business makes more than AED 375,000 annually, you must register for VAT. 

2. Optional Registration: If your annual revenue is between AED 187,500 and AED 375,000, registration is optional. 

3. Exempt from Registration: If your annual revenue is below AED 187,500, you do not need to register for VAT. 

Steps to Register for VAT 

1. Visit the FTA Website: Go to the Federal Tax Authority (FTA) website. 

2. Create an e-Services Account: Sign up for an e-Services account to activate your profile. 

3. Access Your Dashboard: Log in to your e-Services account. 

4. Register for VAT: Click “Add New Taxable Person” and follow the simple process to complete your VAT registration. 

By following these steps, you can easily register your business for VAT in the UAE.

Simplify VAT Calculation with Shuraa Tax

Calculating VAT in the UAE can seem complex, but with Shuraa Tax, it becomes straightforward. Our team simplifies the VAT process, guiding you through each step—from understanding VAT basics to calculating and managing VAT payments.

With practical examples and clear instructions, Shuraa Tax ensures you handle VAT efficiently and comply with UAE regulations. For personalized assistance, contact us at +971 50 891 2062 or email info@shuraatax.com.

FAQs

Q1. How is VAT calculated in the UAE?

To calculate VAT in the UAE, you need to apply the 5% VAT rate to the sale price. For example, if the price of a product or service is AED 100, the VAT amount would be AED 5 (calculated as AED 100 x 0.05). Thus, the total amount payable would-be AED 105 (AED 100 + AED 5 VAT).

Q2. What is the VAT rate in the UAE?

The UAE’s standard VAT rate is 5%. However, certain goods and services are classified as exempt or zero-rated, meaning no VAT is applied to them. Exempt supplies include specific healthcare and educational services, while zero-rated supplies may include certain international goods and services.

Q3. How do you calculate 5% VAT in the UAE?

To calculate 5% VAT, multiply the sale price by 0.05. For example, if the sale price is AED 200, the VAT is AED 10 (AED 200 x 0.05). Add this to the sale price to get the total amount payable, AED 210.

Q4. How to calculate VAT on AED 100?

For a product priced at AED 100, the 5% VAT would be AED 100 × 5% = AED 5.00. Thus, the Input VAT is AED 5.00.

Q5. How do you find the price before VAT from a gross amount?

To remove VAT from a price, follow these steps: First, divide the gross amount by 1 plus the VAT percentage (expressed as a decimal). Then, subtract the resulting value from the gross amount. Finally, multiply by -1 and round to the nearest value.

The UAE’s Value Added Tax (VAT) system has become an essential part of everyday business. While most are familiar with the standard 5% VAT rate, things can get trickier when dealing with zero-rated and exempt supplies. Many businesses find themselves confused about the difference between these two categories which may lead to potential errors in VAT filing and record keeping.

Therefore, understanding the difference between zero rated VAT and exempted VAT in UAE is crucial for businesses to ensure compliance with tax regulations and avoid any potential penalties.

What is VAT?

VAT, or Value Added Tax, is a type of consumption tax levied on the value added to goods and services at each stage of production and distribution. The tax is applied to the increase in value at each stage, not the total cost. Think of it like a tax on the work done at each step.

The United Arab Emirates implemented VAT in January 2018. Here’s a basic overview:

• General Rate: 5% on most goods and services.

• Exceptions: Some essential goods and services are exempt or have a 0% rate (e.g., healthcare, education).

• Registration: Businesses exceeding a threshold (currently AED 375,000) must register for VAT.

• Input Tax Credit: Registered businesses can reclaim VAT they paid on their purchases.

Zero Rated VAT in UAE

Zero-rated VAT is a category within the UAE’s VAT system where a 0% VAT rate applies to specific goods and services. While these supplies are still considered taxable, the VAT amount is zero. A crucial benefit of zero-rated supplies is the ability to recover input tax (VAT paid on business expenses) incurred for these supplies. This helps businesses maintain cash flow.

Examples of Zero-Rated VAT in the UAE

Here are some of the main categories of zero-rated goods and services in the UAE:

• Exports of goods and services outside the GCC (Gulf Cooperation Council).

• International transportation and related supplies (e.g., fuel for international flights).

• Supplies of certain means of transportation (new ships, aircraft for international use).

• Precious metals like gold, silver, and platinum supplied for investment.

• Newly built residential properties for the first 3 years of their existence.

• Certain educational and healthcare services, along with related goods and services.

How Businesses Handle Zero-Rated VAT

Businesses making zero-rated supplies need to clearly identify them on invoices with a “Zero-Rated Sales (0.00%)” label. They must record these transactions in their VAT accounts and report them in VAT return filings.

Importantly, they can claim input tax credit for VAT paid on expenses related to zero-rated supplies.

Exempted VAT in the UAE

Exempt VAT in the UAE means no VAT is charged at all on specific goods and services. Unlike zero-rated supplies, these transactions are completely outside the scope of VAT. Businesses supplying exempt goods and services don’t add VAT to their prices and don’t collect it from customers.

A key difference from zero-rated supplies is that businesses cannot claim input tax credit (VAT paid on related expenses) for exempt supplies. This VAT becomes a cost of doing business.

Businesses dealing primarily with exempt supplies may not be required to register for VAT if their total taxable supplies (excluding exempt ones) fall below the registration threshold (currently AED 375,000 annually).

Examples of Exempt Supplies in the UAE

• The sale or lease of residential properties (excluding commercial spaces within them)

• Local passenger transport services (buses, taxis, metros, and ferries)

• Bare land, a land without any buildings or structures on it

• Certain financial services (such as issuance of securities or life insurance contracts)

Exempt supplies can simplify record-keeping for businesses as they don’t need to calculate or collect VAT. However, the inability to recover input tax might increase overall business costs.

Key Differences Between Zero Rated VAT and Exempted VAT in UAE

The main difference between Zero-Rated VAT and Exempt VAT in the UAE is how they affect businesses. Here’s a breakdown of what that means:

Partial VAT Exemption in UAE

A business might offer a bundle that includes both taxable and exempt supplies (e.g., a training course with a textbook). In such cases, the business needs to separate the taxable and exempt portions of the supply and apply VAT accordingly. They would charge VAT on the taxable portion (training course) and not on the exempt portion (textbook).

Businesses that make both taxable and exempt supplies often incur mixed expenses that benefit both types of supplies. The UAE VAT law allows for approved methods to apportion the input tax (VAT paid on these mixed expenses) between the taxable and exempt supplies.

Partner with Shuraa Tax for Your UAE VAT Needs

Knowing the difference between Zero Rated VAT and Exempted VAT is very important for business owners in the UAE. It helps you manage your tax reporting, stay compliant with regulations, and plan your finances better. By understanding these two types of VAT, you can make sure your business runs smoothly and avoids any tax-related issues.

For expert help with your taxes in the UAE, you can always turn to Shuraa. Our team at Shuraa Tax is ready to assist you with all your tax and accounting needs. Our tax consultants in Dubai will review your financial situation and help you plan your taxes and bookkeeping.

Shuraa Tax offers the best VAT consultancy services in Dubai, including filing VAT returns, giving VAT advice, and assisting with all aspects of UAE VAT implementation. With Shuraa Tax, you can confidently handle your VAT matters and focus on growing your business.

Frequently Asked Question

1. What is the difference between zero-rated VAT and exempt VAT in UAE?

Zero-rated VAT means a 0% VAT rate applies, but businesses can still claim input tax credit for VAT paid on expenses related to those supplies. Exempt VAT means no VAT is charged at all. However, businesses cannot recover input tax on expenses related to exempt supplies.

2. What is a non-recoverable input tax?

Non-recoverable input tax is the VAT portion of expenses that a business cannot claim back. This applies to VAT paid on expenses related to exempt supplies and some personal expenses not related to business activities.

3. Do businesses have to register for VAT in the UAE if they only deal with zero-rated supplies?

Yes, businesses making zero-rated supplies still need to register for VAT in the UAE. This is because they need to file VAT returns even though the VAT rate is 0%.

4. What are the record-keeping requirements for zero-rated and exempt supplies?

Businesses need to maintain separate records for both zero-rated and exempt supplies to ensure accurate reporting and potential input tax recovery for zero-rated supplies.

5. Are there any penalties for incorrectly classifying a supply as zero-rated when it should be exempt (or vice versa)?

Yes, incorrectly classifying a supply can led to penalties from the Federal Tax Authority (FTA). These penalties can include additional tax dues, interest charges, and administrative fines.