President His Highness Sheikh Khalifa bin Zayed Al Nahyan has issued a Federal Decree-Law on Excise Tax, which will be imposed on selected products, as determined by the Council of Ministers and recommended by H.H. Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai and UAE Minister of Finance, and Chairman of the Federal Tax Authority, FTA.
As per Federal Decree-Law No. 07 of 2017, Excise Tax Rates that shall be imposed on the "Excise Goods", which, along with the method of calculating the Excise Price, are subject to a decision by the Council of Ministers, upon the recommendation of the Minister of Finance, provided that the tax rates do not exceed 200% of the Excise Price.
At its thirty-seventh meeting, in December 2016, the Supreme Council of the Gulf Cooperation Council, GCC, issued a resolution on excise goods list, which contains tobacco products, energy drinks and certain soft drinks.
"As President His Highness Sheikh Khalifa issues Federal Decree-Law No. 07 of 2017 on Excise Tax, the UAE takes a great leap forward," said H.H. Sheikh Hamdan bin Rashid Al Maktoum. "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," H.H. Sheikh Hamdan bin Rashid added. "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."
The new legislation requires Excise Tax to be imposed on certain activities around specific "Excise Goods", activities such as the production or importation of Excise Goods in to the UAE, as well as the stockpiling of Excise Goods in the UAE, where these activities occur in the course of doing business.
The due tax is, moreover, the responsibility of the Person who conducts any of these activities, or, if said Person fails to meet their obligations, a Person involved in any of the activities. In the event that Excise Goods are released from a Designated Zone (and where Payable Tax has not been paid previously), the onus is on the Warehouse Keeper to pay the tax.
The FTA may exempt a Person from registration, but not 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 immediately inform the Authority 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 Decree-Law.
A registered taxable Person shall apply for a tax deregistration when no longer liable for Excise Tax according to the Decree-Law and within the timeframe stated in the executive regulation. Moreover, the Law states that any Person operating or intending to operate a Designated Zone must apply for registration as a Warehouse Keeper before acting as such, and the Executive Regulation of the Decree-Law shall specify the effective date of registration.
The new Decree-Law states that the Executive Regulation shall determine the procedures, controls and conditions for Tax Registration, Tax Deregistration, and rejecting registration and deregistration applications.
The Decree-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 Excise Goods were acquired by the Stockholder, if after the Decree-Law came into effect, or the date it came into effect otherwise, and in all other cases the date on which the Excise Goods were released for consumption. The release for consumption shall further be clarified in the Executive Regulation of the Decree-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. It also specifies instances where goods could be exempt from tax, namely, Excise Goods that are exported. Moreover, a Designated Zone meeting the conditions specified in the Executive Regulation of the Decree-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.
Payable Tax of a Taxable Person for any Tax Period 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 Excise Goods that have been incorporated into another Excise Good where tax is or will be payable, and any amounts paid in error. The Taxable Person must submit a Tax Return to the Authority at the end of each Tax Period and settle the Payable Tax appearing in the Tax Return within specific timeframes and according to procedures determined in the Executive Regulation.
The Taxable Person must carry forward any excess Refundable Tax to subsequent Tax Periods and offset such excess against Payable Tax or any Administrative Penalties imposed under the Decree-Law or the Federal Law No. 07 of 2017. This offset shall take place if the Taxable Person’s Deductible Tax exceeds the Due Tax for the same Tax Period and if the Tax paid to the Authority by the Taxable Person exceeds the Payable Tax.
If there remains any excess for any Tax Period after being carried forward for a period of time, the Taxable Person may apply to the Authority for a refund of the remaining excess as per the timeframes and procedures stated in the Federal Law No. 07 on Tax Procedures and its Executive Regulation.
The Authority 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 Excise Tax in the UAE, exported the products to that other GCC country and paid the tax to that other GCC country.
The new Law determines a set of violations that will entitle the Authority to issue an Administrative Penalty Assessment to the Taxable Person, and notify them within five business days, notwithstanding the provisions of the Federal Law No. 07 of 2017 on Tax Procedures.
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 these Excise Goods; and failure by the Taxable Person to provide the Authority with price lists of Excise Goods they produce, import or sell.
The law on excise tax reinforces the same Penalties on Tax Evasion stipulated in Federal Law No. 07 of 2017. 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 the payment of Due Tax; place false distinguishing marks on Excise Goods, with the intent of evading the payment of Due Tax or of receiving unlawful refunds; and submit false or counterfeit documents, returns or records, with the intent of evading the payment of Due Tax or of receiving unlawful refunds.
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; and Tax Records that include information regarding the Due Tax on imported Excise Goods, produced Excise Goods, Excise Goods that have been stockpiled, and deductible tax specified by the Decree-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 Authority, as well as on all Tax Returns and any document related to Tax.
The Federal Decree-Law No. 07 on Excise Tax is available on the Ministry of Finance website: www.mof.gov.ae.