UAE Excise Tax Public Clarification - EXTP012

EXTP012

Excise Tax Public Clarification

Transition to a tiered-volumetric model of Excise Tax for Sweetened Drinks

Issue

Amendments are expected to be made to the UAE Excise Tax legislation to enable transition to a tiered-volumetric model for the calculation of Excise Tax on Sweetened Drinks. This Public Clarification outlines the key aspects of the upcoming changes that Taxable Persons should be aware of, to enable them to prepare for the changes that may come into force as soon as 1 January 2026.

Summary

Under the new rules, a Sweetened Drink will be defined as a product to which a source of sugar, artificial sweeteners or other sweeteners is added that is produced for consumption as a drink, whether ready to drink, in the form of concentrates, powders, gels, extracts, or any form that can be converted into a drink.

A tiered-volumetric model for calculating Excise Tax will be implemented for Sweetened Drinks, whereby Excise Tax will be calculated based on the amount of sugar or other sweeteners instead of at a fixed rate as is currently the case.

Excise Tax will be calculated based on the total sugar content (natural sugar, added sugar, and other sweeteners) in a Sweetened Drink, where the Sweetened Drink contains any added sugar or other sweeteners (e.g. honey).

Where a drink contains only natural sugar without any added sugar or other sweeteners, Excise Tax will not apply.

Under the volumetric model, Sweetened Drinks that contain only artificial sweeteners, and do not contain added sugar or other sweeteners, will be subject to zero Excise Tax.

A date will be announced by the FTA from which Taxable Persons may only register Sweetened Drinks as Excise Goods where a lab report is provided to show the sugar content as a supporting document.

Detailed analysis

Definition of Sweetened Drinks

Under the proposed rules, a Sweetened Drink is a product to which a source of sugar, artificial sweeteners or other sweeteners is added and is intended for consumption as a drink. This includes drinks in various forms such as ready to drink, concentrates, powders, gels, extracts, or any form that can be converted into a drink.

Under the new rules, Carbonated Drinks^[1] will be abolished as a separate category of Excise Good. Instead, the applicability of Excise Tax on Carbonated Drinks shall be determined based on their sugar content and categorisation as Sweetened Drinks.

Transition to a tiered-volumetric model for calculating Excise Tax on Sweetened Drinks

Under the existing legislation, Excise Tax is calculated for all categories of Excise Goods by applying a specified Tax Rate to the Excise Price^[2] of the Excise Good (i.e. Ad Valorem method).

Under the new rules, which are expected to become effective as soon as 1 January 2026, a tiered-volumetric model for calculating Excise Tax will be implemented for Sweetened Drinks. Under these rules, Excise Tax will be calculated based on the total amount of sugar or other sweeteners (excluding artificial sweeteners) per the volume of the Sweetened Drink.

The following categories will apply to the calculation of Excise Tax on Sweetened Drinks:

High sugar category (≥8 gram of total sugar and other sweeteners per 100ml).
Moderate sugar category (≥5 and <8 gram of total sugar and other sweeteners per 100ml).
Low sugar category (<5 gram of total sugar and other sweeteners per 100ml).
Category of Sweetened Drinks that contain only artificial sweeteners.

Example (1):

A Taxable Person imports Sweetened Drink bottles, each 500ml with total sugar (natural sugar, added sugar, and other sweeteners) content of 6g per 100ml and an Excise Price of AED 2 per bottle.

Under the current rules, Sweetened Drinks are taxable at 50% of the Excise Price and, therefore, Excise Tax is AED 1 per bottle.
Under the new rules, the Sweetened Drink will fall under the "Moderate sugar" category as the total sugar content is more than 5g but less than 8g per 100ml.

Excise Tax will be calculated based on the rate for moderate Sweetened Drinks that shall be specified in a decision by Cabinet.

Determining the amount of sugar and other sweeteners in Sweetened Drinks

Under the tiered-volumetric model, Excise Tax will be calculated based on the total sugar content (natural sugar, added sugar, and other sweeteners) in a Sweetened Drink where the Sweetened Drink contains any added sugar or other sweeteners (e.g. honey).

Where a drink contains only natural sugar (i.e. without any added sugar or other sweeteners), the drink will not be considered a Sweetened Drink for the purposes of Excise Tax.

This is also the case where a drink contains natural sugars from multiple sources without any added sugar or other sweeteners (e.g. mixing natural fruit or vegetable juices which contain natural sugar without any added sugar or other sweeteners).

Taxable Persons will be required to obtain a certification from an authorised laboratory in the UAE of the total content of sugar (i.e. natural, added and other sweeteners), and whether artificial sweeteners are included in the drinks which they produce, import, stockpile or release from Designated Zone.

The FTA will issue further guidance on the requirements related to sugar content testing in due course.

Example (2):

A Sweetened Drink contains the following per 100ml:

2g of natural sugar
3g of added sugar

As the Sweetened Drink includes added sugar, the natural sugar is counted as part of the total sugar content.
Therefore, the total sugar for the purposes of Excise Tax is 5g per 100ml.
The Sweetened Drink is categorised as a moderate Sweetened Drink and is subject to Excise Tax at the rate for moderate Sweetened Drinks that shall be specified in a decision by Cabinet.

Example (3):

A drink is composed of a mixture of orange juice, apple juice and pineapple juice, without any added sugar or other sweeteners.

The natural sugar content of the drink is 9g per 100ml.
As the drink contains only natural sugar without any added sugar or other sweeteners, it is not a Sweetened Drink for the purposes of Excise Tax and is not subject to Excise Tax.

Artificial sweeteners

Artificial sweeteners include products such as aspartame, sucralose, saccharin, and stevia. Under the tiered volumetric model, the amount of artificial sweetener is disregarded when determining the amount of sugar in a Sweetened Drink for the purpose of calculating Excise Tax.

Example (4):

A drink which includes blueberries as part of its ingredients contains the following per 100ml:

5g of natural sugar from the blueberries
1g of artificial sweetener

The artificial sweetener is disregarded when determining the total sugar.
As there is no added sugar, the natural sugar is also disregarded.
Since the drink contains artificial sweeteners, it will be considered as Sweetened Drink for the purposes of Excise Tax, but will be subject to zero Excise Tax.

Example (5):

A Sweetened Drink contains the following per 100ml:

2g of natural sugar
3g of added sugar
2g of artificial sweetener

The amount of artificial sweetener is disregarded to determine the total sugar.
As there is added sugar, both the natural sugar and added sugar are considered.
Therefore, the total sugar content for Excise Tax purposes is 5g per 100ml.
The Sweetened Drink is categorised as a moderate Sweetened Drink and subject to Excise Tax at the rate for moderate Sweetened Drinks that shall be specified in a decision by Cabinet.

Administrative requirements related to the change to the tiered-volumetric model

From the date that shall be announced by the FTA, Taxable Persons will be required to register (or update existing registrations of) drinks to determine whether these are Excise Goods (i.e. Sweetened Drinks) on the FTA's dedicated Excise Goods portal, which will require providing supporting documentation.

The required supporting documentation will include a lab report showing whether the drink has added sugar, other sweeteners or artificial sweeteners, and the total content of sugar (i.e. natural, added, and other sweeteners) in the drink. The Ministry of Industry and Advanced Technology ("MOIAT") will publish a list of accredited labs for this purpose.

Where a lab report including the above details is not obtained after the new rules come into effect, a Sweetened Drink shall be classified as a high sugar Sweetened Drink until and unless a lab report is provided which evidences a lower sugar content (at which point the additional tax paid can be deducted/refunded, subject to meeting certain conditions).

Transitional rules shall be announced in relation to Sweetened Drinks held by taxable persons in the period spanning the implementation of the new rules, e.g. rules relating to the stockpiling of Sweetened Drinks where a person anticipates that the Excise Tax liability on the Sweetened Drinks will decrease/increase upon the implementation of the new rules or any other case where the purpose of stockpiling is to obtain a tax advantage.

Exclusions from the definition of Sweetened Drinks

Under the new rules, the following beverages will not be considered Sweetened Drinks:

Energy Drinks^[3] subject to the existing calculation method for Excise Tax (i.e. 100% of the Excise Price) will not be subject to the tiered-volumetric model.
100% natural fruit and vegetable juices to which no sugar or other sweeteners have been added.
Milk, dairy, and related products.^[4]
Baby formula, follow up formula or baby food.
Beverages and concentrates intended for special dietary and medical uses.
Beverages and concentrates containing any added source of sugar or other sweeteners that are prepared by natural persons for personal consumption or other non-commercial purposes.
Beverages containing any added source of sugar or other sweeteners that are prepared in restaurants and similar places and served in an open container that is not hermetically sealed for end consumers and intended for direct consumption as a drink.

Next steps for Taxable Persons

Taxable Persons are encouraged to begin reviewing the sugar content of their beverage products and assess whether they may fall within the scope of the new Sweetened Drinks definition.

It is recommended to start engaging with accredited laboratories early (once the details of such laboratories are published) to ensure timely testing and obtain the required sugar content certifications.

Early preparation will help ensure a smooth transition to the new Excise Tax calculation method from its effective date.

This Public Clarification issued by the FTA aims to clarify certain aspects of the rules expected to be announced regarding the application of Excise Tax on Sweetened Drinks in the UAE. This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.