WHAT IS THE DIFFERENCE BETWEEN EXCISE TAX AND VAT IN THE UAE

This article has been researched and written by the Tax & Compliance Team at Creation Business Consultants. AI has not been used in generating this article.

The tax system in the United Arab Emirates (UAE) has several different tax kinds intended to regulate economic activity and generate income. Value Added Tax (VAT) and Excise Tax are two well-known taxing systems that apply to various commodities and services and have different purposes. 

DEFINITION OF UAE EXCISE TAX:

UAE Excise Tax is a specific type of consumption tax imposed by the government of the United Arab Emirates (UAE) on certain goods that are considered harmful to public health or the environment. Introduced on October 1, 2017, this tax is part of the UAE’s broader strategy to diversify its revenue sources and promote healthier living among its residents. For businesses needing guidance, our Excise Tax advisory service offers expert assistance in navigating these regulations.

DEFINITION OF UAE VAT:

UAE VAT (Value Added Tax) is a form of indirect taxation imposed on the consumption of goods and services in the United Arab Emirates (UAE). VAT was introduced on January 1, 2018, as part of the UAE’s broader economic strategy to diversify its revenue sources. To ensure compliance and optimize your business processes, consider utilizing our VAT service for professional support and advice.

DIFFERENCE BETWEEN UAE VAT AND UAE EXCISE TAX: 

• SCOPE AND PURPOSE

  1. UAE VAT: VAT is a broad-based consumption tax applied to most goods and services It reduces dependency on oil earnings and encourages economic diversification.
  2. UAE Excise TAX: Excise tax is targeted specifically at certain goods that are considered harmful to public health or the environment. Its main goals are to make people less likely to use these harmful products.

• TAX RATES

1. UAE VAT:

• • Standard Rate: 5% applied to most goods and services.
  • Zero Rate: 0% applied to specific categories, such as exports and international transport.
  • Exemptions: Certain goods and services, like financial services and financial services.

2. UAE Excise TAX:

• • Tobacco Products: 100%
  • Electronic smoking devices: 100%
  • liquids used in electronic smoking devices: 100%
  • Energy Drinks: 100%
  • Carbonated drinks: 50%
  • Sweetened drinks: 50%

• REGISTRATION DEADLINE

1. UAE VAT:

A. Voluntary registration: If the taxable person turnover for the last 12 months is more than AED 187,500
B. Mandatory registration: If the taxable person crossed the mandatory threshold (AED 375,000) for the last 12 months, then there is a must to submit a registration application within 20 working days after crossing the threshold to avoid a penalty up to AED 20,000 that will be charged from FTA.

2. UAE Excise TAX:

There is no registration threshold for excise tax; therefore, any corporation who intends to be involved in any of the listed activities must register prior to the date of introduction

• REPORTING AND COMPLIANCE

1. UAE VAT:

• • Reporting: Registered VAT businesses must file the VAT returns (Quarterly or Monthly basis if annual turnover exceeding AED 150 million) depends on the TAX period within 28 days from the end of your tax period.
  • Compliance: Businesses are required to maintain records of transactions, issuing VAT invoices, and ensuring accurate VAT reporting for the last seven (7) years.
  • Key Reporting Components:

1. 1. 1. Output VAT: VAT collected from sales of goods and services.
      2. Input VAT: VAT paid on business purchases.
      3. Net VAT Payable/Refundable: The difference between output VAT and input VAT, which determines whether the business owes VAT to the FTA or is entitled to a refund.

2. UAE Excise TAX:

• • Reporting: Registered Excise TAX businesses must file the monthly Excise TAX return within 15 days from the end of your tax period.
  • Compliance: Businesses are required to maintain records of transactions and compliance with tax payments on the production or import of excise goods for the last seven (7) years
  • Key Reporting Components:

1. 1. 1. Excise Goods: Details of the specific excise goods involved, including the volume or quantity.
      2. Excise Tax Due: The total amount of excise tax payable based on the applicable rates.
      3. Tax Period: The reporting period for which the excise tax is being calculated.

Both VAT and Excise Tax are managed by the Federal Tax Authority (FTA) in the UAE, but they address different economic and health concerns and are applied differently based on the nature of the goods and services.

For more information regarding how Creation can assist with tax services in the UAE, contact us today!

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