VAT in Jan 2018 but ‘Excise Tax’ is imminent
The Federal Tax Authority (FTA), the government entity responsible for administering, implementing, and collecting federal taxes in the UAE, is set to launch the registration process for excise tax Sunday, September 17, 2017.
The decision comes ahead of the October 1 launch of nation-wide excise taxes, and in an effort to guide and assist businesses in the early stages of tax compliance.
Businesses will be required to register via the Authority’s interactive website to facilitate registration for taxable persons and entities on a 24/7 basis.
The FTA is committed to assisting the business sector in the UAE to harmonise its financial and technical systems to ensure its readiness to comply with the country’s planned tax regulations and procedures. This covers the imminent excise tax in October 2017, as well as the Value-Added Tax (VAT) set to be launched in early January 2018.
FTA Director General Khalid Al Bustani stressed:“The registration process for businesses eligible for excise tax is the first step towards complying with the tax procedures and laws, and an opportunity for UAE-based businesses to adapt their internal financial and administrative systems to the advent of this major step forward for the maturing national economy.”
“The Authority seeks efficiency and transparency as we implement the tax system. Therefore, we offer our full support and guidance to UAE-based businesses throughout the registration process.”
As of October 1, 2017, excise tax will go into effect at a rate of 50% on soft drinks and 100% on tobacco and energy drinks. Soft drinks include all carbonated/aerated beverages, with the exception of non-flavoured aerated water, as well as any concentrates, gels or extracts that can be processed into soft drinks.
Energy drinks, meanwhile, include beverages that may contain stimulants or substances that induce mental or physical stimulation, including but not limited to: caffeine, taurine, ginseng and guarana, as well as any substances with similar effects.
Excise taxes are payable by the individual or entity producing or importing products eligible for the tax.
It also affects individuals and entities that stock these products if they have not already been taxed. 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.
Taxable Person’s Responsibilities
Federal Law No. (7) of 2017 on Tax Procedures and Federal Decree-Law No. (7) of 2017 on Excise Tax outline a list of responsibilities for taxable persons to abide by, most notably, taxable persons are required to retain records of all produced, imported or stockpiled excise goods, as well as excise goods introduced for consumption, and submit monthly returns to the FTA. They are required to settle their taxes within 15 days of the end of each month.
Collecting Excise Tax
Excise tax is imposed in the following situations: The production of products eligible for excise tax outside a designated zone, in which case tax is determined based on the tax period coinciding with the production; and products introduced for consumption (from designated zones), in which case tax is determined based on the tax period coinciding with the release of the product into the market.
Furthermore, excise tax on imports is to be declared in the importer’s report – as long as the importer was registered prior to the import – alternatively, the tax can be settled before customs clearance in the case of an unregistered person.
Importers: Reporting and Settling Tax
Importers who are registered with the Federal Tax Authority must declare their imports (that are subject to excise tax) at the customs department of the emirate in question prior to putting the items on sale. The import is to be declared once again in the tax return related to the tax period, and the tax is to be settled within 15 days from the end of the month where the import took place.
In case the importer is not registered with the Federal Tax Authority, the importer must declare and settle the excise tax before the customs department releases the goods. Declaration and payment procedures will be conducted through the Authority’s website.
Actions before end of September 2017
Individuals and organisations whose operations involve products eligible for excise tax must determine whether or not they are required to register with the FTA.
Excise goods must be documented and declared by the end of September 30, 2017.
The inventory must be audited and approved by an accredited auditor, and the taxable person is required to learn about tax-related legislations and procedures to know their rights and responsibilities.
Who Is a Stockpiler?
A stockpiler is a person or business that holds a stock of excise goods for business purposes and cannot prove that excise tax has previously been paid on those goods.
Thus, any person who stores excise goods prior to October 1, 2017, is required to register and pay the tax on the goods stored – provided there are “surplus excise goods” (i.e. goods stored by the person prior to October 1 and still owns them as of October 1, or goods that exceed two months’ stock of inventory according to average monthly sales, which are calculated over a period of 12 months before the end of September 2017).
If excise goods are not in surplus, the stockpiler is not required to register for taxes.
A designated zone describes a fenced area intended as a free zone that cannot be entered or exited except through a designated road, and any area designated by the Authority as being subject to the supervision of a warehouse keeper, who must be registered as such with the FTA.
Tax is not due on excise goods until they leave the designated zone or when they are introduced for consumption – even if sold in a free zone.
For more information, visit www.tax.gov.ae