Excise Tax and VAT in the UAE, the Real Differences

The core difference

VAT is broad and recoverable. It applies at 5% across most goods and services, and a registered business recovers the VAT it pays on its own inputs. The tax lands on the final consumer.

Excise is narrow and not recoverable. It applies to a short list of specific goods, at high rates, and exists to discourage consumption rather than to raise revenue across the economy. It is a cost in the supply chain, not a flow-through.

If you sell excise goods, you pay both. Excise first, then VAT calculated on a price that already includes the excise.

What excise actually covers

Article 2 of Cabinet Decision No. 52 lists six categories.

Tobacco and tobacco products. Liquids used in electronic smoking devices and tools. Electronic smoking devices and tools. Carbonated drinks. Energy drinks. Sweetened drinks.

That is the whole list. If your product is not on it, excise does not apply to you, whatever else you sell.

The rates

Tobacco and tobacco products, 100%.
Electronic smoking devices and tools, 100%.
Energy drinks, 100%.
Carbonated drinks, 50%.

Carbonated and energy drinks have applied since 1 October 2017.

Sweetened drinks changed on 1 January 2026

This is the part most articles have not caught up with.

Until 31 December 2025 sweetened drinks were taxed at 50% of the excise price, the same as carbonated drinks. From 1 January 2026 they moved to a tiered volumetric model, set by sugar content per 100ml rather than by price.

Two categories now carry AED 0 per litre.

Low sugar, meaning under 5g of total sugar and other sweeteners per 100ml. Artificially sweetened drinks, meaning those containing only artificial sweeteners, or artificial sweeteners plus under 5g per 100ml.

Two points matter here.

A drink containing only natural sugar, with no added sugar or other sweeteners, is not a sweetened drink for excise at all. Blended fruit or vegetable juices with nothing added fall outside.

And AED 0 per litre is not the same as being outside the regime. The FTA states directly that all obligations, including product registration and reporting, still apply to the AED 0 categories.

That trap will catch beverage businesses that assume a zero rate means nothing to file.

Who registers

VAT registration is driven by a threshold. AED 375,000 mandatory, AED 187,500 voluntary.

Excise registration has no threshold. If you import, produce, stockpile or release excise goods from a designated zone, you register. One case of energy drinks is enough.

Which applies to you

Most UAE businesses deal with VAT only.

Excise reaches importers, producers, stockpilers and some retailers of the six categories above. If you run a café selling canned energy drinks bought from a UAE distributor who already paid excise, you are not the excise taxpayer. You still charge VAT.

What this does not cover

Designated zones, excise price determination, stockpiler rules and the specific tier rates above the low sugar band each have their own detail.

This is general information on published law, not advice on your position.

If you sell drinks and are unsure

The January 2026 change moved the calculation from price to sugar content. If your product registrations were built on the old basis, they need reviewing.