Excise tax is levied on such goods that have been identified as having negative impacts on human health or the environment such as carbonated drinks and tobacco. The excise tax is levied on the import and production of excise goods. The excise tax is also applicable to the stockpiling of these goods in the UAE. This article explains the deductibility of excise tax in UAE, including the conditions and procedures, adhering to the specifications stipulated in Cabinet Decision No.52 of 2019 and Federal Law No.7 of 2017 that was recently amended vide Ministerial Decision No. 108 of 2023 issued in November 2023.
When Excise Tax Is Deducted by Taxable Entity?
All excise products do not fall under the purview of excise tax in UAE. There are some situations where a taxable person can deduct the tax that was previously paid on the same goods. A taxable entity refers to an individual engaged in economic activities for income generation, registered or obligated to register for excise tax in the UAE. An Eligible taxpayer can deduct the excise tax on their tax return if they meet the requirements stated in Article 16 of the Decree-Law. This deduction can be claimed for the period when the right to deduct the tax first arose. The deductible tax value mirrors the tax amount previously paid for the same goods. For example, if a taxable person imports excise goods pays the excise tax at the customs, and then exports the same goods to another country, he can deduct the tax that he paid at the customs on his tax return.
Eligibility Criteria for Deductions: -
To be eligible for a deduction, the taxpayer must provide evidence validating the previously paid tax amount on corresponding excise goods. It is the right of the Federal Tax to specify the procedure for submission of relevant supporting documents. If the tax on the excise goods was settled by another entity in the supply chain, the taxable entity must retain the following documentation as proof of the prior tax payment:
- A copy of the purchase invoice for the excise goods,
- Confirmation from the supplier verifying the tax payment and its amount, and
- The documents provided to the FTA prove that the excise goods eligible for deduction are the exact goods that were previously taxed.
What Are the Conditions to Deduct the Excise Tax on Exported Goods?
If the excise tax is due on excise goods in the UAE, the taxable person can deduct the tax if any of the following conditions are met:
- The excise items are sent abroad to states implementing the excise tax within the GCC.
- The excise goods are shipped to a state where the excise tax is enforced, and the tax has been settled for those specific goods.
- They are utilized during an international journey originating from the UAE.
To subtract the tax on goods that are being exported, the person responsible for paying the tax needs to provide one of the following options:
- A customs declaration and a commercial document that verifies the export.
- A shipping certificate and an official document that confirms the export.
The Federal Tax Authority reserves the right to reject any documents that fail to provide adequate proof of the excise goods leaving the UAE. In such cases, alternative forms of evidence may be required, depending on the nature of the export or the type of excise goods being shipped. The customs departments need to check the kind and amount of excise goods being exported. They do this by looking at the export documents they issued and following their customs procedures. They also consider the tax risk matrix, which is determined in collaboration with the Authority.
When Is a Taxable Person Considered to Have Paid the Excise Tax?
A taxable person is deemed to have paid the excise tax in two situations:
- When they buy goods that were taxed and the tax has already been paid.
- When they have the right to subtract the tax amount that arises in the same tax period when the tax is due.
Excise tax is enforced at the point of production or import for goods that have been identified as having negative impacts on human health or the environment. However, there are some situations where a taxable person can deduct the tax that was previously paid on the same goods, such as when they are exported or consumed on an international journey. To deduct the tax, the taxable person must meet the conditions and procedures specified by the Authority and provide the required evidence.
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