MIDDLE EAST TAX ALERT | UAE | Excise Tax Updates December 2025
Key Legislative and Administrative Developments Effective January 1, 2026
In December 2025, the UAE issued a series of Excise Tax legislative amendments and clarifications, which together introduce material changes to both the tax methodology for sweetened drinks and the administrative framework governing Excise Tax compliance. The key developments are effective from January 1, 2026.
These updates include:
- FTA Decision No. 10 of 2025
- FTA Decision No. 11 of 2025
- Public Clarification EXTP013
- Cabinet Decision No. 198 of 2025, amending the Executive Regulations to the Excise Tax Decree-Law
All legislative decisions can be found at this link: Federal Tax Authority - Legislation
Sweetened Drinks – Tiered-Volumetric Excise Tax Model
Further detail has been provided on the implementation of the new tiered-volumetric Excise Tax model for sweetened drinks, building on the framework introduced earlier this year (please refer to our previous alert issued in September 2025, which outlines the introduction of the tiered-volumetric Excise Tax model and the applicable sugar thresholds and rates).
In addition, the FTA released Public Clarification EXTP013 on the ‘Implementation of a tiered-volumetric model of Excise Tax for Sweetened Drinks’ on December 29. The guide further explains key legislative updates, provides practical examples, clarity on administrative requirements and step-by-step formulas for calculating dilution ratios. The guide can be found here: EXTP013-29 12 2025.pdf
Key Updates and Practical Points
- Certification and Default Tax Treatment
Where a product registration is submitted without a valid accredited laboratory certificate confirming sugar content, the FTA will treat the product as high sugar by default. Excise Tax must be accounted for in the highest tier until such certification is provided.
- Transitional Deduction Mechanism (January 1–June 30, 2026)
A transitional relief mechanism permits businesses to recover excess Excise Tax paid when a valid laboratory certificate is obtained after initial tax payment. Recovery is available only through a deduction in the relevant tax return, not as a refund.
Deductions under the transitional mechanism are limited to stock that remains unsold at the point at which the right to deduction arises. Any quantities sold prior to certification are not eligible for deduction.
- Stockpiling and Inventory Reporting
Businesses holding sweetened drink inventory on December 31, 2025, should ensure compliance with Excise stockpiling provisions and reporting requirements, there may be cases (especially for concentrates, powders etc.) where the excise tax liability may increase under the new rules.
- Clarified Calculations for Concentrates and Partial Products
FTA Decision No. 10 of 2025 confirms how sugar content should be determined for concentrates, powders, gels and extracts where preparation instructions are unavailable or unclear, including a prescribed methodology for establishing a deemed ready-to-drink volume.
- Use of Certificates Across Multiple Items
Public Clarification EXTP013 confirms that a single laboratory certificate may be used for multiple items of the same product formulation (e.g., one certificate can be used for 1.5 L and 300 ml diet cola). However, different flavours (lemon or orange) or different formulations must be registered and certified separately.
- Deduction in Case of Reduction in Excise Tax Liability
If Excise Tax was paid on Sweetened Drinks before the tiered-volumetric model was implemented, and the tax due under the new model is lower, the difference may be deductible, provided the drinks were not sold before implementation and supporting evidence is submitted, showing prior tax payment and unsold status (as per FTA Decision No. 11 of 2025).
Executive Regulations Amended – Cabinet Decision No. 198 of 2025
Cabinet Decision No. 198 of 2025 introduces amendments to the Executive Regulations of the Excise Tax Decree-Law, effective from January 1, 2026. The changes are aimed at strengthening registration controls, aligning administrative rules with the Tax Procedures Law, streamlining warehouse processes, and supporting refund and deduction mechanisms.
Key Areas Impacted
- Registration and Liability (Article 3)
Registration may now apply from the month in which Excise Tax liability arises, including cases where liability shifts due to another party’s non-payment. The FTA is empowered to backdate registration, with corresponding tax and penalties.
- Deduction and Refund Provisions (Articles 16, 19, 21 and 22)
The amendments align deduction and refund processes more closely with the Tax Procedures Law and clarify documentation and procedural requirements.
- Designated Zone and Warehouse Processes (Article 12(8))
Clarifies where the FTA notifies a Warehouse Keeper of its intention to inspect deficient Excise Goods, those goods must be retained until the inspection is completed and formal approval is granted for destruction.
What Does This Means for Businesses?
Taken together, the December updates reinforce and prioritise the need for proactive Excise Tax governance in 2026:
- Early product registration and laboratory certification will be critical to avoid default high-rate taxation.
- Robust inventory tracking and maintaining necessary documentation will be essential to preserve deduction entitlements.
- Businesses holding Excise Goods on December 31, 2025, should assess stockpiler status and ensure inventory records are robust, as relief under the new regime are dependent on accurate stock reporting.
- Registration timing and supply-chain roles should be carefully assessed to manage backdated liability risk.
How Can Alvarez & Marsal Help?
Alvarez & Marsal can assist with Excise Tax impact assessments, product classification and modelling, stock and cash-flow reviews, registration and certification strategies, and readiness assessments for the January 2026 changes.
