Introduction
The United Arab Emirates (“UAE”) Ministry of Finance has announced that a minimum Excise Price of AED 1 per millilitre will apply to liquids used in electronic smoking devices and tools with effect from 1 September 2026.
At first reading, the measure appears narrow. It does not alter the excise tax rate, which remains at 100%, nor does it extend the scope of Excise Goods. What it changes is the base upon which that rate is applied. For products positioned at the lower end of the market, that change is not marginal: the tax burden on a competitively priced 30 millilitre bottle may increase by half or more, and the retail price required to preserve existing margins may rise by a comparable proportion.
This article examines the legal framework within which the minimum Excise Price will operate, the mechanism by which it will take effect, the 2019 precedent from which it is evidently drawn, and the practical steps that importers, producers and distributors should be taking now.
The Existing Framework: How Excise Tax Applies to E-Liquids
Scope
Article 2 of Cabinet Decision No. 197 of 2025 on Excise Goods, Tax Rates or Amounts Imposed on Excise Goods, and the Methods of Calculating the Excise Price (“Cabinet Decision 197”), lists liquids used in electronic smoking devices and tools as the second of five categories of Excise Goods for UAE Excise Tax purposes.
Article 4 of Cabinet Decision 197 defines the category expansively:
“For the purposes of Article 2 of this Decision, liquids used in electronic smoking devices and tools include all liquids used in such devices and tools and the like whether or not containing nicotine pursuant to the Customs codes to be specified by a decision issued by the Minister.”
The Rate and the Base
Under Article 10(1) of Cabinet Decision 197, liquids used in electronic smoking devices and tools are taxed at 100% of the Excise Price.
Because the rate is ad valorem, everything turns on the Excise Price. Article 11(1) of Cabinet Decision 197 provides:
“Pursuant to Article 3 of the Decree-Law, the Excise Price shall be the higher of the following two prices:
- the price published by the Authority for the Excise Good in a standard price list that it issues, if available,
- the designated retail sales price for the Excise Good, less the Tax included therein.”
Article 11(2) then supplies the arithmetic for limb (b):
“In order to deduct the value of Tax included within the designated retail sales price according to Paragraph (b) of Clause 1 of this Article, for Excise Goods taxable at a rate of 100% of the Excise Price, the Tax shall be equivalent to half of its designated retail sales price.”
The designated retail sales price is itself determined under Article 12(1) as the higher of the recommended selling price declared and affixed by the Importer or Producer, or the average retail selling price of the goods in the market, in each case “after deducting VAT”.
The practical consequence is straightforward. Under the framework as it currently stands, the excise tax on a bottle of e-liquid is simply half of its VAT-exclusive retail price. A cheaper product attracts less tax, without limit. It is precisely this open-ended relationship between price and tax that a minimum Excise Price is designed to interrupt.
Where a Minimum Excise Price Fits Within the Legislation
The enabling provision sits at Article 3 of Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments (the “Decree-Law”), which provides:
“A Cabinet Decision shall be issued at the suggestion of the Minister to determine the following:
- The tax rates that shall be imposed on Excise Goods as a percentage of the Excise Price, provided that the tax rate imposed on such goods shall not exceed (200%) of the Excise Price of the goods.
- The tax rates that shall be imposed on Excise Goods as a specific amount per unit of measurement, provided that such amount shall not exceed AED 100 (one hundred Dirhams) per unit of measurement.
- The unit of measurement, the basis of imposing the Tax as a specific amount, and the method of calculating the Excise Price.”
The distinction between clauses 1 and 2 is worth drawing out, because it is easily elided.
A minimum Excise Price is not a specific-amount tax. A specific-amount tax under clause 2 would impose a fixed sum per millilitre irrespective of value, replacing the ad valorem charge. What has been announced is different in kind: a floor beneath the value on which the 100% rate continues to operate. That is a rule about “the method of calculating the Excise Price”, and its legal foundation therefore lies in clause 3.
The distinction matters in practice. Because the measure operates as a floor rather than a substitute, products already priced above the threshold are unaffected, and the tax on them continues to be calculated by reference to their actual Excise Price as calculated under Cabinet Decision 197. Only products falling below the floor are re-based.
The 2019 Precedent: Cabinet Decision No. 55 of 2019
The UAE has taken this step once before, in respect of tobacco. Cabinet Decision No. 55 of 2019 on the Excise Price for Tobacco Products (“Cabinet Decision 55”), issued on 4 August 2019, provides at Article 2:
“The Excise Price for Tobacco Products shall be determined pursuant to Article 13 of the Cabinet Decision No. 52 of 2019 above mentioned, and shall be no less than:
- 0.4 Dirham per cigarette,
- 0.1 Dirham per 1 gram of water pipe tobacco, or ready to use tobacco or other similar products.”
The structure is instructive, and the announced measure appears to follow it closely: a short instrument that leaves the rate and the general valuation methodology untouched, and simply inserts a floor expressed by reference to a physical unit – per cigarette, per gram, and now per millilitre.
Recommendations
Given that the implementation date is now imminent, businesses in the vaping supply chain should treat the following as immediate priorities:
- Map the portfolio: Calculate the current Excise Price per millilitre for every SKU and identify those falling below AED 1.
- Model the commercial impact: For affected SKUs, quantify the additional tax and the retail price adjustment required to preserve margin.
- Examine contractual arrangements: Supply and distribution agreements should be reviewed for tax change and price adjustment.
- Monitor for the implementing legislation. The Cabinet Decision, any accompanying Ministerial Decision, and any subsequent FTA guidance or Public Clarification should be tracked closely.
Conclusion
The minimum Excise Price for liquids used in electronic smoking devices and tools is a targeted measure with a clear logic. Under a purely ad valorem charge, the tax on a product falls in step with its price, and the public health objective underpinning excise taxation is progressively diluted as products are positioned at the lower end of the market. A floor expressed per millilitre restores a minimum contribution per unit consumed, and does so through the same technique the UAE applied to cigarettes and water pipe tobacco in 2019.
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