ver since October 1, 2017, the United Arab Emirates (UAE) has introduced a dynamic change in its taxation system by instigating an Excise Tax on certain goods, levying rates as steep as 50% and 100%. This starkly contrasts with the Value-Added Tax that is accrued on all transactions involving goods or services. The Excise Tax, however, is a singular charge applied at the moment of production, import, stockpile, or release of specific goods from an Excise Tax Designated Zone.
Outstripping the nominal 5% Value-Added Tax and the 9% Corporate Tax, Excise Tax is levied at considerably higher rates.
To fortify this newly introduced taxation system, the UAE has inaugurated a Digital Tax Stamp (DTS) system. The DTS system employs ‘stamps’ to mark certain categories of excise goods, signifying the payment of Excise Tax on these products. The prime objective of the DTS system is to bolster the UAE’s Federal Tax Authority (FTA) with an efficient mechanism to supervise and track these marked goods, thereby assuring full tax compliance.
This article aspires to illuminate the complex legislative framework that underpins the DTS system in the UAE, easing access to the relevant governing rules and regulations.
DTS Legislations on an International Level
The DTS scheme finds its roots in the Common Excise Tax Agreement of the States of the Gulf Cooperation Council. According to Article 18 of the Agreement, “The [Financial and Economic Cooperation Committee of the GCC] shall determine the Excise Goods upon which special marks/stamps shall be placed, and the rules necessary for that purpose in the GCC Territory”.
From that point onward, the UAE incorporated the DTS scheme into its Excise Tax legislation.
DTS Legislations on a Domestic Level
Based on the powers granted to it under its law of establishment, the FTA has issued the following publications in relation to the DTS scheme:
- Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments (“Excise Tax Decree-Law”).
Article 24(2) of the Excise Tax Decree-Law states that “The Council of Ministers shall specify, at the suggestion of the Minister, the Excise Goods that should be marked to indicate that Tax has been paid on them as well as the relevant conditions and procedures”.
- Cabinet Decisions:
- Cabinet Decision No. 42 of 2018 on Marking Tobacco and Tobacco Products, a Cabinet Decision that sets the general rules and regulations for the implementation of the DTS scheme, and grants the FTA’s Chairman the power to issue various implementing decisions (FTA Decisions).
- Cabinet Decision No. 33 of 2019 on Administrative Penalties for Violations related to Marking Excise Goods, a Cabinet Decision detailing specific violations and administrative penalties that are only applicable in relation to the DTS scheme.
- FTA Decisions:
- Federal Tax Authority Decision No. 3 of 2018 on Implementing the Marking Tobacco and Tobacco Products Scheme, an FTA Decision that introduced the DTS scheme on cigarettes, effective 1 January 2019.
- Federal Tax Authority Decision No. 2 of 2019 on Implementing the Marking Tobacco and Tobacco Products Scheme, and its amendments, an FTA Decision that introduced the DTS scheme on waterpipe tobacco and electrically heated cigarettes, effective 1 November 2019.
- Federal Tax Authority Decision No. 3 of 2021 on Implementing the Marking Tobacco and Tobacco Products Scheme, and its amendments, an FTA Decision that introduced a new design for DTS, effective 1 October 2021, setting a deadline of 31 December 2023 for the “supply, transfer, storage or possession of designated excise goods in the State using marks with the old design”.
DTS Publications by the FTA
Based on the powers granted to it under its law of establishment, the FTA has issued the following publications in relation to the DTS scheme:
- EXTP001 – Public Clarification on the Scenarios Requiring the Return of Digital Tax Stamps, explaining when and how DTS should be returned to the FTA.
- EXTP002 – Moving Excise Goods which are Marked with a Digital Tax Stamp Not Containing End-to-End Traceability, addressing a “workaround” solution that was introduced for limited instances where excise goods were marked with DTS but not including end-to-end traceability.
- EXTP006 – Postponement of the Implementation of the Final Step of Phase Two of the DTS Scheme, explaining that the deadline for the supply, transfer, storage, and possession of waterpipe tobacco and electrically heated cigarettes will be extended to 1 January 2021 due to the COVID-19 pandemic.
- FAQs on the New DTS Design, a set of frequently asked questions in relation to the implementation of the new design of DTS according to the FTA Decision No. 3 of 2021.
- Other short website publications.
Conclusion
The UAE’s adoption of the Digital Tax Stamp (DTS) system signifies a substantial transformation in its approach towards excise taxation, reflecting both international and domestic legislative instruments. Anchored initially in the Common Excise Tax Agreement of the GCC, the DTS scheme has been effectively integrated into the UAE’s Excise Tax legislation and currently regulates a wide spectrum of excise goods. The robust legislative framework, ranging from Federal Decree-Laws to Cabinet Decisions and FTA Decisions, ensures stringent and efficient enforcement of the DTS system. The guidance provided by the FTA through its various publications further clarifies the intricate scenarios and processes related to the DTS system. As we move forward, it will be crucial to monitor how this system evolves and influences the landscape of taxation in the UAE, particularly as it relates to the management and control of excise goods.
This Article is prepared by Mohamed El Baghdady, Head of Tax and Financial Crimes, and Marwan Alnooryani, Senior Tax Associate, at Habib Al Mulla & Partners Law Firm.
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