UAE Announces Changes to Excise Tax Application on Sweetened Beverages

Introduction

On 18 July 2025, the UAE Ministry of Finance and the Federal Tax Authority jointly announced a forthcoming change to the application method of Excise Tax on sweetened beverages. As per the announcement, “[t]he tax amount will now be based on the sugar content in each product, rather than solely on its category, thereby encouraging manufacturers to reduce sugar levels.” This change is expected to take effect at the beginning of 2026.

In this article, we explore the implications of this significant policy shift, examine the current excise tax framework, and outline what lies ahead, along with practical steps businesses can take to prepare for the upcoming changes.

What We Know So Far

Several key points have been outlined by the Ministry of Finance on its official website, the most notable of which are summarized below:

• The new application method is “a tiered volumetric model that links the tax value on each litre of a sugar sweetened beverage to its sugar content per 100ml […] The higher the sugar content per 100ml, the higher the tax per litre”.
• Expectations from excise tax taxable persons include “updating internal systems, reviewing product formulations, and ensuring that their records with the Federal Tax Authority are aligned with the requirements of the enhanced model”, noting that “Businesses across the UAE will be granted sufficient time to prepare for the implementation of the new mechanism”.
• The purpose is to “[incentivise] manufacturers to reduce sugar levels and empowers consumers to make more informed dietary choices”.

Current Framework

Under the current UAE excise tax framework, sweetened beverages are taxed in accordance with the following legal provisions:

1. Article 1 of the Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, defines ‘excise goods’ as “Goods that will be determined as being subject to Tax by a Cabinet Decision upon the recommendation of the Minister”. Similarly, Article 2(1) of the same Decree-Law states that “The provisions of this Decree-Law shall apply to the Excise Goods specified by a Cabinet Decision at the suggestion of the Minister”.
2. Article 3 of the Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, states that “A Cabinet Decision shall be issued at the suggestion of the Minister to determine the tax rates that shall be imposed on Excise Goods and the method of calculating the Excise Price, provided that the tax rate shall not exceed 200% of the Excise Price of the Good”.
3. Article 2(6) of Cabinet Decision No. 52 of 2019 on Excise Goods, Excise Tax Rates and the Methods of Calculating the Excise Price, states that “For the purposes of Article 2 of the Decree-Law, Tax shall be applicable on […] Sweetened Drinks”.
4. Article 12 of Cabinet Decision No. 52 of 2019 on Excise Goods, Excise Tax Rates and the Methods of Calculating the Excise Price, specifies that the excise tax rate on sweetened drinks is a flat rate of 50%.

As it currently stands, sweetened drinks in the UAE are subject to a flat excise tax rate of 50%, irrespective of their actual sugar content. In other words, all sweetened drinks are taxed equally – whether they contain minimal added sugar or exceptionally high amounts. This uniform approach offers little incentive for excise tax taxable persons to reduce sugar levels in their products, as no tax advantage is gained unless the sugar content is eliminated entirely.

Future Framework

As of the latest version of the Federal Official Gazette, no legislation has been published in respect of the anticipated future framework on the application of excise tax to sweetened drinks. However, taking into consideration the provisions of the existing framework, the following legislative developments are anticipated:

• Amendments to Article 24 of the Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, to incorporate the requirements to retain documents and records in respect of the sugar contents of sweetened drinks.
• Amendments to Cabinet Decision No. 52 of 2019 on Excise Goods, Excise Tax Rates and the Methods of Calculating the Excise Price, particularly Article 12 which specifies the current flat excise tax rate of 50%, wherein the new tiered volumetric approach will be introduced.
• Introduction of transitional provisions to ensure a smooth transition from the former framework to the anticipated one.
• Introduction of other complementary legislative amendments to ensure the comprehensiveness of the new framework.

In theory, based on the announcement made to date, it is anticipated that the new ‘tiered’ framework will stipulate excise tax brackets depending on the sugar contents within sweetened drinks.

For example:

• Sweetened drinks with sugar contents ≤ 10 grams per 100 ml will be subject to excise tax at a rate of 10%
• Sweetened drinks with sugar contents ≥10 but ≤ 20 grams per 100 ml will be subject to excise tax at a rate of 20%

A key question arising from the announcement is how the current flat Excise Tax rate of 50% will be positioned within the upcoming tiered system: will it serve as the starting point, a mid-point, or the maximum rate under the new brackets? Put differently, will the 50% rate apply to beverages with the lowest, moderate, or highest sugar content? While this remains unconfirmed, current indications suggest that the 50% rate may serve as a mid-tier benchmark, with rates potentially adjusted upward or downward based on sugar levels.

Practical Considerations and Recommendations for Businesses

As clarified by the Ministry of Finance itself, “The announcement follows a proactive approach aimed at providing suppliers, importers, and stakeholders sufficient time to prepare for the upcoming changes”.

Accordingly, businesses subject to the excise tax regime are strongly advised to begin preparations for the anticipated tiered, sugar-based taxation framework without delay, rather than awaiting the release of further guidance or implementation details. Such preparations include inter alia:

• Upgrading internal systems and engaging early with third-party software providers and digital tax solution vendors to ensure timely and seamless implementation;
• Conducting internal assessments of the current sugar content across all sweetened beverage products;
• Maintaining comprehensive records and supporting documentation to substantiate sugar content levels for each product, in line with anticipated compliance requirements; and
• Undertaking cost-benefit analyses to evaluate the feasibility and financial impact of reducing sugar content in certain products, and determining the optimal level of reduction where applicable.

Conclusion

The UAE’s shift toward a sugar-based, tiered excise tax model marks a significant policy development with wide-reaching implications for businesses in the sweetened beverage sector. While the full legislative text is still pending, it is evident that fiscal policy is being aligned more closely with public health objectives.

Proactive engagement is now essential. Businesses that act early, by reviewing product formulations, updating internal systems, and ensuring solid sugar content documentation will be better positioned to navigate the transition smoothly and potentially leverage tax efficiencies under the new model. As further guidance emerges, remaining agile and informed will be key to maintaining compliance and competitiveness in the evolving market.

Seek Legal Counsel

Our expertise in tax law and regulations allows us to provide clients with effective and accurate tax advice, taking into consideration their unique circumstances and needs.

Our tax and financial crimes team, led by our Head of Tax and Financial Crimes, Mohamed El Baghdady, has successfully advised and represented clients across various industries, including, but not limited to, consumer goods and retail, services, real estate, oil & gas and banking and finance, before the Government authorities, tax tribunals and courts. Our clients have been successful in multiple tax disputes before the committees and courts.

For further information, please contact, Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com.

Disclaimer

The content provided in this article is intended for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy and completeness of this information, the article does not offer a guarantee or warranty regarding its content. The matters discussed in this article are subject to interpretation, and legal outcomes may vary based on specific facts and circumstances. We recommend that readers seek individual legal counsel before making any decisions based on the information provided. If you require specific legal advice, please contact us directly.