Sweetener Shift: UAE Overhauls Excise Tax on Beverages to Link Rates to Sugar Content

The United Arab Emirates (UAE) has announced a significant evolution of its Excise Tax regime for sugar-sweetened beverages (SSBs), transitioning away from a flat-rate model to a tiered-volumetric system. Effective January 1, 2026, the tax amount will be directly proportional to the actual sugar content of the drink, marking a major policy change aimed at incentivizing healthier consumption and production habits.

A Move Away from the Flat Rate Since its introduction, the UAE’s Excise Tax on sweetened drinks has been applied at a flat rate of 50%, based on the retail price. This ad-valorem model treated a product with minimal added sugar the same as one with exceptionally high sugar content, offering little financial incentive for manufacturers to reduce sugar levels.
Under the new framework, championed by the Ministry of Finance (MOF) and the Federal Tax Authority (FTA), the calculation method will shift:

• Old Model: 50% of the retail price, regardless of sugar amount.
• New Model: A tiered, volume-based tax (per litre) determined by the grams of sugar or other sweeteners per 100 millilitres (ml) of the beverage.
  The higher the sugar concentration, the higher the tax rate applied. The specific tax rates for each tier are expected to be set by a forthcoming Cabinet Decision, but the general principle is clear: more sugar equals more tax.
  Key Features of the New Tiered System
  The reform, which aligns the UAE with the unified approach adopted by the Gulf Cooperation Council (GCC), brings several critical changes for businesses and consumers:

1. Tiered Structure: The new system introduces graduated tax brackets, likely to include categories such as:

• High Sugar: Products with a specified high concentration (e.g., \bm{\ge 8} grams per 100 ml).
• Moderate Sugar: Products falling between the high and low thresholds.
• Low Sugar: Products below a minimal threshold (e.g., \bm{< 5} grams per 100 ml).

1. Incentive for Reformulation: The financial penalty for high-sugar products creates a strong incentive for manufacturers to reformulate their beverages, potentially leading to lower prices for healthier, low-sugar options.
2. Exclusions and Redefinitions:

• Artificial Sweeteners: Drinks containing only artificial sweeteners and no added sugar are expected to be exempt from the tax (a 0% rate).
• Natural Sugar: Drinks containing only naturally occurring sugar (like 100% fruit juices without added sweeteners) remain outside the scope of the Excise Tax.
• Carbonated Drinks: These will no longer be treated as a separate excise category but will fall under the new Sweetened Drinks definition, with their tax liability determined solely by their sugar content.
  Preparing for the 2026 Implementation
  The FTA has issued public clarifications (such as EXTP012) to give businesses sufficient lead time to prepare for the January 1, 2026, effective date. The transition presents significant compliance challenges that require proactive measures:
• Product Reassessment: Businesses must conduct comprehensive laboratory analysis and verification of the sugar content for their entire beverage portfolio to accurately determine the tax band for each product.
• System Upgrades: Internal enterprise resource planning (ERP), accounting, and pricing systems must be upgraded to handle the new tiered-volumetric calculations, replacing the old ad-valorem methodology.
• Documentation and Reporting: Taxable persons will be required to maintain meticulous records and documentation to substantiate the sugar content reported to the FTA.
• Stock Transition: The MOF has indicated that a mechanism will be introduced to allow importers and producers who paid the old 50% tax on unsold goods to claim a deduction if their products fall into a lower tax tier under the new system, ensuring fairness during the transition.
  Ultimately, this reform reflects the UAE’s twin commitments: to maintaining a flexible and effective tax system aligned with international best practices, and to promoting public health by reducing sugar consumption and combating diseases like obesity and diabetes. For the beverage industry, the new year will bring a decisive shift where every gram of sugar has a measurable financial impact.