Transition to a Tiered-Volumetric Model for Excise Tax on Sweetened Drinks

In line with the UAE Federal Tax Authority’s (FTA) latest public clarification (EXT P012, September 2025) and consistent with Federal Decree Law No. (7) of 2017 on Excise Tax and its Executive Regulations, a major change to the excise tax regime will take effect on 1 January 2026.

The amendment introduces a tiered-volumetric model for the calculation of Excise Tax on sweetened drinks, moving away from the current flat 50% ad valorem tax. The reform aims to align tax liability more closely with sugar content and to encourage healthier consumption patterns across the UAE.

Key Changes at a Glance

• New Definition of Sweetened Drinks
  Any beverage with added sugar, artificial, or other sweeteners – including ready-to-drink products, concentrates, powders, gels, and extracts – will fall under the scope of excise.
• Tiered-Volumetric Model
  Excise Tax will be determined by total sugar or sweetener content per 100ml:
  • High Sugar: ≥8g/100ml
  • Moderate Sugar: ≥5g and <8g/100ml
  • Low Sugar: <5g/100ml
  • Artificial Sweeteners Only: Taxable at 0%
• Carbonated Drinks
  No longer a standalone excise category. Instead, they will be taxed based on sugar content.
• Exemptions
  The following remain outside the new volumetric model:
  • Energy drinks (still subject to 100% excise tax).
  • 100% natural juices without added sugar.
  • Milk and dairy products (≥75% milk or substitutes).
  • Infant formula and baby food.
  • Beverages for medical or special dietary purposes.
  • Drinks prepared for immediate consumption in restaurants.

Compliance & Business Implications

• Laboratory Certification
  From a date to be announced, taxable persons must obtain laboratory reports from MOIAT-approved labs showing the sugar content of sweetened drinks. Without a valid report, products default to the High Sugar category.
• FTA Portal Updates
  Registrations on the FTA’s excise portal must be updated to reflect new classifications, supported by lab certificates.
• Transitional Rules
  Special provisions will apply for stockpiled drinks during the transition period to prevent tax arbitrage.
• Portfolio & Pricing Impact
  Businesses may consider reformulation to reduce liability, while margins, pricing, and demand may shift depending on product categorization.

Recommended Actions for Businesses

• Review product portfolios against the new definitions and categories.
• Engage early with accredited laboratories to secure sugar content testing and certification.
• Update excise registrations and compliance processes before 2026.
• Model pricing and tax liability under the new framework.
• Plan inventory and stock management strategies ahead of the transitional period.

Conclusion

The transition to a tiered-volumetric model represents a fundamental shift in the UAE excise framework. By linking tax liability directly to sugar content, the FTA aims to encourage healthier consumption while enhancing regulatory compliance. Businesses should act now to prepare, ensuring smooth adaptation ahead of the 1 January 2026 implementation date.

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