Customs and Excise Duty in UAE: A Guide for Importers and Manfacturers

While Corporate Tax and VAT grab the headlines, Customs Duty and Excise Tax remain critical (and strictly enforced) areas for trading and manufacturing businesses in the UAE. Errors here can lead to goods being held at the border, disrupting your supply chain and incurring massive demurrage charges.

This guide covers the essentials of Customs and Excise compliance for UAE businesses.

Part 1: Customs Duty Basics

What is it?

A tax imposed on goods imported into the UAE from outside the GCC Customs Union.

Standard Rate

• 5% on CIF value (Cost, Insurance, and Freight) for most general goods.
• Higher Rates: Alcohol (50%), Tobacco (100%).
• Exemptions: Foodstuffs, pharmaceuticals, and designated industrial inputs often enjoy 0% duty.

Customs Code Registration

Before importing, you must obtain a Customs Code from the local customs authority (e.g., Dubai Customs).

• Requirement: Valid Trade License with "Import/Export" activity.
• Renewal: Annual renewal linked to trade license expiry.

Understanding HS Codes

The Harmonized System (HS) code determines your duty rate. Choosing the wrong code—intentionally or accidentally—is a common audit trigger.

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Example: Importing a "smartwatch" could be classified under HS 8517 (telecom device, 0%) or HS 9102 (watch, 5%). The correct code depends on the primary function—telecom or timekeeping.

Common Compliance Pitfalls

1. Undervaluation: Declaring a lower invoice value to save 5%. Dubai Customs uses sophisticated valuation databases. If they flag your invoice as undervalued, they will impose penalties and calculate duty on their estimated market value.
2. HS Code Errors: Using the wrong Harmonized System (HS) code to get a lower duty rate. This is considered evasion.
3. Origin Documentation: Failing to provide a Certificate of Origin (COO) means you might pay duty on goods that should be exempt (e.g., from GCC or GAFTA countries).
4. Incomplete Declarations: Missing required fields (e.g., manufacturer, country of origin) can delay clearance for days.

Part 2: Excise Tax (The "Sin Tax")

What is it?

A tax on specific goods deemed harmful to human health. It is an indirect tax levied once at the point of import or production.

Taxable Goods & Rates

• Carbonated Drinks: 50%
• Energy Drinks: 100%
• Tobacco & Tobacco Products: 100%
• Electronic Smoking Devices: 100%
• Sweetened Drinks: 50% (Anything with added sugar/fructose)

Who Must Register?

• Importers of excise goods.
• Producers of excise goods within UAE.
• Stockpilers of excise goods (holding goods for business).

The Digital Tax Stamp (DTS)

For tobacco and waterpipe tobacco, the UAE uses a strictly monitored stamp system.

• Packs without the Red (International) or Green (Domestic) digital stamp cannot be imported or sold.
• Audit Risk: Selling non-stamped cigarettes is a major offense leading to confiscation and heavy fines.

Calculating Excise Tax

Excise is calculated on the higher of:

1. The Retail Selling Price (RSP) declared by the importer.
2. The Standard Reference Price set by the FTA.

Example: An energy drink with RSP of AED 5.

• Excise = 100% x AED 5 = AED 5 per unit.
• Total shelf price = AED 5 (cost) + AED 5 (excise) + VAT = ~AED 10.50

Part 3: Excise Tax Audits

The FTA conducts specific Excise Tax Audits, separate from VAT audits.

What Auditors Look For:

1. Stock Reconciliation: Does Opening Stock + Imports - Sales = Closing Stock? Any variance suggests undeclared sales.
2. Product Classification: Are you selling a "carbonated drink" but claiming it's a "100% juice" (exempt)? Lab tests may be requested.
3. Wastage Claims: If you claim goods were destroyed (and thus not taxable), you need official destruction certificates.
4. Transfer Pricing: Sales between related parties must be at arm's length prices.

Audit Penalties

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Bonded Warehouses (Tax Suspension)

Businesses can suspend customs and excise duties by using "Bonded Zones" or "Designated Zones."

• Benefit: You import goods, store them, and only pay tax when they enter the local UAE market. If you re-export them, no tax is paid.
• Requirement: Strict inventory control systems and regular audits.

Key Designated Zones:

• Jebel Ali Free Zone (JAFZA)
• Dubai Airport Free Zone (DAFZA)
• Khalifa Industrial Zone Abu Dhabi (KIZAD)
• Sharjah Airport Free Zone

Case Study: The Energy Drink Importer

Situation: An importer brought in 10,000 cases of energy drinks. They declared the RSP at AED 3 to minimize excise liability.

Problem: The FTA found the same product selling at AED 6 in supermarkets. They used the market price as the reference.

Outcome:

• Additional excise of AED 30,000 due.
• 50% penalty for incorrect declaration = AED 15,000.
• Total cost = AED 45,000 + reputational damage.

Lesson: Always declare realistic RSPs. The FTA shops too.

Best Practices for Compliance

1. Audit Your Supply Chain: Ensure your suppliers provide correct HS codes and COOs.
2. Review Product Lists: Periodically check if your products (especially beverages) fall under expanded Excise definitions.
3. Pre-Audit Health Check: Have a tax consultant review your customs declarations against your financial ledgers to spot discrepancies before the authority does.
4. Maintain Stock Records: Daily stock logs are essential for Excise audits.
5. Train Your Staff: Warehouse and procurement teams should understand the compliance implications of their paperwork.
6. Appoint a Customs Agent: For complex supply chains, a licensed clearing agent reduces errors.

Frequently Asked Questions

Do free zone companies pay customs duty?

Not if goods stay within the Designated Zone or are re-exported. However, if goods enter the UAE mainland market, duty is payable at exethe point of exit from the zone.

How do I correct a customs declaration error?

Submit a Voluntary Disclosure to the FTA within the prescribed period. This reduces penalties compared to waiting for an audit.

Are there any duty exemptions for new businesses?

Certain industrial enterprises may qualify for duty exemptions on machinery and raw materials. Check with your Free Zone authority or the Ministry of Industry.

How long should I keep customs records?

Five years minimum. The FTA can audit any period within this timeframe.

Related Resources

Navigate UAE Customs and Excise compliance with these expert resources:

• VAT Audit Services - Specialized VAT and Excise Tax audit support
• Tax Consultation - Comprehensive guidance on all UAE tax obligations
• Corporate Tax vs VAT: UAE's Dual Tax System - Understand how different taxes interact
• Import/Export Business Audit Guide - Specialized audit requirements for trading companies
• Top 10 Audit Firms in Dubai - Select a firm experienced in tax compliance

Need Customs or Excise Advisory? Farahat & Co assists importers and manufacturers with Customs Code registration, Excise Tax registration, and FTA audit defense. Contact us to clear your goods—and your compliance record—without delay.