From Flat Tax to Smart Tax: UAE Unveils New Tiered-Volumetric Model for Sweetened Drinks

The UAE Federal Tax Authority (FTA) has announced a fundamental shift in how it taxes Sweetened Drinks, moving away from the current 50% ad-valorem tax. A new "tiered-volumetric model," detailed in Public Clarification EXTP012, will take effect on January 1, 2026. 

The new mechanism, designed to promote public health and encourage manufacturers to reduce sugar content, will link the Excise Tax rate directly to the total sugar in beverages. 

The New Tax Tiers: A "Per-Litre" Model 

Under the new rules, the "Carbonated Drinks" category will be eliminated. Both carbonated and other sweetened drinks will be taxed based on their total sugar content (natural + added + other sweeteners) per 100ml. 

The new tax rates are as follows: 

• 0 AED/Litre (No Tax): 

• Low Sugar: Beverages with less than 5g of total sugar per 100ml. 

• Artificial Sweetener Only: Beverages containing only artificial sweeteners and no added sugar or other sweeteners. 

• 0.79 AED/Litre (Moderate Sugar): Beverages with 5g to less than 8g of total sugar per 100ml. 

• 1.09 AED/Litre (High Sugar): Beverages with 8g or more of total sugar per 100ml. 

Crucially, if a business fails to provide an accredited laboratory report to verify its product's sugar content, the beverage will be automatically classified as a high-sugar drink and taxed at the highest rate (1.09 AED/Litre). 

Scope of the New Rules: What's In and What's Out? 

This reform specifically targets Sweetened Drinks and Carbonated Drinks. 

It does not impact other Excise Goods, such as: 

• Tobacco and tobacco products 

• Electronic smoking devices and liquids 

• Energy Drinks (which remain subject to the 100% ad-valorem tax) 

Furthermore, the FTA has explicitly excluded several beverage types from the definition of "Sweetened Drinks," meaning they are not subject to this new tax: 

• 100% Natural Juices: Beverages made entirely of natural fruit/vegetable juices (or their concentrates) with no added sugar or sweeteners, even if their natural sugar content is high. 

• Milk-Based Drinks: Beverages containing at least 75% milk or 75% plant-based milk alternatives. 

• Infant Formula: Includes infant formula, follow-up formula, and baby food. 

• Special Needs Beverages: Drinks intended for special dietary needs (per GSO Standard 654) or medical uses (per GSO Standard 1366). 

• Non-Commercial/Restaurant: Drinks prepared by individuals for personal use or prepared in restaurants and served in an open container for immediate consumption. 

New Compliance: Lab Reports and Registration are Key 

This new model introduces significant compliance requirements for producers and importers. 

1. Mandatory Product Registration Update: All Taxable Persons must update their product registration details with the FTA to align with the new model. 

2. Accredited Laboratory Reports: To qualify for the 0 AED/Litre or 0.79 AED/Litre tax rates, businesses must submit a laboratory report from an accredited lab (in accordance with Ministry of Industry and Advanced Technology instructions). This report must clearly state the total sugar content and whether artificial sweeteners are added. 

3. Transitional Rules: For goods stockpiled before January 1, 2026, transitional rules will apply. Businesses can claim a deduction for tax already paid on unsold goods if the new tax liability is lower. Conversely, if the liability increases, tax will be due on excess goods. 

This change signals a clear policy direction, rewarding reformulation and innovation toward healthier, lower-sugar products in the UAE market. 

Author: CA Mustafa G Daudi