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      The UAE Ministry of Finance has announced the issuance of Cabinet Decision No. (197) of 2025 on selective goods, the tax rates or amounts imposed on them, and the method for calculating the selective price. The new decision replaces Cabinet Decision No. (52) of 2019 on Excise Goods and their applicable tax rates, along with its subsequent amendments.

      The Decision has come into effect from 1 January 2026 and is particularly relevant for businesses dealing in sweetened drinks.

      The amendments fundamentally shift the Excise Tax framework for sweetened drinks from a flat-rate model to a tiered, sugar-based volumetric regime, with significant implications for product classification, pricing and compliance.

      Following the issuance of Cabinet Decision No. 197 of 2025, the FTA has issued Decisions No. 10 and 11 of 2025 and also a Public Clarification No. EXTP013 on Implementation of a tiered-volumetric model of Excise Tax for Sweetened Drinks, providing further clarification on the mechanism for calculating sugar and other sweeteners in sweetened drinks, as well as additional cases and controls for the deduction of Excise Tax. These Decisions and Public Clarification should be read together with the Cabinet Decision to ensure correct application of the Excise Tax framework on sweetened drinks.

      Summary of key amendments:

      What is a sweetened drink?
      • Sweetened drinks are products to which sugar, artificial sweeteners, or other sweeteners have been added, whether produced as ready-to-drink beverages, concentrates, powders, gels, or extracts.
      • The Decision excludes certain products from the definition of sweetened drinks, including:
        • Beverages containing at least 75% milk or 75% milk substitutes;
        • Baby formula, follow-up formula, and baby food;
        • Beverages for special dietary needs or medical purposes in accordance with relevant GCC standards;
        • Sweetened drinks prepared in restaurants or similar establishments and served in open, unsealed containers for immediate consumption.
      Changes in excise tax rates for sweetened drinks
      • Until 31 December 2025, sweetened drinks were subject to a flat excise tax rate of 50%.
      • Effective 1 January 2026, the rates are as follows:
        • Low: Sweetened drinks that contain less than 5g sugar or other sweeteners per 100 ml – 0 AED per liter
        • Moderate: Sweetened drinks contain 5g or more but less than 8g of sugar or other sweeteners per 100ml – 0.79 AED per liter
        • High: Sweetened drinks contain 8g or more of sugar or other sweeteners per 100ml – 1.09 AED per liter
      Exclusions and specific classifications
      • Liquid concentrates containing less than 5g of sugar per 100 ml, supported by a laboratory report, may be classified as Low-Sugar.
      • Products containing only artificial sweeteners may be classified as Artificially Sweetened, subject to the conditions prescribed by the FTA.
      • 100% natural fruit and vegetable juices with no sugar or other sweeteners;
      Requirements and procedures
      • Taxable persons are required to obtain a Laboratory Report from a MOIAT-accredited laboratory for each product unit and submit it to the FTA.
      • For concentrates and similar products, the volume of the final ready-to-drink product is calculated either based on manufacturer instructions, or where not available, using the following formula: Total sugar and other sweeteners (in grams) × 20.
      • Dilution ratio is determined as: volume of final drink ÷ (volume in ml / weight in grams of the unit).
      Deduction of excise tax paid in excess
      • The FTA has introduced additional cases where Excise Tax already paid may be claimed as a deduction, along with specific controls and conditions.
      • Where sweetened drinks were initially classified and taxed under the High-Sugar category, a deduction may be available if a laboratory report subsequently proves that the product falls into a lower category or is not taxable.
      • This transitional relief applies to tax periods from 1 January 2026 to 30 June 2026.
      • A key condition is that the goods must not have been sold before the right to deduction arises.
      • Claims must be supported by:
        • a laboratory report,
        • a copy of the original Excise Tax declaration confirming tax paid under the High-Sugar category, and
        • documentary evidence demonstrating that the goods remained unsold.
      KPMG comments
      • The introduction of a tiered, volumetric Excise Tax regime for sweetened drinks from 1 January 2026 represents a fundamental shift from the flat 50% rate and will have direct pricing, margin, and compliance implications for manufacturers, importers, and distributors.
      • For sweetened drinks, businesses should:
        • Validate sugar and sweetener content of each product SKU and ensure FTA-accepted laboratory reports (from MOIAT-accredited labs) are in place and aligned with product formulations;
        • Assess the classification of concentrates, powders, gels, and extracts, and review the prescribed dilution mechanics, particularly where manufacturer guidelines are unavailable, inconsistent, or commercially unrealistic;
        • Review existing stock and historical tax payments to determine whether the transitional deduction mechanism may apply where tax was initially paid under the High-Sugar category and the product is subsequently classified under a lower tax category supported by laboratory evidence (within the prescribed time limits and conditions).
      • Given the documentation-heavy and evidence-driven nature of the new regime, detailed preparation, product-level data validation, and alignment between tax, finance, supply chain, and commercial teams will be critical to mitigate audit risk and ensure a smooth transition effective from 1 January 2026.

      KPMG has a team of experienced tax specialists that can help you assess your current tax position, advise on the appropriate tax treatment, prepare clarification requests, or represent you in front of the FTA as registered tax agents.

      We are happy to discuss your specific circumstances with you and determine the way forward should you have any questions or concerns in this regard. Please get in touch with your usual KPMG contact or any of the tax professionals below.

      Contact us

      Keith Donegan
      Partner, Indirect Tax
      Email

      Julie Lere-Pland
      Principal, Indirect Tax
      Email

      Luis Alonso
      Director, Indirect Tax
      Email

      Keerti Ujwal
      Director, Indirect Tax
      Email