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In the United Arab Emirates (UAE), Value Added Tax (VAT) and Excise Tax are two types of indirect taxes imposed on certain goods and services. Here’s an explanation of each:

1. Value Added Tax (VAT):VAT is a consumption tax levied on the value added to goods and services at each stage of production or distribution. It is paid by the end consumer but collected and remitted to the government by businesses. In the UAE, VAT was introduced on January 1, 2018, at a standard rate of 5%. Here’s how it works:
   • Taxable Supplies: Businesses that provide goods and services that fall under the definition of taxable supplies are required to charge VAT on these supplies. Taxable supplies include most goods and services, with certain exceptions and exemptions.
   • Input and Output VAT: When a business makes a taxable supply, it charges VAT on the selling price, which becomes its “output tax.” At the same time, the business can claim back VAT paid on its purchases and expenses, which is referred to as “input tax.” The net amount (output tax minus input tax) is what the business remits to the government.
   • VAT Returns: Businesses are required to file regular VAT returns (typically quarterly) with the UAE’s Federal Tax Authority (FTA). These returns provide details about their input and output VAT, allowing the FTA to calculate the net VAT liability or refund.
   • Registration Threshold: Businesses with taxable supplies exceeding a certain threshold must register for VAT. As of my knowledge cutoff in September 2021, the threshold was AED 375,000, but it’s important to verify the current threshold with the FTA.
2. Excise Tax:Excise Tax is a specific tax levied on specific goods that are deemed to be harmful to human health or the environment. It’s typically imposed on products like tobacco, sugary drinks, and energy drinks. The UAE introduced Excise Tax on October 1, 2017. As of my last update, there were two categories of goods subject to Excise Tax:
   • Carbonated Drinks: A 50% Excise Tax is imposed on carbonated drinks containing added sugar or sweeteners.
   • Tobacco Products and Energy Drinks: A 100% Excise Tax is imposed on tobacco and tobacco products, as well as energy drinks.
   • Excise Tax Payment: Businesses that import, produce, or stockpile these goods are responsible for paying the Excise Tax to the government. They are also required to file regular Excise Tax returns with the FTA.

It’s important to note that tax regulations can change, and there might be updates or changes to VAT and Excise Tax laws in the UAE since my last update in September 2021. Therefore, it’s recommended to refer to the official website of the UAE’s Federal Tax Authority (FTA) or consult with tax professionals to get the most accurate and up-to-date information regarding VAT and Excise Tax in the UAE.