The UAE’s introduction of a sugar tax marks a significant development in its efforts to promote public health and generate sustainable revenue. Implemented through amendments to the Federal Excise Tax Law, this 50% tax on sugar-sweetened beverages aims to reduce consumption of unhealthy products. However, the policy’s impact extends beyond public health, affecting manufacturers, retailers, and consumers alike.

At The ASK Consultancy, we offer an impartial overview of the legal framework, commercial impact, and the varied implications of this policy for all stakeholders involved.

What is the UAE Sugar Tax?

Introduced under Federal Decree-Law No. 7 of 2017, the sugar tax initially targeted energy drinks and tobacco products before being expanded in 2019 to cover sugary beverages. This includes ready-to-drink sodas, juices, concentrates, and powders containing added sugar or sweeteners. The primary goal is to discourage excessive sugar intake, which is linked to obesity, diabetes, and other health issues prevalent in the region.

Legal Framework and Recent Updates

The tax framework requires businesses involved in the manufacture, import, or sale of sugar-sweetened beverages to register with the Federal Tax Authority (FTA), classify products accurately, and fulfill detailed reporting requirements. Failure to comply can result in significant penalties, including fines and operational restrictions.

A significant update to this framework is set to take effect January 1, 2026, introducing a tiered volumetric excise tax model. Unlike the previous flat 50% tax rate applied uniformly.

This new model ties the tax rate directly to the sugar content per 100ml of the beverage:

• Beverages with higher sugar levels will be taxed at a higher rate per litre.

• Products with lower sugar content may benefit from reduced tax rates, incentivizing manufacturers to reformulate products.

This update aligns with global trends to promote healthier consumption habits while providing businesses flexibility to innovate and comply. The Ministry of Finance and the FTA have pledged support through awareness campaigns and compliance guidance, allowing businesses time to prepare for these changes.

Perspectives from the Business Community

For manufacturers and business owners, the sugar tax represents both challenges and opportunities.

Challenges

• Increased Costs and Complexity: The tiered tax system requires more detailed product analysis and reporting. Businesses must invest in updated systems, product reformulation, and staff training to meet new compliance standards.
• Supply Chain Adjustments: Companies may need to renegotiate supplier agreements and adjust production lines, which could increase operational costs temporarily.
• Price Sensitivity: Increased taxes might lead to higher retail prices, potentially reducing sales volumes or shifting consumer preferences away from taxed products.

Opportunities

• Product Innovation: The tiered system encourages the development of healthier, low-sugar alternatives that could capture emerging market segments.
• Competitive Advantage: Businesses proactive in reformulating products may differentiate themselves as health-conscious brands, appealing to evolving consumer preferences.
• Compliance as a Business Asset: Efficient adaptation to the updated regulations can minimize legal risks and build stronger relationships with regulatory bodies, potentially easing future compliance burdens.

Impact on Consumers and Individuals

Consumers are at the heart of the sugar tax’s public health objectives. However, reactions vary widely:

Supportive Views

• Health Benefits: Many welcome the sugar tax as a necessary step toward reducing the high rates of lifestyle diseases linked to excessive sugar consumption.
• Awareness Raising: The tax serves as a visible reminder encouraging healthier choices, potentially improving long-term public health outcomes.
• Product Availability: The tiered system may result in greater availability of low-sugar beverages as manufacturers respond to fiscal incentives.

Concerns
• Affordability: There are concerns the tax disproportionately affects low- and middle-income consumers who may bear higher costs for commonly consumed beverages.
• Limited Choices: If reformulated products do not meet consumer taste preferences, some may feel their choices are restricted.
• Effectiveness Doubts: Critics question whether the tax alone can significantly reduce sugar consumption without complementary educational programs and broader lifestyle changes.

Legal and Regulatory Considerations

From a legal standpoint, the evolving sugar tax introduces several key considerations for all stakeholders:

• Compliance Obligations: Businesses must ensure timely registration with the FTA, accurate classification of products based on sugar content, and meticulous record-keeping to avoid penalties.
• Contractual Adjustments: Manufacturers and distributors may need to revisit supply contracts and pricing agreements to accommodate the tax’s impact.
• Consumer Protection: Transparency about tax-related price changes and product formulations will be essential to maintain consumer trust and avoid disputes.
• Potential for Disputes: The complexity of the tiered tax system might lead to misunderstandings or disagreements between businesses, suppliers, and authorities requiring legal intervention.

Preparing for the Future: Best Practices For businesses and individuals seeking to navigate the sugar tax landscape effectively, we recommend:

1. Stay Informed: Regularly monitor announcements from the FTA and Ministry of Finance regarding implementation timelines and compliance requirements.
2. Engage Legal Expertise: Work with legal and tax advisors to understand obligations, manage risks, and draft or review contracts reflecting the new regulatory environment.
3. Review Product Portfolios: Analyze sugar content across products to identify reformulation opportunities or repositioning strategies.
4. Educate Consumers: Transparently communicate changes and health benefits associated with new formulations or pricing to maintain loyalty and trust.
5. Collaborate Across the Supply Chain: Engage suppliers and distributors early to ensure coordinated compliance efforts and mitigate disruptions.

Conclusion

The UAE’s sugar tax represents a complex intersection of public health policy, business regulation, and consumer interests. While the 2026 tiered volumetric tax model offers a more nuanced and potentially effective approach, it also increases compliance demands and market uncertainties.

At The ASK Consultancy, we recognize the need for balanced understanding and strategic planning by all stakeholders. Whether you are an individual concerned about health impacts or a business navigating evolving regulations, informed preparation and expert advice are vital to successfully managing the implications of this important policy.
For tailored legal support or advice on excise tax compliance and sugar tax regulations, contact The ASK Consultancy—your trusted partner in UAE’s dynamic legal landscape.