VAT: UAE to introduce ‘Digital Tax Stamp’ for Shisha, e-Cigarettes


Staff Report

Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai, UAE Minister of Finance and Chairman of the Federal Tax Authority (FTA), has issued a Decision whereby the “Marking Tobacco and Tobacco Products Scheme” is set to be implemented on water pipe tobacco and electrically heated cigarettes as of November 1, 2019.

The Decision also determines the dates when the “Digital Tax Stamps” will be made available, as well as the standards for stockpiling them. Meanwhile, the Federal Tax Authority called on all businesses subject to Excise Tax and operating in the tobacco manufacturing and supply industry to abide by the Decision and cooperate with the FTA to efficiently implement it.

The Authority explained that the Scheme facilitates inspections at local markets and customs ports to prevent the sale of contraband products and goods where the tax liability was not paid, and combat commercial fraud. Digital Tax Stamps will be placed on tobacco products’ packages and registered in the FTA database. The Stamps store digital information that can be read with a special device to verify that all taxes due on said products have been paid.

In a press statement issued today, the FTA asserted that the Decision supports its efforts, in collaboration with relevant entities, to collect taxes, combat tax evasion, and implement uniform procedures to ensure transparency, guarantee the rights, and highlight the responsibilities of all Taxable Persons.

Federal Tax Authority Decision No. 2 of 2019 on Implementing the Marking Tobacco and Tobacco Products Scheme consists of five articles. It determines November 1, 2019, as the date when the Digital Tax Stamps will be available to order by importers or producers of Designated Excise Goods, which include water pipe tobacco and electrically heated cigarettes.

Furthermore, the Decision stipulated that as of March 1, 2020, it will be prohibited to import Designated Excise Goods not bearing the Stamps into the UAE, then starting in June 1, 2020, it will no longer be permissible to supply, transfer, store, or possess unmarked Designated Excise Goods in the UAE.

As per the Decision, Digital Tax Stamps must be securely stored prior to being affixed to the Designated Excise Goods in accordance with a set of minimum-security requirements, which include ensuring that Stamps are stored in a manner that prevents them from being accessed by unauthorised personnel; maintaining records that show the quantity of Stamps held prior to being affixed to Designated Excise Goods; storing Stamps in a manner that prevents their exposure to substances or elements that could compromise their physical integrity; and taking all necessary measures to ensure the Stamps are not put to unauthorised use, duplicated, copied, or tampered with in any other way.

Furthermore, the Person responsible for storing the Stamps shall be required to provide information, data, and records as requested by the Authority in order to confirm that the provisions of this Article are implemented.

The FTA’s press statement went on to explain that the Decision was part of its strategy to expand the scope of the “Marking Tobacco and Tobacco Products Scheme” to cover all tobacco products – imported and locally produced and distributed – which will be electronically tracked from production and until they reach the end consumer to ensure full compliance with Excise Tax obligations.

Phase one of the Scheme went into effect on January 1, 2019, affecting all types of imported and locally produced and distributed cigarettes, and making it possible for producers and importers of cigarettes to place their orders for purchasing Digital Tax Stamps from the international company hired to operate the system. As of May 1, 2019, the import of any type of cigarettes into the UAE not bearing the Digital Tax Stamps has been prohibited; meanwhile, the sale of cigarette packs not bearing the Stamps will be prohibited across UAE markets as of August 2019.

Cabinet Decision No. 42 of 2018 on Marking Tobacco and Tobacco Products stipulated that the Digital Tax Stamps be fixed on tobacco and tobacco products to show that Excise Taxes have been settled. Stamps are to be placed in the place and manner specified for each product by the Federal Tax Authority.

According to the Decision, the Federal Tax Authority may introduce changes to the Stamps, as well as the procedure of placing them on the Designated Excise Goods, including determining the cases where a Stamp is not required. The Decision stipulated that the Digital Tax Stamps be fixed on said Excise Goods within the production facility immediately after packaging if produced locally – or prior to importing them in the case of imported tobacco products. –