Interview: What the UAE’s tiered sugar tax means for hotels, restaurants, and their suppliers

By Evangeline Elsa / August 17, 2025

Dubai, UAE: The recent announcement of a tiered sugar tax in the UAE marks a significant shift in fiscal policy, moving beyond a flat rate to a more nuanced system based on a beverage’s exact sugar content. This change, which takes effect from early 2026, has widespread implications for the hospitality sector and its supply chain.

Here’s a breakdown of what this means, with insights from Mahmoud Keidie, Paralegal in the Tax Practice at BSA Law.

Q: Will this affect the sale of beverages in hotels and restaurants?

A: The introduction of a tiered sugar tax is likely to affect both pricing and sales patterns in hotels and restaurants. Beverages with higher sugar content will now be taxed at a higher rate, which will increase procurement costs and, in most cases, lead to higher menu prices. From a compliance standpoint, this means that venues will need to ensure beverages are correctly classified based on their sugar content, with the corresponding tax applied at the point of sale. Proper documentation will be essential — the Federal Tax Authority (FTA) may request evidence supporting the classification and tax rate used. While some high-sugar products may see a dip in demand, this shift also creates an opportunity to promote lower-sugar or tax-exempt alternatives that can be positioned as premium, health-conscious options.

Q. What does the tiered sugar tax mean for hotels, restaurants, and their suppliers?

A: This change moves away from a flat tax and instead applies rates according to the exact sugar content of a beverage. For hotels and restaurants, it means procurement and menu pricing must take these rates into account, ensuring that POS systems are updated to apply the correct tax automatically. For suppliers, there is now a heightened obligation to provide accurate sugar content information and issue compliant invoices that reflect the correct excise rate. Both sides will need to maintain clear records in case of an FTA audit. Operationally, this will require stronger collaboration between procurement, finance, and operations teams to ensure both compliance and cost efficiency.

Q. How should F&B businesses start preparing for compliance and reformulation?

A: Preparation should start with a full product review to identify which beverages fall into higher tax brackets. Hotels and restaurants should request sugar content documentation from suppliers and keep these records on file for compliance purposes. Any pricing or menu changes should be reflected in updated POS systems, and staff should be trained on how the tax works so they can address customer questions. If reformulation is considered — for example, to bring sugar content below a higher tax threshold — it is important to verify the new sugar content and keep proof of that verification for compliance purposes. Alongside these compliance steps, businesses can reframe their menus to promote lower-taxed options as part of their wellness and sustainability positioning.

Q. Legal and operational considerations in adapting to variable tax rates

Accurate classification and declaration of sugar content is a legal requirement under UAE Excise Tax Law, and incorrect reporting can result in penalties. To manage this risk, hotels, restaurants, and suppliers should clearly set out in contracts who is responsible for verifying sugar content and how tax rate disputes will be resolved. Operationally, businesses will need to ensure their inventory systems track products by tax category, that menu pricing reflects the correct rate, and that periodic compliance checks are built into their workflow. These measures will help ensure that businesses not only remain compliant but also use the new tax system as a driver for operational efficiency and product innovation.

The tiered sugar tax is more than just a fiscal change — it’s a shift that combines commercial impact with regulatory obligations. Businesses that manage both sides effectively, keeping compliance at the core while innovating their offerings, will be better positioned to protect margins, maintain customer loyalty, and avoid unnecessary tax risks.