The UAE Federal Tax Authority imposes fines and penalties on taxable persons for non-compliance with tax regulations and standards. It’s advisable for taxable persons to use the services of accredited tax consultants in the UAE to navigate tax complexities and stay compliant with VAT law.
Important: The Penalty Framework Has Been Restructured
Cabinet Decision No. 129 of 2025, effective 14 April 2026, restructured several key VAT penalty amounts, most notably replacing the previous late payment penalty structure (2% immediate, then 4% monthly, capped at 300%) with a flat 14% per annum rate calculated monthly on the outstanding balance. The table below reflects the current figures where confirmed; businesses should verify current amounts before relying on older penalty schedules, since the framework has changed materially from what many older references still describe.
Also check: Tax Consultancy
Circumstances Under Which Administrative Penalties Are Imposed
As set out under UAE VAT law, the following violations accrue fines and penalties for taxable persons:
| Actions Inviting Penalties Under VAT | Administrative Penalty (subject to change) |
|---|---|
| Failing to keep specified information as required under the Tax Law secured and recorded | AED 10,000 for the first violation, AED 20,000 for repetition |
| Failing to provide the authority with tax-related data, records, and papers in Arabic when required | AED 20,000 |
| Failing to file a VAT registration application by the deadline set under the Tax Law | AED 10,000 |
| Failing to submit a deregistration application within the period stated under the Tax Law | AED 1,000 for the initial delay, plus AED 1,000 on the same date each subsequent month, up to a maximum of AED 10,000 |
| A Legal Representative failing to submit a tax return on behalf of the Taxable Person by the deadline (paid from the representative’s personal funds) | AED 1,000 for the first violation, AED 2,000 for repetition within 2 years |
| Failing to inform the authority of a person’s appointment as Legal Representative within the specified period (paid from the representative’s personal funds) | AED 10,000 |
| Failing to pay Due Tax stated in a filed Tax Return, Voluntary Disclosure, or Tax Assessment within the stipulated term | Current rate: 14% per annum on the outstanding tax, calculated monthly from the day after the due date, under Cabinet Decision No. 129 of 2025 (effective 14 April 2026). This replaced the previous structure of 2% immediate plus 4% monthly compounding, capped at 300%. |
| Submission of an incorrect Tax Return by the Registrant | AED 500 for a first-time incorrect return, under the current Cabinet Decision No. 129 of 2025 framework. Anyone correcting their Tax Return before the payment due date is excluded from this penalty. |
| Voluntary disclosure of inaccuracies in a refund application, tax assessment, or tax return under Articles 10(1) and 10(2) of the Tax Procedures Law | A percentage-based penalty on the difference between tax calculated and tax that should have been calculated: 5% if disclosed within 1 year, 10% within the 2nd year, 20% within the 3rd year, 30% within the 4th year, and 40% if disclosed after the 4th year from the relevant due date. Disclosing proactively, before an FTA audit notification, can significantly reduce the applicable rate compared to these figures. |
| A Registrant’s failure to calculate tax on behalf of another person where legally obligated to do so | Subject to the same late payment penalty structure described above: 14% per annum under Cabinet Decision No. 129 of 2025 |
Must check: VAT Voluntary Disclosure
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Worked Example: Late Payment Penalty Under the Current Framework
A business owes AED 80,000 in VAT and settles it 40 days after the due date. Under the current 14% per annum rate, calculated monthly, the penalty works out to roughly 1.17% per month. For 40 days, just over one month, the penalty comes to approximately AED 1,090 (AED 80,000 x 1.17% x roughly 1.33 months). This is considerably more predictable and, in most realistic scenarios, less punitive than the previous structure, which would have applied an immediate 2% surcharge followed by a further 4% for the month elapsed, a materially steeper outcome for the same 40-day delay.
Do Taxable Persons Have the Right to Request Reconsideration of a VAT Penalty?
The imposition of administrative penalties against a taxable person can be objected to. Where a taxable person submits a reconsideration request to the authority within 20 business days of being notified of the decision, the authority may grant the request wholly or in part. Engaging a reliable VAT consultancy to understand the implications of a specific penalty is genuinely advisable before submitting this request.
Does the Federal Tax Authority Waive or Reduce Administrative Penalties?
The FTA may reduce or waive an imposed administrative penalty under certain circumstances, including:
- The taxable person has a valid justification to present to the authority
- The taxable person offers proof supporting the defense and the circumstances that led to the violation
- The reduction or waiver application is submitted within 10 business days following the expiration of the relevant justification, using the FTA’s prescribed procedure
- The applicant hasn’t received any administrative penalties in the 2 years prior to submission
- The applicant provides proof the underlying violation has been corrected
Frequently Asked Questions (FAQs)
What is the current late payment penalty rate for UAE VAT?
How long do taxable persons have to request reconsideration of a VAT penalty?
Can a business avoid a penalty by correcting an incorrect tax return?
Does the FTA ever waive VAT penalties entirely?
How does timing affect the voluntary disclosure penalty rate?
Should businesses rely on older VAT penalty schedules?
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
How Farahat & Co. Can Help
Farahat & Co., a trusted Tax Firm in UAE, helps businesses stay compliant with VAT obligations, manage penalty reconsideration requests, and respond to FTA enforcement action.
Contact Farahat & Co. today to discuss your VAT compliance and penalty resolution requirements.
