The UAE VAT Penalty Framework
VAT penalties in the UAE are governed by the UAE Tax Procedures Law under Federal Decree-Law No. 28 of 2021 and the penalty framework established by Cabinet Decision No. 129 of 2025, which restructured the UAE tax penalty system with effect from 2025. Cabinet Decision No. 129 of 2025 replaced the prior penalty structure for late payment with a standardised interest-based model and clarified the administrative penalties for specific compliance failures.
Understanding the current penalty framework is important for two reasons. First, the amounts and calculation methods differ materially from the pre-2025 structure still cited in many articles and advisories. Second, every UAE VAT penalty carries a right of reconsideration and appeal , understanding when and how to exercise that right is as important as understanding the penalty itself.
Late Payment Interest
Where a VAT-registered business does not pay the VAT due by the deadline (28 days after the end of the tax period), late payment interest at 14% per annum accrues on the outstanding amount from the due date under Cabinet Decision No. 129 of 2025. This replaces the prior tiered structure of 2% immediately and 4% monthly that applied under the previous Cabinet Decision.
The interest accrues daily on the outstanding balance and continues to accumulate until the full amount is paid. There is no cap equivalent to the old 300% maximum , interest under the 14% per annum model simply continues to accrue until settlement.
Worked Example
A business has AED 50,000 of VAT due for a quarterly period, filed and paid 90 days late. Late payment interest = AED 50,000 × 14% × (90 ÷ 365) = approximately AED 1,726.
Also Check: VAT Return Filing Services
Need Expert Advice?
Contact the team at Farahat & Co. for professional support and expert insights for businesses operating in the UAE.
Administrative Penalties for Specific Violations
In addition to late payment interest, the UAE VAT framework imposes fixed administrative penalties for specific compliance failures. The following are the most common violations and their current penalty amounts:
1. Failure to Register for VAT on Time
A business must apply for VAT registration within 30 days of the end of the month in which its taxable supplies or expenses exceeded the mandatory registration threshold of AED 375,000. Failure to register by the applicable deadline attracts a fixed penalty of AED 10,000.
Late registration does not eliminate the VAT liability for the period during which the business was required to be registered. The business remains liable for output VAT on all taxable supplies made from the date it should have registered, regardless of whether it collected VAT from its customers during that period.
2. Failure to File a VAT Return on Time
VAT returns must be filed through EmaraTax within 28 days of the end of each tax period. Under Cabinet Decision No. 129 of 2025, the late filing penalty is:
- AED 500 per month for the first 12 months of late filing
- AED 1,000 per month for each subsequent month
A nil return for a period in which no VAT activity occurred must still be filed by the deadline. Late filing of a nil return attracts the same monthly penalty as late filing of a return with activity.
3. Failure to Maintain Records
VAT-registered businesses must maintain all required VAT records , tax invoices, credit notes, import declarations, contracts, and bank records , for a minimum of 5 years (10 years for real estate). Failure to maintain records, or failure to produce records during an FTA audit, attracts a penalty of AED 10,000 for a first offence and AED 20,000 for a repeated offence.
4. Failure to Display VAT-Inclusive Prices
Where goods or services are displayed for retail sale in the UAE, the price shown must be inclusive of VAT. Displaying prices exclusive of VAT where the retail customer cannot separately see the VAT component attracts a penalty of AED 5,000.
5. Issuing Incorrect Tax Invoices or Credit Notes
Every taxable supply above AED 10,000 must be supported by a valid tax invoice containing all mandatory fields: the supplier’s TRN, the date of supply, description of goods or services, taxable amount, VAT rate, and VAT charged. A credit note must be issued to correct a previously issued tax invoice where the VAT amount changes.
Failure to issue a tax invoice, or issuing a tax invoice that does not contain all mandatory fields, attracts a penalty of AED 2,500 per incorrect document.
6. Submission of Incorrect Returns or Declarations
Where a return is submitted with incorrect figures that result in an understatement of VAT payable or overstatement of input tax recoverable, and the error is identified by the FTA rather than disclosed voluntarily, a penalty of up to 50% of the understated tax applies, in addition to late payment interest on the additional tax assessed.
Also Check: VAT Refund Service
The VAT Penalty Table
| Violation | Penalty Under Current Framework |
|---|---|
| Late payment of VAT | 14% per annum interest from due date (CD No. 129 of 2025) |
| Late VAT registration | AED 10,000 |
| Late VAT return filing | AED 500/month (first 12 months); AED 1,000/month thereafter |
| Failure to maintain records (first offence) | AED 10,000 |
| Failure to maintain records (repeated offence) | AED 20,000 |
| VAT-exclusive price display | AED 5,000 |
| Incorrect tax invoice (per document) | AED 2,500 |
| Understated VAT identified by FTA | Up to 50% of understated amount + 14% p.a. interest |
How to Contest a UAE VAT Penalty
A VAT-registered business that believes a penalty has been incorrectly assessed has two formal options to contest it: reconsideration and appeal.
Step 1: Reconsideration Request to the FTA
The first step is to submit a reconsideration request to the FTA through EmaraTax. A reconsideration request asks the FTA to review its own decision. The request must be submitted within 40 business days of the date the penalty was notified. The reconsideration must state the grounds on which the business believes the penalty was incorrectly assessed, and attach all relevant supporting evidence.
The FTA reviews the reconsideration request and issues a formal decision. Where the reconsideration is accepted, the penalty is reduced or cancelled. Where it is rejected, the business may proceed to appeal.
Step 2: Appeal to the Tax Dispute Resolution Committee
Where the FTA’s reconsideration decision is unfavourable, the business may appeal to the Tax Dispute Resolution Committee (TDRC). The appeal must be filed within 40 business days of the FTA’s reconsideration decision. The TDRC is an independent body that reviews tax disputes between taxable persons and the FTA and issues binding decisions.
A key requirement for TDRC appeals: the business must pay the undisputed portion of the assessed tax before the appeal can proceed. Where the penalty itself is disputed (rather than an underlying tax liability), the business should confirm the payment requirement applicable to its specific situation.
Step 3: Federal Court Appeal
Where the TDRC decision is also unfavourable, the business has the right to appeal to the UAE Federal Court. The Federal Court appeal must be filed within 20 business days of the TDRC decision. Federal Court proceedings involve legal representation and a formal judicial process.
Frequently Asked Questions (FAQs)
What is the current late payment penalty for VAT in the UAE?
What is the penalty for filing a UAE VAT return late?
How does a business contest a UAE VAT penalty?
What is the penalty for failing to register for UAE VAT on time?
What is the difference between a reconsideration and an appeal of a UAE tax penalty?
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. assists UAE businesses with VAT penalty assessments, reconsideration requests, and TDRC appeals. As an FTA-registered Tax Agent, our team prepares and submits reconsideration applications through EmaraTax, presents technical grounds for penalty reduction or cancellation, and represents clients in TDRC proceedings where required.
Contact Farahat & Co. today to discuss your UAE VAT penalty or reconsideration requirements.
