Changes in UAE Tax Penalties: What Businesses Must Know for 2026
The UAE has significantly changed its administrative penalties framework over the years to maintain a balance between enforcing tax compliance and treating taxpayers fairly. The latest amendment under Cabinet Decision No. 129 of 2025 amends the previous Cabinet Decision No. 40 of 2017. This latest amendment brings notable changes that businesses should be aware of before April 2026.
This blog explains:
- What was the change in administrative penalties
- How the new amendments will impact VAT, Excise Tax and Tax filings
- What requirements should businesses follow to stay compliant
Disclaimer: The companies and scenarios mentioned in this article are illustrative and created solely for educational purposes.
Legal Background
Administrative penalties in the UAE are primarily governed by:
- Federal Decree-Law No. 28 of 2022 on Tax Procedures
- Cabinet Decision No. 40 of 2017 on Administrative Penalties
- Recent amendments issued in 2021, 2022, and 2025
The recent amendment (Cabinet Decision No. 129 of 2025) will take effect from 14 April 2026 and introduces more clarification rather than a complete overhaul
Cabinet-Decision-No.-40-of-2017…
Why Were Administrative Penalties Amended?
It was observed by FTA that:
- Minor mistakes on the return filing resulted in disproportionate penalties
- Businesses refrained from submission of Voluntary Disclosures
- Compliance requirements needed to be corrective rather than punitive
The latest amendments focus on:
- Encourage businesses to self-correct
- Improve clarity on procedures to be followed
- Keeping penalties aligned with actual compliance risk
✅ Key Changes in Administrative Penalties Explained
1️ Failure to Keep Records – Clearer Escalation
Old approach: Penalties were fixed with limited distinction
New approach:
- AED 10,000 for first-time violation
- AED 20,000 for repeated violations up to 24 months
This change will ensure record-keeping discipline, especially for VAT and Corporate Tax audits by FTA
Cabinet-Decision-No.-40-of-2017…
.
2️ Late Tax Registration – Still Costly
Failure to register for VAT or Corporate Tax within the deadline continues to attract a fixed penalty of AED 10,000.
➣ No relaxation here-registration compliance remains mandatory.
3️ VAT Deregistration Penalty Now Monthly-Based
A major change related to late deregistration is:
- AED 1,000 per month, maximum up to AED 10,000
This change clarifies ambiguity on one-time penalties and leads to predictable exposure for businesses
Cabinet-Decision-No.-40-of-2017
4️ Late Tax Payment Penalty Re-Structured
Instead of imposing multiple penalties, the revised framework applies:
· 14% per annum, which is calculated monthly on the unpaid tax liability
This applies to:
- VAT
- Excise Tax
- Corporate Tax
- Voluntary Disclosures and Tax Assessments
The recent amendments focus on the time value of money, rather than concentrating on fixed fines.
5️ Incorrect Tax Returns – Relief for Genuine Errors
The previous penalty of AED 500 for submitting an incorrect tax return will not be applicable if:
- The required corrections were made on the return within the filing deadline, or
- A voluntary disclosure is submitted with no tax difference
This will be a major shift, encouraging businesses to make honest corrections.
6️ Voluntary Disclosure: Incentive-Based Approach
If a voluntary disclosure is:
- Submitted before notification for audit → 1% monthly penalty will be applied
- Submitted after audit notification → 15% fixed penalty + 1% monthly
Failure to make the corrections via VD before the audit significantly increases the risk of penalty
Cabinet-Decision-No.-40-of-2017…
.
7️ Stronger Penalties During Tax Audits
If the businesses fail to cooperate with the FTA audit will now attract the following penalty:
· AED 20,000 penalty, payable from the person’s own funds
This applies to:
- Taxpayers
- The Legal representatives
- Tax agents
8️ VAT-Specific Penalties Clarified
Major VAT-related penalties retained and clarified include:
- AED 2,500 per missing tax invoice
- AED 2,500 per missing credit note
- AED 5,000 for failure to mention VAT-inclusive prices on the invoices
Noncompliance with Electronic invoicing will also attract penalties
Cabinet-Decision-No.-40-of-2017
Practical Business Example
Example:
A trading company filed an incorrect VAT return, but they identified the error before the deadline and made necessary corrections.
✔ No penalty will be levied under the revised framework
✖ Under the previous interpretations, penalties were often imposed regardless of the corrections made
What Businesses Should Do Now
✔ Maintain adequate documentation and record-keeping
✔ Monitor their revenue thresholds for registration and deregistration
✔ Use voluntary disclosures proactively
✔ Be ready for FTA audits with reconciled data
✔ Align accounting software with electronic invoicing rules
How Flyingcolour Tax Consultant Can Help?
Flyingcolour Tax Consultant assist businesses with:
- Penalty exposure assessments
- Voluntary disclosures
- FTA objections and reconsiderations
- VAT & Corporate Tax compliance reviews
- Prepare with audits
Frequently Asked Questions (FAQs)
1 When do the new administrative penalties apply?
The latest amendments on administrative penalties will be applicable from 14 April 2026.
2 Are VAT penalties reduced under the new rules?
Not reduced at all, but more structured and predictable, especially for late payments.
3 Can penalties be avoided through voluntary disclosure?
Yes, if VD is submitted before the FTA audit notification, it attracts only significantly lower penalties
4 Does this apply to Corporate Tax as well?
Yes. Changes in Administrative penalties apply across VAT, Excise Tax and Corporate Tax.
5 Can businesses object to administrative penalties?
Yes, businesses have the liberty to file objections under Federal Decree-Law No. 28 of 2022 on Tax Procedures
To learn more about Changes in Administrative Penalties in the UAE: What Businesses Must Know, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.