Penalty for Late Payment of VAT in UAE: Complete Guide for 2025

Avoid FTA Fines: UAE VAT Late Payment Penalty Rules

Disclaimer: The information provided in this article is based on Flying Colour Tax Consultant LLC’s understanding of UAE VAT regulations as of the date of publication and is for educational purposes only.
 

The Federal Tax Authority (FTA) has made it very clear that the timely payment of VAT liability is not optional; rather, it is a mandatory obligation. Many UAE businesses file their VAT returns on time, but many of them forget to make the payment, thinking that filing returns and making payments are not two different steps. This will result in imposing automatic fines. 
Through this blog, we explain the penalty for late VAT payment by FTA, how they are calculating the fines, the reconsideration from FTA on the imposed penalty and how to apply for a fine waiver and the best way to stay compliant to avoid future penalties.

Legal Framework

Penalties for VAT and administrative fines are issued to the Taxable persons under:

• Federal Decree-Law No. 8 of 2017 on Value Added Tax, and
• Cabinet Decision No. 75 of 2023 on the Administrative Penalties for Violations of Tax Laws in the UAE

The above rules apply to all VAT-registered entities in the UAE, irrespective of the business size, model, sector or ownership structure

When Does a VAT Payment Become Late?

Every business registered under VAT must:

• File their VAT Return within 28 days from the end of the tax period, and
• Pay the VAT liability due before the same deadline.

If payment is made even after a few days from the deadline, the FTA system automatically imposes penalties, which is calculated from the due date and not from the filing date.

Calculation of Penalty for Late VAT Payment in the UAE

FTA can apply both fixed and percentage-based penalties when VAT is paid after the due date prescribed by law.
Here we have the breakdown:

Example – VAT fine for delayed payment after 7 days in the UAE:

If your VAT liability due as per the filed return is AED 50,000 and you pay it by 7 days late, the penalty will be automatically calculated by FTA as follows:

• 2% on 50,000 = AED 1,000 (immediate fine)
• No monthly 4% penalty will be applied  (as less than 1 month has passed)

          Then Total fine = AED 1,000

If the same VAT amount remains unpaid for 3 months after the deadline:

AED 1,000 + (4% × 3 months × AED 50,000) = AED 7,000 will be the total fine

Common Scenarios Triggering Late VAT Payment Penalties
        
        
        

Scenario  FTA View on this case Risk of Penalty

 Important: The FTA considers the date of payment as the date of actual receipt in its bank account,  not the date you initiated the payment

Penalty for Late VAT Return Filing v/s Late Payment

Many businesses in the UAE are confused about filing and payment of penalties.
        

If you can file on time, but still face penalties if the payment is not received on time.

FTA Penalty Reconsideration and Fine Waiver Process

If FTA imposed a VAT penalty on your business that you believe it is unjustified, you have the option to request reconsideration or fine relief.

FTA Reconsideration Process

You can submit a Penalty Reconsideration Request through the EmaraTax portal within 40 business days from the date of receiving the penalty notice.

Steps:

1.Log in to the EmaraTax portal. Click on → “Requests → Reconsideration”

2. Select the penalty you want to request for reconsideration

3. Upload the documents below to the portal:

• Detailed letter justifying the situation 
• Supporting evidence such as proof of timely payment, technical issues, etc.
• Power of attorney (if return filed through registered tax agent)

4. FTA will review and respond to this reconsideration request within 20 business days from submission

Tip: FTA is very strict on this penalty reconsiderations. It is accepted only for factual or procedural mistakes, not for oversight or misunderstanding the provisions.

Fine Waiver and Relief Eligibility

In July 2023, the FTA introduced a scheme of penalty waiver for businesses that meet the following criteria:

• Paid for the tax liability due; and
• Filed all pending VAT returns; and
• Applied for penalty relief before the deadline prescribed by FTA

Businesses that corrected for the past non-compliance and maintained good filing history often received partial or full penalty waivers.
While the official amnesty period (2023) has ended, similar FTA leniency programs are occasionally reintroduced for making voluntary rectifications.

VAT Compliance and Deadline Reminders

To prevent the potential penalties, businesses should:

1. Track the return filing deadlines: Set reminders on your accounting software
 

2 . Submit the return and pay the VAT amount together: Filing the return only without making payment will result in a penalty.
 

3 . Avoid making last-day bank transfers: Banks may delay crediting funds in the FTA portal
 

4 . Regularly check your EmaraTax portal: Ensure no pending notifications and updates is showing in your portal
 

5 . Engage an FTA-approved Tax Agent: Appoint a Tax Agent to manage your filings, make payments and check on the notifications.

At Flying Colour, we help our clients to set automated compliance alerts through accounting systems and monitor FTA updates on a daily basis.

Real Example

Case: 

A Trading company in the UAE with quarterly VAT filing periods filed their Q2 return for 2025 on time (i.e. July 28) but paid the tax liability of AED 80,000 on by August 3.

FTA calculation:

• 2% immediate fine will be levied. Ie AED 1,600
• No 4% monthly fine (as payment made before 30 days)
• Total penalty will be AED 1,600

After the review on this case by Flying Colour, the firm submitted a request for reconsideration citing the delay on the bank part, but FTA rejected the same stating that funds reached after the due date are automatically penalised.

Lesson learned: Initiate for VAT payments at least 2 working days before the deadline.

Summary of VAT Payment Penalties

How Flyingcolour Tax and Accounting Can Help?

At Flying Colour Tax Consultant LLC, we help businesses to avoid and manage VAT fines through:

• VAT return filing and payment management via EmaraTax
• Assisting in FTA penalty reconsideration and fine waiver applications
• Tracking the deadlines and compliance alerts
• Audit representation and support in submitting voluntary disclosures
• VAT training for internal finance teams
   

To learn more about Penalty for Late Payment of VAT in UAE: Complete Guide for 2025, 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.