UAE Reduced Penalties for Certain Tax Violations

On April 14, 2026, the new Cabinet Decision No. 129 of 2025 regarding administrative penalties for violations of tax laws in the UAE came into force (originally Cabinet Decision No. 40 of 2017). Certain penalties have been significantly reduced, while the methods for their calculation have been simplified or revised.

Scope of Application

The updated schedule includes a list of tax violations and corresponding administrative penalties related to the application of:

• Federal Decree-Law No. 28 of 2022 on Tax Procedures,
• Federal Decree-Law No. 7 of 2017 on Excise Tax, and
• Federal Decree-Law No. 8 of 2017 on Value Added Tax.

It is important to note that penalties pertaining to UAE Corporate Tax are maintained under a separate regulation: Cabinet Decision No. 75 of 2023 (as amended by Cabinet Decision No. 10 of 2024). This Decision specifically addresses violations of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses.

Updated Tax Penalties in the UAE: What’s New?

• Failure to keep documents and information required by tax laws can now cost a taxpayer 10,000 AED for each violation (both first-time and repeated). Alternatively, for each case of a repeated violation occurring within 24 months of the previous one, the FTA (Federal Tax Authority) may impose a penalty of 20,000 AED. Previous regulations stipulated penalties of 10,000 AED for the first violation and 20,000 AED for any subsequent violation.
• Failure to provide data, records and documents in Arabic upon request from the FTA now incurs a penalty of 5,000 AED (previously 20,000 AED).
• Failure to report events that may require updates to a taxpayer’s records with the FTA incurs a penalty of 1,000 AED for each violation (both first-time and repeated). Alternatively, for each case of a repeated violation occurring within 24 months of the previous one, a penalty of 5,000 AED may be imposed. Previous regulations stipulated penalties of 5,000 AED for the first violation and 10,000 AED for any subsequent violation.
• Failure to notify the FTA of the appointment of a taxpayer’s legal representative incurs a penalty of 1,000 AED (previously 10,000 AED).
• Failure to pay tax within the specified timeframe incurs a monthly penalty of 14% per annum on the outstanding tax amount for each month or part thereof, starting from the day following the tax payment deadline. The previous version provided for a penalty of 2% of the unpaid amount, followed by 4% monthly, with a “ceiling” of 300%.
• Submission of an incorrect tax return incurs a penalty of 500 AED. This penalty can be avoided by correcting the tax return before the deadline or by submitting a Voluntary Disclosure, as long as the tax amount due remains unchanged. The previous version stipulated penalties of 1,000 AED for the first violation and 2,000 AED for a repeated violation.

Penalties Related to Voluntary Disclosure

Voluntary Disclosure is a notification submitted by a taxpayer to the FTA, using a prescribed form, regarding errors in tax returns, tax assessments (received from the FTA), or tax refund applications. In some cases, submitting a Voluntary Disclosure is a taxpayer’s right, while in others, it is an obligation. For example, a taxpayer must submit a Voluntary Disclosure if they discover an error in a filed tax return that resulted in a lower tax liability than the amount that should have been reported (pursuant to Article 10 of the Federal Decree-Law “On Tax Procedures”).

The new version reduces the administrative penalties associated with submitting a Voluntary Disclosure in cases where the taxpayer has underpaid tax or overclaimed a refund.

Submitting a Voluntary Disclosure regarding errors in a tax return or refund application incurs a monthly penalty of 1% of the tax difference where the discrepancy resulted in an underpayment of tax or an overstatement of a refund. This penalty is calculated starting from the day following the due date of the tax return or refund application until the date the Voluntary Disclosure is submitted. The previous version stipulated penalties ranging from 5% to 40% of the tax difference, depending on how many years after the original filing the Voluntary Disclosure was submitted.

Failure to submit a Voluntary Disclosure regarding errors in a tax return or refund application before receiving a tax audit notification from the FTA incurs a fixed penalty of 15%, plus a monthly penalty of 1% of the tax difference. The previous version stipulated a fixed penalty of 50% of the error amount, followed by a 4% monthly penalty on the unpaid tax or on any refund amount wrongfully received and not yet returned to the FTA.

Which tax penalties in the UAE remain at the same level?

Compared to the previous version of the Cabinet Decision, the amounts of most other penalties remain unchanged, in particular:

Overall Assessment of the Changes

On the whole, the updated schedule of tax penalties appears more favorable for UAE-based taxpayers, including companies and sole establishments, compared to the previous version. It introduces simpler and more transparent methods of calculation, enhancing clarity and predictability for businesses when assessing their tax liabilities and potential penalty exposure.

It is also worth noting the more equitable penalty rates associated with the Voluntary Disclosure. These changes are likely to incentivize taxpayers to voluntarily rectify errors without the risk of facing disproportionately high financial sanctions.

What to Look Out For

To avoid penalties, we continue to recommend paying diligent attention to tax compliance. This includes documenting transactions, maintaining proper records, ensuring the accuracy of tax calculations, and monitoring deadlines for filing tax returns and paying taxes to the FTA. This is equally important for both local (mainland) companies and UAE Free Zone companies, as both are subject to federal tax legislation.