Understanding the UAE’s New Administrative Tax Penalty Framework

Overview: The UAE has introduced a revised administrative penalty framework for tax violations through Cabinet Decision No. 129 of 2025. Effective 14 April 2026, this new regime reshapes how penalties apply to VAT, Excise Tax and Corporate Tax procedures. The previous model with multiple compounding percentages is being replaced with a more simplified, behavior driven structure that encourages timely payment, accurate reporting and early voluntary disclosure.

Background

Administrative penalties in the UAE were originally governed by Cabinet Decision No. 40 of 2017 on the Administrative Penalties for Violations of Tax Laws. In 2021, Cabinet Decision No. 108 adjusted several penalties and introduced relief mechanisms, but businesses continued to face complex calculations and high compounding rates, especially for late payments and historic errors. In 2025, Cabinet Decision No. 129 was issued to revise and align the penalty regime across taxes, bringing more proportionality and clarity while still protecting the integrity of the tax system.

Visual Insight: From Compounding Penalties to a Simplified Model

Key Changes Introduced

1. New Late Payment Penalty Structure

Under the previous framework, late payment of tax triggered a 2% penalty on the unpaid amount immediately after the due date plus a 4% penalty for each month or part of a month during which the tax remained unpaid, capped at 300%. This could create very high exposures where errors were not detected early.

From 14 April 2026, unpaid tax will be subject to a flat 14% per annum late payment penalty, calculated on a monthly basis. This makes the cost of delay easier to model and removes the extreme compounding effect of the old structure while still encouraging timely payment.

2. Reduced Administrative Penalties

Several fixed penalties have been significantly reduced, especially for administrative violations that do not directly relate to underpaid tax. Examples include:

The focus has shifted from punishing first time errors heavily to addressing repeated non compliance within a defined 24 month period.

3. Voluntary Disclosures Reframed

Previously, voluntary disclosures were subject to stepped fixed penalties in bands ranging from 5% to 40% of the tax difference depending on how long the error remained uncorrected. If a voluntary disclosure was submitted after audit notification, penalties could reach 50% plus monthly additions.

Under the new framework:

• Before audit notification: a penalty of 1% per month of the tax difference applies, calculated from the original due date until the voluntary disclosure filing.
• After audit notification: a fixed penalty of 15% of the tax difference applies plus 1% per month from the original due date.

This structure directly links the cost of an error to how long it remains uncorrected and strongly encourages early voluntary disclosure.

4. Clearer Definition of Repeat Violations

Many penalties now distinguish between first violations and repeat violations within a 24 month period. This is particularly relevant for record keeping, updating tax records and other procedural obligations. Businesses that address weaknesses quickly and avoid repeated breaches within this window will benefit from the lower first time penalty levels.

Penalty Model Comparison

Example Scenarios

Scenario 1: Late Payment of Tax

Tax due: AED 100,000
Delay: 6 months after due date

Scenario 2: Voluntary Disclosure Before Audit

Tax difference: AED 50,000
Time since original due date: 8 months
Audit notification: Not yet received

Under the new framework, the voluntary disclosure penalty would be:

Penalty = 1% × 8 months × AED 50,000 = AED 4,000

This creates a direct and transparent link between how long the error remained uncorrected and the cost for the taxpayer.

Scenario 3: Repeat Record Keeping Violation

A taxpayer fails to keep certain supporting records and is penalised AED 1,000 under the new regime. If the same failure occurs again within 24 months, the penalty increases to AED 20,000 for that repeat violation. This highlights the importance of addressing root causes after the first finding rather than treating penalties as a recurring cost.

Implications for Businesses

• Tax risk becomes easier to model since late payment penalties follow a clear annual rate instead of complex compounding.
• There is a stronger incentive to raise voluntary disclosures early to benefit from the 1% per month structure.
• Internal controls around record keeping, Arabic documentation and timely updates to FTA gain more importance to avoid repeat violations within 24 months.
• Finance leaders should revisit provisions and disclosures in financial statements to reflect the new penalty dynamics.

How Univia Can Help

Univia Global Consultancy supports businesses in assessing their exposure under the new penalty regime, redesigning tax governance frameworks and implementing practical controls. This includes reviewing historic positions for potential voluntary disclosures, mapping process risks, and aligning ERP and compliance routines with the updated FTA requirements.

Advisory Note for CFOs, Tax Directors and Business Owners

Cabinet Decision 129 of 2025 is more than a technical adjustment. It redefines the behavioral expectations between taxpayers and the FTA. Leadership teams should treat this as an opportunity to refresh tax governance, embed a culture of early error correction and ensure that repeat violations do not occur within the new 24 month window.

Source Attribution: Information referenced from UAE Federal Tax Authority publications and Cabinet Decisions including Cabinet Decision No. 40 of 2017, Cabinet Decision No. 108 of 2021 and Cabinet Decision No. 129 of 2025 on administrative penalties.