Since April 14, 2026, a new penalty system for tax violations is in effect in the UAE. This isn’t a cosmetic update, Cabinet Decision No. 129 of 2025 changes the actual logic behind how VAT, Excise Tax, and Corporate Tax penalties are calculated. Here’s what actually changed and what businesses should do about it.
What happened on April 14?
The FTA announced the entry into force of Cabinet Decision No. 129 of 2025, which replaces part of the provisions of the old Decision No. 40 of 2017. The decision was actually adopted back in October 2025 and published on the FTA website in November, giving businesses about five months to prepare.
The official goal, as stated by the FTA itself, is to ease the burden on businesses, simplify procedures, and encourage voluntary correction of errors rather than punishing them. In practice, this means some penalties got smaller, but clearer rules also appeared for those who delay fixing violations.
How is the late payment penalty calculated now?
This is the main change. Previously, a late tax payment worked like this: 2% immediately on day one, then another 4% every month. With a long enough delay, the total could climb up to 300% of the unpaid tax meaning the penalty could end up far exceeding the debt itself. Now the mechanics are different: as of April 14, 2026, late payment is charged at a flat rate of 14% per year (roughly 1.167% per month), with no compounding of penalties on penalties. The rate applies to the amount of unpaid tax, not to the penalty itself. A delay of a few months no longer risks a fine several times larger than the debt.
What’s the catch?
The rate relief is only part of the picture. It applies to situations where the business files its own return and pays on its own, even if late. It’s a completely different story if the FTA finds the error rather than the business itself. That’s where the voluntary disclosure mechanism comes in, and the rules there are much stricter:
If you file a voluntary disclosure before receiving a tax audit notice, you fall into the reduced-penalty tier. If the disclosure is filed after receiving an audit notice, a fixed penalty of 15% of the discrepancy is added, plus another 1% per month on that same amount, calculated from the original date the tax was due. In other words, essentially the same oversight or mistake can cost a business very different amounts of money depending on who catches the problem first.
What other penalties were reduced?
Beyond the main change to late payment, a number of smaller but more common penalties were also revised:
- The penalty for failing to submit tax records in Arabic upon FTA request was reduced from AED 20,000 to AED 5,000.
- The penalty for failing to update tax records is now AED 1,000 per violation, and AED 5,000 for repeated violations within 24 months.
- The penalty for a legal representative failing to notify the authority of their appointment was reduced from AED 10,000 to AED 1,000 (payable from the representative’s own funds, not the company’s).
The message behind these changes is consistent: the FTA is clearly shifting its focus from punishing paperwork formalities toward penalizing actual evasion or delay.
What should businesses do about this right now?
The main practical takeaway from the new system is simple: taking the initiative now literally has a price tag. If you have doubts about old returns, unresolved discrepancies, or simply haven’t reviewed past periods in a while, now is a good time to do it.
The difference between “we found and disclosed the error ourselves” and “the FTA found the error for us” isn’t an abstract principle, it’s concrete percentage points added on top. And the longer you put off a review, the higher the risk that an audit notice arrives before you manage to file a voluntary disclosure under the favorable terms.
If you’re not sure whether you have exposure from past periods, or how to properly file a voluntary disclosure, we can go through it together on a free consultation with Aizhan +971509174775.
