▶️Major Relief for Businesses: Top 5 VAT Penalty Cuts in the UAE (2025 Update)

The United Arab Emirates has announced significant amendments to the administrative penalties for tax law violations, signaling a more lenient and business-friendly approach. The newly issued Cabinet Decision No. 129 of 2025 (issued October 9, 2025) will officially come into effect on April 14, 2026.

For business owners and finance professionals, understanding these changes is crucial for compliance and financial planning. Here is a breakdown of the top 5 penalty reductions and amendments introduced in this new decision.

1. Late Payment of VAT

One of the most significant changes is the simplification and reduction of penalties for late VAT payments.

• The Old Law: The previous system was aggressive, charging 2% immediately, 4% on the seventh day, and a 1% daily penalty after one calendar month (capped at 300%).

• The New Law: The penalty is now calculated at 14% per annum, applied monthly.

Impact Example:

If a business has a Tax payable = AED 10,000, Paid late by 3 months

→ Monthly penalty = 10,000 × 14% ÷ 12 = AED 116.67

→ Total penalty for 3 Month = AED 350 approx.

2. Failure to Submit Arabic Records

Previously, failing to provide translated records when requested by the Federal Tax Authority (FTA) carried a hefty fine. This has been drastically reduced.

• The Scenario: The FTA requests invoices, and the business only provides them in English.

• Old Penalty: AED 20,000.

• New Penalty: AED 5,000.

3. Incorrect Tax Return

Errors happen, and the new regulations are more forgiving for first-time mistakes that are corrected.

• Old Penalty: AED 1,000 for the first time or AED 2,000 for repeated errors.

• New Penalty: A flat fee of AED 500, provided the error is corrected before the deadline.

4. Voluntary Disclosure (VD) Penalties

The new framework promotes voluntary corrections by significantly lowering the financial impact of disclosing errors before an audit.

• Old Law: Penalties ranged from 5% to 40% based on the age of the error, or 50% plus a 4% monthly penalty after an audit.

• New Law:

  • Pre-Audit: 1% monthly penalty.

  • Post-Audit: 15% fixed penalty + 1% monthly penalty.

Real-World Scenarios:

• Scenario 1 (Before Audit): You disclose an error of AED 50,000 that is 6 months old.

  * New Penalty: AED 3,000.

• Scenario 2 (After Audit): The same error is found after audit notification.

  * New Penalty: AED 7,500 (15% fixed) + AED 3,000 (1% monthly) = AED 10,500.

5. Failure to Keep Records

Maintaining proper documentation remains essential. The amendments clarify the penalties for failing to keep required registers (e.g., sales, purchase, and import registers).

• The Penalty: AED 10,000 per violation, increasing to AED 20,000 if repeated within 24 months.

• Example: If a business misses three specific registers (Purchase, Sales, and Import), the total could reach AED 30,000 (3 X 10,000).

▶️Need Expert Assistance?

Navigating these changes can be complex. MF Khan & Associates is here to assist you with expert chartered accountancy services in both the UAE and India.

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This information is provided by CA M.F.KHAN – Tax Expert.

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