Key takeaways
- Cabinet Decision No. 129 of 2025 cut several VAT penalties from 14 April 2026, but existing exposure remains.
- Late VAT payment now carries 14% per annum, calculated monthly, replacing the old 2% upfront plus 4% per month.
- Disclosing a past error after an FTA audit notice adds a fixed 15% on top of 1% per month.
What the 2025 decision changed
On 14 April 2026 the UAE revised its administrative penalty schedule for VAT and Excise Tax; corporate tax penalties are separate. For VAT-registered businesses, two things moved at once: several fixed fines fell, and the way interest on late tax accrues was rebuilt.
The framework underneath is unchanged: VAT at 5%, mandatory registration at AED 375,000 and voluntary registration at AED 187,500.
UAE VAT penalties from 14 April 2026
These are the penalties that apply now. Treat them as a minimum, since total exposure depends on how many obligations were missed, and for how long.
Late VAT registration
Owed on top of the unpaid tax once a business that crossed AED 375,000 registers late.
No tax invoice or credit note issued
Halved, which is real relief, but it is charged per document. An invoicing gap across hundreds of transactions still adds up to a large assessment from a small per-item figure.
Late VAT return filing
AED 1,000 the first time, AED 2,000 if it repeats within twenty-four months. The fine is the smaller problem: a late return usually sits on top of late payment.
Late VAT payment
On the unpaid tax, calculated monthly from the day after the due date. This is the most significant change, and it may already be running on a balance nobody has flagged.
Voluntary disclosure of an under-declaration
A past under-declaration is corrected by voluntary disclosure, and the charge runs monthly on the tax difference until it is filed.
Wait until the FTA has issued an audit notice, and a further fixed 15% applies.
How late-payment interest is now charged
The old charge could grow an unpaid balance into a multiple of the tax, while its replacement is flat.
Before: 2% upfront, then 4% per month
At 4% a month on the unpaid tax, the cost climbed steeply the longer it ran, up to 300%.
From 14 April 2026: 14% per annum, flat
Calculated monthly, it rises in a straight line and is lighter on a short delay, though still a cost.
A short delay, resolved quickly, now costs less than it did under the old charge.
Left to run, 14% a year on a large balance adds up, and the tax is still owed in full, so paying on time matters as much as before.
Which businesses are most exposed?
The businesses most exposed assumed VAT was handled and never checked, and three patterns recur.
Over the threshold, not registered
Taxable supplies crossed AED 375,000 months ago, and registration never followed. The AED 10,000 fine is already owed, and the unpaid tax behind it keeps growing.
Filing on time, paying late
Returns go in on time but payment goes out late. The 14% per annum charge builds each month on the outstanding amount.
A past error, undisclosed
An error has been spotted in an old return, and nobody is sure whether, when or how to disclose it. Each month of delay risks an audit notice and the extra 15%.
The revised figures change the amounts, but an unresolved VAT position still does not improve by being left alone.
The lower fines make it easy to assume all is well, which is worth confirming.
A voluntary disclosure has to be framed, sequenced and timed, because a badly handled one can enlarge a liability. If your VAT is current, we will tell you so.
