If you are working from a penalty guide published before 2026, the numbers in it may be wrong. Cabinet Decision No. 129 of 2025 came into force on 14 April 2026 and reshaped how UAE tax penalties are calculated.
What changed
The old late payment structure applied 2 percent of unpaid tax immediately, a further 4 percent after seven days, then 1 percent daily, capped at 300 percent. That compounding structure has been replaced by a flat 14 percent per annum, calculated monthly on the outstanding balance from the day after the due date.
For a business a few days late, the new regime is considerably gentler. For a business that leaves a liability outstanding for a long period, it is more predictable and easier to model.
What did not change
- Late VAT return filing: AED 1,000 for a first offence, AED 2,000 if repeated within 24 months
- Late registration: a fixed AED 10,000 penalty, for both VAT and Corporate Tax
Voluntary disclosure
Where an error is discovered, voluntary disclosure remains the route to correct it. The threshold is a tax difference of AED 10,000 per error, with a 20 business day window from discovery. Below that figure, an error can generally be corrected in the next return. From 14 April 2026 a monthly penalty of 1 percent applies on the tax difference, running from the day after the original return due date until the disclosure is submitted.
That mechanic rewards speed. The cost of a disclosure is a function of how long the error sat undiscovered, which is a direct argument for reconciling VAT monthly rather than at quarter end.
The registration penalty is rarely the real cost
For late VAT registration, the AED 10,000 fine is usually the smaller half of the problem. The FTA backdates registration to the point the threshold was crossed, which means you also owe the VAT you should have been charging from that date. If you did not charge it, recovering it from customers after the fact is often impossible, so it comes out of margin.
What this should change in your process
- Monitor rolling 12 month turnover so the registration threshold is never crossed unnoticed
- File on time even when you cannot pay in full, because filing and payment penalties are separate
- Reconcile monthly so errors surface while the disclosure cost is still small
See VAT return filing for how we handle this.
General guidance, not advice on a specific business. Figures here were checked against published sources in September 2026; UAE tax rules change frequently, so confirm current Federal Tax Authority and Ministry of Finance guidance, or ask us to review your position, before acting.