The United Arab Emirates Cabinet has approved Cabinet Decision No. 129 of 2025, which restructures the administrative penalty framework for tax law violations, including those related to Value Added Tax (VAT), Excise Tax, and other federal taxes. The Decision was published in late 2025 and will take effect on 14 April 2026, giving businesses a transitional period to adjust compliance processes. The updated regime aligns penalty mechanics with the Federal Decree‑Law No. 28 of 2022 on Tax Procedures and replaces elements of the older framework under Cabinet Decision No. 108 of 2021.
A major change under the new regime is the introduction of a flat annualised penalty for late payment of unpaid tax, calculated at 14 percent per annum, applied monthly on outstanding amounts from the day after the due date until settlement. This replaces the previous stepped structure under the older regime, where a fixed penalty was imposed shortly after the due date and a separate monthly penalty could accumulate up to a statutory cap.
Other key redesigns include updated penalties for voluntary disclosures, which now generally attract a 1 percent per month penalty on the tax difference until the disclosure is submitted, replacing the former tiered percentage framework. Penalties for incorrect tax returns have been reduced, with relief available if errors are corrected by the due date or via voluntary disclosure with no tax difference.
The framework also clarifies and lowers various static fines for procedural and record‑keeping violations, such as failure to provide records in Arabic or to update tax records, supporting greater transparency and predictability in compliance.
The penalty harmonisation under Decision No. 129 aims to create a more proportionate, modern and business‑friendly compliance environment in the UAE, fostering improved voluntary compliance and simpler calculation of exposures across VAT, Excise and broader federal tax obligations.
Official reference:
Cabinet-Decision-No.-40-of-2017-and-its-amendments-v14.11.25.pdf