Cabinet Decision No. 129 of 2025 rewrote the UAE's administrative penalties for VAT and Excise Tax, with effect from 14 April 2026. Most penalties are now lower and easier to predict, but they still add up quickly for a business that files late or gets its returns wrong.
What changed
| Issue | From 14 April 2026 |
|---|---|
| Late payment of VAT | 14% a year, calculated monthly on the unpaid amount (replaces the old 2% and 4% charges) |
| Incorrect return | AED 500 for a first error, AED 2,000 for a repeat. No penalty if corrected before the due date |
| Voluntary disclosure | 1% of the tax difference per month since the original due date |
| Disclosure after an FTA audit notice | Fixed 15% of the tax difference, plus 1% per month |
| Failure to keep records | AED 10,000, or AED 20,000 for a repeat within 24 months |
| Not notifying the FTA of changes to your registration | AED 1,000, or AED 5,000 for a repeat within 24 months |
Why the late payment change matters
Under the old rules, a late VAT payment could attract a 2% charge immediately, a further 4% after seven days and 1% a day after a month. The new flat 14% a year is far less severe, but it still runs every month until the tax is paid. Paying on time remains the cheapest option.
Correcting mistakes is now cheaper
If you find an error in a past VAT return, a voluntary disclosure now costs 1% of the tax difference per month instead of the old fixed percentages. Disclosing before the FTA contacts you is still much cheaper than waiting: once an audit has been notified, a fixed 15% applies on top.
How SMEs usually end up with VAT penalties
- Registering late after crossing the AED 375,000 threshold.
- Filing the return but paying a few days late.
- Claiming input VAT on invoices that are not valid tax invoices, or on blocked expenses such as most entertainment.
- Missing the change notification when the trade licence, address or activity changes.
- Not keeping invoices, contracts and import documents for the required period.
Five habits that keep you penalty-free
- Reconcile your books every month, not only at the quarter end.
- Review supplier invoices before you claim input VAT on them.
- Prepare the return at least a week before the 28th-day deadline.
- Pay from the business account with the correct GIBAN reference.
- Update the FTA within 20 business days of any change to your licence or details.
How NAMAA can help
We keep your books current, review input VAT before it is claimed and prepare your quarterly returns ahead of the deadline. If an older return needs correcting, we prepare the voluntary disclosure and calculate the penalty before you submit. VAT return filing is included in every monthly package.
Frequently asked questions
What is the penalty for late VAT payment in the UAE in 2026?
Since 14 April 2026, unpaid VAT attracts a penalty of 14% a year, calculated monthly, until it is paid.
Is there a penalty for an incorrect VAT return?
AED 500 for a first error and AED 2,000 for a repeat, unless the return is corrected before the payment due date.
How much does a VAT voluntary disclosure cost?
1% of the tax difference for each month since the original due date. If the FTA has already notified an audit, a fixed 15% applies as well.
See our VAT service or book a consultation.
Sources
- Al Tamimi: UAE tax penalty reform effective 14 April 2026
- Middle East Briefing: UAE reduces tax penalties
- Federal Tax Authority
Checked 19 October 2026. This guide is general information, not advice for your specific situation.