The FTA just made tax mistakes cheaper to fix. On 14 April 2026, Cabinet Decision No. 129 of 2025 took effect, cutting several administrative penalties for VAT, Corporate Tax, and Excise Tax violations across the board. Some fines dropped by 75%. If your business has been putting off a voluntary disclosure or sitting on an outdated tax record, the cost of sorting it out has fallen sharply.
TL;DR: The UAE reduced tax penalties from 14 April 2026. Late payment interest dropped to 14% per annum (non-compounding), voluntary disclosures now cost 1% per month instead of higher flat charges, and fines for record-keeping failures fell by up to 75%. The window to correct errors is open - but it closes once an FTA audit starts.
What Changed on 14 April 2026?
Cabinet Decision No. 129 of 2025 amended the penalty tables under the Tax Procedures Law, replacing parts of the original Cabinet Decision No. 40 of 2017 (FTA, 2026). The changes apply to VAT, Excise Tax, and Corporate Tax violations. The FTA described the amendments as a move to reduce the financial burden on taxpayers and support voluntary compliance (Zawya, 2026).
Here are the penalties that changed most:
| Violation | Old penalty | New penalty |
|---|---|---|
| Failure to submit records in Arabic | AED 20,000 | AED 5,000 |
| Not updating tax records | AED 5,000 first / AED 10,000 repeat | AED 1,000 / AED 5,000 within 24 months |
| Not notifying legal representative appointment | AED 10,000 | AED 1,000 |
| Incorrect tax return filed | AED 1,000 first / AED 2,000 repeat | AED 500 / AED 2,000 within 24 months |
The incorrect return penalty now comes with a waiver clause - if you correct the return before the original due date, the penalty can be waived entirely (GFLO Law, 2026).
How Much Does Late Payment Cost Now?
The old late payment structure charged 2% of unpaid tax immediately on the due date, then 4% per month after that - with no cap. That could spiral fast. A business sitting on an AED 200,000 liability for a year could face penalties exceeding the original tax bill.
The new rate is 14% per annum, calculated monthly and non-compounding (VATupdate, 2026). On that same AED 200,000 liability, the annual penalty is now AED 28,000 - down from what could have exceeded AED 200,000 under the old regime. That alone could save a struggling business more than the original tax bill.
In our experience, the old structure hit smaller businesses hardest. A company that missed a single VAT return deadline could watch penalties compound beyond the underlying tax within months. The 14% flat rate makes the cost predictable.
Voluntary Disclosures Got Cheaper - But There Is a Deadline
Voluntary disclosure penalties dropped to 1% per month on the tax difference, calculated from the original filing deadline until the date you file the disclosure (IR Global, 2026). That is the lowest rate the FTA has offered for self-correction. If your business identifies an AED 100,000 underpayment six months after the deadline, the penalty is AED 6,000.
But there is a catch. If the FTA sends you an audit notification first, the voluntary disclosure window for those tax periods closes. At that point, the penalty jumps to 15% of the underpaid amount - AED 15,000 on the same error - plus late payment interest on top (GFLO Law, 2026).
What we see most often is businesses that know something is wrong in a previous return but delay correcting it because the old penalty felt punitive. Under the new rules, waiting is the expensive option. The monthly rate keeps ticking, and once an audit notice arrives, the discounted route disappears.
Voluntary disclosures must be submitted within five years from the end of the relevant tax period. After that, the right to correct and claim the lower penalty rate lapses.
Penalties That Did Not Change
Not everything changed. The Excise Tax penalty table (Table 2) and the VAT-specific penalty table (Table 3) under Cabinet Decision No. 40 of 2017 remain unchanged (PwC, 2025). The reductions apply only to Table 1 - penalties under the Tax Procedures Law.
Late Corporate Tax return filing penalties also remain at AED 500 per month for the first twelve months, rising to AED 1,000 per month from the thirteenth month onward. And the AED 10,000 late registration penalty under Cabinet Decision No. 10 of 2024 is still in force - though it can be waived if you file your first Corporate Tax return within seven months of your first tax period end.
One question clients always ask is whether these reduced penalties apply retroactively to fines already issued. The decision is silent on retrospective application, so penalties assessed before 14 April 2026 are unlikely to be revised downward.
What Should Your Business Do Now?
Three steps worth taking this week.
First, review your tax records for accuracy. The penalty for outdated records dropped from AED 5,000 to AED 1,000 - but only if you fix them before the FTA flags it. Check your registered details match your current trading name, address, and authorised signatories.
Second, file any outstanding voluntary disclosures now. The 1% monthly rate is running from the original due date regardless of when you discover the error. Every month you wait adds another percentage point. If you are unsure whether a previous return contained errors, a review of your VAT or Corporate Tax filings will surface any discrepancies.
Third, calendar your upcoming deadlines. The FTA is running risk-based audits more aggressively in 2026 (Alvarez & Marsal, 2026). Once an audit notification lands, the cheaper voluntary disclosure route is gone. Staying ahead of your filing schedule is the simplest way to keep penalties at zero.
Frequently Asked Questions
Do the reduced penalties apply to Corporate Tax as well as VAT?
Yes. Cabinet Decision No. 129 amends Table 1 under the Tax Procedures Law, which covers penalties for all tax types administered by the FTA - including Corporate Tax, VAT, and Excise Tax. The penalty amounts in Table 1 are the same regardless of which tax the violation relates to.
Can I get a refund on penalties paid before 14 April 2026?
The decision does not include retroactive provisions. Penalties assessed and paid before the effective date are governed by the rates that were in force at the time of the violation. If you believe a penalty was incorrectly assessed, you can still submit a reconsideration request to the FTA within 40 business days of the penalty notice.
What if the FTA has already started auditing my business?
Once you receive an audit notification, you cannot submit a voluntary disclosure for the tax periods under review at the reduced 1% monthly rate. Any discrepancies found during the audit attract a 15% penalty on the underpaid tax, plus late payment interest at 14% per annum. If you suspect issues in periods not covered by the audit notice, you can still file voluntary disclosures for those separately.
Is the 14% late payment rate better or worse than before?
Significantly better for most businesses. The old structure charged 2% immediately plus 4% per month - which could exceed 50% of the liability within a year. The new 14% per annum rate is non-compounding and predictable. On an AED 100,000 liability unpaid for six months, the old penalty could have reached AED 26,000 or more. Under the new rate, it is approximately AED 7,000.
If your business has outstanding errors in previous VAT or Corporate Tax returns, the reduced penalty window is open now - but it closes the moment an FTA audit notice arrives. Get in touch and we will review your filings, flag any discrepancies, and handle the voluntary disclosure process before the rates work against you.