The UAE has announced a significant update to its tax-administrative penalties regime pursuant to Cabinet Decision No. 129 of 2025, which was issued on 9 October 2025 and published on the Federal Tax Authority’s website on 11 November 2025. The amendments modify the long-standing framework set under Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE and will come into force on 14 April 2026.
This reform is part of a broader effort to enhance proportionality, clarity, and compliance across the UAE’s maturing tax landscape, particularly for Value Added Tax (VAT) and excise taxpayers.
A More Measured Penalty Structure
The revised regime introduces a clearer, tiered penalty system that distinguishes between first-time and repeat violations. In many cases, the penalty amounts have been reduced with lower penalties imposed for an initial violation of non-compliance.
For example, under the new framework the penalty for certain first-time administrative violations can now be as low as AED 500, with a repeat violation rising to AED 2,000—a shift that reflects a more proportionate approach to enforcement.
The reform also aligns penalty triggers more closely with the nature and severity of each breach, moving away from earlier one-size-fits-all structures. This approach is particularly relevant for common compliance gaps, such as late filings, the submission of incorrect information, or failures in maintaining proper tax records, documentation and invoices in the prescribed (including where information must be available in Arabic upon request).
Stronger Push Toward Voluntary Compliance
A core theme of Cabinet Decision No. 129 of 2025 is encouraging early correction and proactive compliance. The revised penalties framework reinforces the concept that taxpayers who voluntarily regularise their position and cooperate with the FTA should be treated more favourably than those who wait until an audit or assessment is initiated. In practical terms, taxpayers are effectively afforded a grace period until April 2026 to review and strengthen their internal processes, registrations, and filing protocols before the new rules take effect. This includes reviewing when and how voluntary disclosures are made and ensuring that any underpayments or errors are identified and addressed in a timely manner.
This reform also reflects the UAE’s shift towards a more modern and integrated administrative penalty framework, designed to support both taxpayers and tax authority in managing tax obligations efficiently.
What This Means for Businesses
The impact of the reform will be felt across sectors, especially among VAT-registered businesses and entities subject to excise tax. Key practical implications include:
- Reduced exposure for minor infractions
Lower penalties for initial violations remove disproportionate pressure on businesses, particularly SMEs, while still incentivising timely rectification.
- Greater emphasis on procedural accuracy
The reform underscores the importance of correct filings, accurate data, and timely responses to FTA notices—errors of form may now trigger streamlined penalties rather than more severe financial consequences.
- A window for internal review before April 2026
The transition period enables businesses to review their VAT and excise tax processes, validate registrations, and ensure compliance systems are aligned with the new penalty triggers by the April 2026 deadlines.
- No change to corporate tax penalties
The amendments apply only to VAT and excise obligations. Corporate tax administrative penalties remain governed by separate decisions and must continue to be assessed independently.
Strategic Considerations for Taxpayers
To prepare for the new regime, businesses should act now. Key steps include:
- Conducting a comprehensive compliance audit for VAT and excise processes
- Reviewing internal documentation controls, including invoicing and record-keeping
- Ensuring timely filings and monitoring FTA communications more closely
- Training finance and tax teams on the revised administrative penalty triggers
- Updating ERP and tax-technology systems to minimise manual errors
- Assessing exposure to repeat violations, which may carry higher penalties
Conclusion
Cabinet Decision No. 129 of 2025 signals a thoughtful recalibration of the UAE’s tax penalties framework. While the reform eases the burden for early and minor non-compliance, it also reinforces the need for procedural rigour and timely action. For businesses operating in the UAE, the period before 14 April 2026 is an opportunity—not merely to avoid penalties, but to ensure that tax governance, documentation, and reporting practices are robust enough to meet the expectations of a maturing regulatory environment.
Stay ahead of the Cabinet Decision No. 129 of 2025 and its impact on VAT and excise compliance. Our tax and corporate advisory team can provide practical guidance tailoured to your business. Please contact Suneer Kumar, Head of Corporate Practice at suneer@alsuwaidi.ae and Vida Grace Serrano, Corporate Senior Associate at Vida@alsuwaidi.ae or Mamdouh Tawfik Associate at m.tawfik@alsuwaidi.ae