The UAE's Cabinet Decision No. 129 of 2025 shifts to a compliance-focused tax penalty model, effective April 2026. Key changes include replacing punitive late payment penalties with a 14% annual non-compounding rate, reducing fixed penalties on FTA-discovered errors to 15%, and modifying voluntary disclosures to 1% monthly. Businesses must reassess tax strategies accordingly.
UAE Unveils Comprehensive Reform of Tax Penalty System
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Author: Ema Stamenković
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Content accuracy validation date:
13.11.2025
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UAE introduces pro-taxpayer administrative penalty reform via Cabinet Decision No. 129 of 2025, effective 14 April 2026, shifting from punitive to compliance-focused model.
Main Changes:
- Late payment penalty (Cl. 9, 14): Abolishes 2% initial + 4% monthly (max 300%); replaces with non-compounding 14% per annum (~167%/month) on unsettled amount from day after due date. Applies to unpaid tax and RCM errors.
- Voluntary Disclosures (VD) (Cl. 11): Replaces yearly brackets (5–40%) with 1% per month on tax difference from original due date.
- FTA-discovered errors (Cl. 12): Fixed penalty slashed from 50% to 15% + 1% monthly (was 4%) on tax difference.
- Encourages rapid correction and lowers non-compliance risk.
Businesses must immediately review tax strategies and provisions.
Table: Old vs. New Penalties (AED):
| Issue / Clause | Old (CD 49/2021) | New (CD 129/2025) | Difference |
|
(Table 1, Cl. 1) Failure to keep records |
10,000 (first); 20,000 (repeat) |
1,000 per violation; 20,000 if repeated within 24 months |
First: 10k → 1k per; Repeat clarified (24 months) |
| (Table 1, Cl. 2) Failure to submit records in Arabic |
20,000 |
5,000 |
Reduced 75% |
| (Table 1, Cl. 5) Failure to inform of amendment need |
5,000 (first); 10,000 (repeat) |
1,000 per violation; 5,000 if repeated within 24 months |
First: 5k → 1k; Repeat: 10k → 5k + 24-month rule |
| (Table 1, Cl. 6) Legal rep fails to inform of appointment | 10,000 |
1,000 |
Reduced 90% |
| (Table 1, Cl. 9) Failure to pay tax | 2% day after due; +4% monthly on unsettled |
14% p.a. per month/part on unsettled from day after due |
Entire model replaced |
| (Table 1, Cl. 10) Incorrect Tax Return (Fixed) | 1,000 (first), 2,000 (repeat); or tax diff if < penalty (min 500) |
Flat 500; No penalty if VD with zero tax diff |
Flat 500; New safe harbor for non-tax VDs |
| (Table 1, Cl. 11) VD | 5% (Yr1), 10% (Yr2), 20% (Yr3), 30% (Yr4), 40% (after) |
1% per month/part from due date to VD |
Yearly → monthly accrual |
| (Table 1, Cl. 12) No VD before audit | 50% + 4%/month on unpaid from due to assessment |
15% + 1%/month on tax diff from due to VD/assessment |
50% → 15%; 4% → 1% monthly |
| (Table 1, Cl. 14) RCM tax miscalculation |
Same as Cl. 9 |
14% p.a. per month/part |
Same as Cl. 9 change |
PDF Cabinet Decision No. 40 of 2017 and its Amendments: https://mof.gov.ae/wp-content/uploads/2025/11/Cabinet-Decision-No.-40-of-2017-and-its-amendments.pdf
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