UAE Unveils Comprehensive Reform of Tax Penalty System

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 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