Accounting Firm in Dubai — Tax, VAT & Audit Services UAE | Al Burhan
VAT Penalties in the UAE: The Complete List and How to Avoid Them
UAE VAT penalties are automatic, they compound, and most of them are avoidable with basic discipline. Here is the complete picture, and what to do if one has already landed.
The main VAT penalties
- Late registration: AED 10,000 if you pass the AED 375,000 threshold and do not register in time.
- Late return filing: AED 1,000 for the first offence, AED 2,000 for a repeat within 24 months. This applies even if no tax is due.
- Late payment: 14% per annum on the unpaid tax, calculated daily (approximately 1.167% per month), from the day after the due date until the tax is settled. This replaces the previous tiered structure, effective 14 April 2026 under Cabinet Decision No. 129 of 2025.
- Record-keeping failures: AED 10,000 for a first offence and higher on repeat, for not keeping the required records for at least five years.
- Incorrect returns: fixed penalties plus percentage-based penalties on the underpaid tax, scaled by when and how the error is corrected.
- Late deregistration: penalties also apply for failing to deregister when required.
Regulatory Update, Effective 14 April 2026
Cabinet Decision No. 129 of 2025 replaced the UAE’s previous tiered late-payment penalty (2% immediate, plus 4% after seven days, plus 1% per day, capped at 300%) with a single flat rate of 14% per annum, calculated daily (approximately 1.167% per month), on the unpaid tax, with no cap. This applies to VAT, Corporate Tax, and Excise Tax liabilities alike.
If your business has an outstanding VAT, CT, or Excise Tax balance, this changes your actual exposure. In most cases it now works out lower than under the old compounding structure, but it accrues indefinitely with no ceiling, so early settlement still matters.
The late payment trap
The late payment percentage is the one that hurts. A business that files on time but pays late can watch a manageable VAT bill grow every day it stays unpaid, because the 14% annual rate (about 1.167% a month) keeps accruing with no cap. If cash is tight, filing on time and engaging the FTA early is always better than silence.
Voluntary disclosure: the discount for honesty
If you find an error in a filed return, a voluntary disclosure (Form 211) corrects it. The penalties for a disclosed error are substantially lower than for one the FTA finds first, and they increase the longer you wait. In practice this means an annual VAT health check pays for itself: find the error, disclose it, close the risk.
How to stay penalty-free
- Register, and deregister, on time as thresholds change.
- File every return by the 28th of the month after each tax period, even nil returns.
- Pay with the return, not after it.
- Keep VAT records for five years, coded correctly from day one.
- Review your VAT position once a year before the FTA ever asks.
Al Burhan is a registered FTA tax agent. We handle VAT registration, filing, health checks and voluntary disclosures, and we can represent your business directly before the FTA, including penalty reconsideration requests. Book a free consultation if a penalty has landed or you want to make sure one never does.
