The 2026 penalty framework
An FTA penalty notice is the most expensive letter your business can receive. In 2026 the UAE overhauled its VAT penalty framework (Cabinet Decision No. 129 of 2025, in force since 14 April 2026): late payment now runs at 14% per annum, incorrect returns carry AED 500, and voluntary disclosure costs 1% per month. This guide puts every penalty in one table, explains what triggers each one, and covers the part most guides skip: how to appeal, reduce or waive a penalty before you pay it.
The essentials
Every amount below is current under the 2026 framework. Keep this page bookmarked.
| What went wrong | Penalty |
|---|---|
| Late VAT registration | AED 10,000 fixed |
| Late VAT return filing | AED 1,000 first time; AED 2,000 if repeated within 24 months |
| Late payment of VAT due | 14% per annum, for each month or part of a month from the day after the due date |
| Incorrect VAT return | AED 500 (none if corrected before the deadline, or disclosed with no tax difference) |
| Voluntary disclosure of an error | 1% per month on the tax difference, from the original due date |
| Error found by FTA audit first | 15% fixed on the tax difference, plus 1% per month |
| Failure to keep required records | AED 10,000; AED 20,000 on repetition within 24 months |
| Failure to update your FTA tax record | AED 1,000; AED 5,000 on repetition within 24 months |
| Late deregistration application | AED 1,000 per month, capped at AED 10,000 |
| Obstructing an FTA auditor | AED 20,000 |
Two things jump out of that table. First, the registration penalty is brutal relative to the offence: one missed deadline costs AED 10,000 flat. Second, the gap between disclosing and being caught is enormous. On a AED 50,000 shortfall sitting for six months, voluntary disclosure costs about AED 3,000. If the FTA finds it first, the same shortfall costs AED 10,500. The framework is designed to reward the businesses that come forward.
What changed
Cabinet Decision No. 129 of 2025 rewrote the penalty schedule and aligned VAT with the corporate tax framework.
The old compounding model (2% immediately, then 4%, then 1% daily up to 300%) is gone. Late payment is now a straightforward 14% per annum, accrued monthly. Simpler to calculate, and for most businesses meaningfully lower than the old stack.
Submitting an incorrect return now carries a AED 500 penalty, and none at all if you correct it before the return deadline or disclose it with no resulting tax difference. The message is clear: fix mistakes fast and the system barely punishes you.
Voluntary disclosure now runs at a clean 1% per month on the tax difference, replacing a patchwork of older rates. It matches the corporate tax treatment, so one rule of thumb covers both taxes: disclose early, pay 1% a month, move on.
Fighting a penalty
Paying first and asking questions later is the most common mistake. Here is the order that actually works.
The cheaper way out
Found an error in a filed return? The rules give you a clear fork in the road:
Avoid these
You have 20 days from the end of the month in which you crossed the mandatory threshold. Miss it and the AED 10,000 lands automatically. Our threshold guide shows how the test actually works.
No sales does not mean no filing. Nil returns carry the same 28-day deadline and the same AED 1,000 late filing penalty. Set a recurring reminder for every period.
The return and the payment are two separate obligations with two separate penalties. A filed-but-unpaid return still accrues 14% per annum from the day after the due date.
The FTA can ask for five years of VAT records. If you cannot produce them, that is AED 10,000 for a first offence and AED 20,000 on repetition. Monthly bookkeeping is the boring cure.
New trade licence, new address, new activity, new authorised signatory: the FTA expects to be told. AED 1,000 a time, AED 5,000 on repetition, for pure admin forgetfulness.
Penalties do not pause while you think about it. The 1% monthly disclosure rate and the 15% audit surcharge both reward speed. Every week of delay has a price tag.
Stay clean
FAQs
AED 10,000, fixed. It applies whether you are a week late or a year late, and it sits on top of any VAT you should have collected since the date your registration obligation started. If you crossed the AED 375,000 threshold a while ago, talk to us before registering: the timing and the backdated VAT position both need handling.
Since 14 April 2026, late payment runs at 14% per annum, charged for each month or part of a month from the day after the due date. This replaced the old compounding model (2% immediately, then 4%, then 1% daily). On a AED 20,000 liability paid two months late, that is roughly AED 467 in penalties.
They can be challenged and, in the right circumstances, reduced. You can request reconsideration of a penalty through EmaraTax if you have reasonable grounds: an FTA error, a duplicate assessment, or a genuine reasonable cause with evidence. Separately, coming forward with a voluntary disclosure before the FTA starts an audit replaces the 15% audit surcharge with a 1% monthly rate. What you should not do is ignore the notice and hope it goes away.
A voluntary disclosure (Form VAT 211 on EmaraTax) is how you correct a filed VAT return. Errors with a tax impact of AED 10,000 or less can simply be fixed in your next return. Anything above that needs a formal disclosure, and the rule is 20 business days from discovering the error. Disclose early and you pay 1% per month on the difference; wait for the FTA to find it and you pay 15% fixed plus 1% per month.
You lose the voluntary rate. The schedule applies a 15% fixed penalty on the tax difference, plus 1% for each month or part of a month. On a AED 50,000 shortfall sitting for six months, that is AED 7,500 plus AED 3,000, or AED 10,500, versus AED 3,000 if you had disclosed it yourself. The maths is the FTA's way of rewarding honesty.
Yes. Nil returns are mandatory and the deadline is the same: within 28 days of the end of the tax period. A late nil return still draws the AED 1,000 late filing penalty, which is an expensive way to learn that no activity does not mean no filing.
Keep reading
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