The UAE Federal Tax Authority has implemented notable changes in revising the administrative penalty structure under UAE VAT regulations as per Cabinet Decision No. 129 of 2025. The revised UAE VAT penalties are effective from 14th April, 2026, covering delays in registration, late return filing, and improper documentation. This reform highlights the UAE government’s dedication to building a robust compliance framework while creating a transparent and business-friendly ecosystem.
This is the perfect time for businesses to optimize their compliance strategy before the new VAT penalty structure takes effect in the UAE. With Jaxa Chartered Accountants, the leading VAT consulting firm in the UAE, they help decode the 2026 VAT penalty changes and offer expert guidance for businesses of all sizes to stay compliant while improving their tax outcomes.
New VAT Penalty Framework in the UAE: Tier-Wise Breakdown
Let us explore the breakdown of the VAT penalty tier under the latest UAE FTA framework. These penalty updates are based on the latest 2025 UAE FTA framework and remain in force throughout 2026 unless a new amendment has been announced.
| Sl. No. | Violation | Penalty until 13th April 2026 | Penalty until 14th April 2026 | Key amendment |
| 1 | Failure to pay VAT on time | 2% of the unpaid tax is charged after the due date.
4% monthly penalty after 30 days till the dues are settled. |
A 14% monthly penalty is charged until the outstanding tax is settled. | The late penalty payment aligns with the late penalty rules of the UAE Corporate tax rules, with the due date calculation for the Voluntary Disclosure remaining unaffected. |
| 2 |
Submitting an incorrect tax return |
AED 1,000 first time; AED 2,000 repetition |
AED 500, the penalty will be Zero if the tax registrant rectifies before the filing deadline or submits a Voluntary Disclosure with no change in tax. |
Penalty waived for timely corrections |
|
3 |
Submission of Voluntary Disclosure by the taxpayer due to an error in the tax return or refund application | Voluntary disclosure penalties escalate from 5% to 40% based on timing, starting at 5% in 1st year and rising through 10%, 20%, 30%, up to 40% after four years. | A 1% monthly penalty on tax difference
from the day after the tax return or refund due date up to the date the VD is submitted. |
The slab system was replaced with a monthly calculation. |
| 4 |
Failure to submit VD before FTA audit notification |
A 50% penalty is charged for an error. A penalty of 4% charged monthly on unpaid tax or incorrect refund until the authority issues a tax Assessment
|
A fixed penalty of 15% of the tax difference. AND 1% monthly penalty on the tax difference applied from the day after the due date until VD submission or up to the Tax Assessment date if a VD is not filed. |
The fixed penalty has been lowered to 15% and the monthly penalty has been reduced to 1%. The FTA specifies the calculation timeline when VD is filed after receiving the Tax Assessment notice. |
|
5
|
Failure to submit tax-related documents in Arabic upon request | AED 20000 | AED 5000 | Penalty lowered |
| 6 | Failure to update tax record information with FTA | AED 5,000 for the first violation
AED 10,000 for subsequent violations |
AED 1,000 for each violation
AED 5,000 for repeat violations within 24 months of the last one |
First-time penalty reduced, and penalties now assessed per individual violation |
| 7 | Failure to notify the FTA about the appointment of a Legal Representative | AED 10,000 | AED 1,000 | Substantial reduction in penalty |
| 8 | Failure to calculate tax on behalf of another person as mandated | 2% of unpaid tax immediately after the due date + 4% monthly after 1 month | 14% per annum monthly penalty on unsettled tax from the day after the due date | Revised the monthly penalty, updated the calculation aligned it with late payment penalties. |
Key Insights: Early correction of errors can help businesses reduce penalty exposure. Correct mistakes before a UAE FTA notice is issued. With JAXA Auditors by your side, proactive compliance becomes hassle-free.
UAE E-Invoicing 2026: A New Era of Strict Penalties
The UAE is enforcing mandatory E-invoicing for all businesses with the following deadlines:
1. Business with Turnover below AED 50 million:
a)Appoint ASP by March 31, 2027
b)Implement eInvoicing by July 01, 2027
2. Business with a Turnover of AED 50 million or more
a) Appoint ASP by July 31, 2026
b)Implement eInvoicing by January 01, 2027
Note: B2C transactions are currently excluded from the eInvoicing purview.
Ensure compliance must be guaranteed in advance. This move adds stricter penalties for issuing invoices that fail the structured electronic format requirements.
- Heightened Compliance Risk: Issuing tax invoices or credit notes without following the required electronic specifications will attract fines.
- Violation: Non-compliance with the prescribed electronic format and issuance procedures.
- Penalties:
- Failure to implement eInvoicing or appoint an ASP – AED 5,000/- per month of delay
- Failure to send an e-invoice – AED 100/ per non-sent e-invoice (maximum of AED 5,000/- per month)
Your 2026 UAE VAT Compliance Checklist
- Upgrade for e-Invoicing: Ensure your ERP is aligned with the UAE’s structured invoice standards.
- Review Data Accuracy: Keep accurate records to avoid repeated penalties.
- Consult experts: Partner with a certified FTA tax agent in the UAE and the best VAT consultant in the UAE, such as Jaxa Chartered Accountants, to help businesses stay compliant and audit-ready.
- Stay ahead of every UAE FTA audit with expert UAE VAT and Corporate Tax health checks.
- Achieve error-free filings and reduce compliance risks effortlessly.
- Receive timely alerts on UAE VAT, Corporate Tax, and regulatory updates.
- Keep your business audit-ready 24/7 with Jaxa’s guidance.
- Turn compliance into confidence with a trusted UAE FTA tax agent.
Master the UAE 2025-2026 VAT and Corporate Tax framework. With stricter enforcement and tighter compliance rules, early preparation and proactive management are the best ways to avoid penalties.
Partner with Jaxa Chartered Accountants, the leading accounting and auditing firm in the UAE, to manage evolving tax laws. Our certified team offers corporate tax services, VAT services, accounting & bookkeeping, auditing, and FTA representation, ensuring your business stays compliant and audit-ready at all times.
Protect Your Business from UAE VAT & Tax Penalties – Contact the Jaxa Team Now!
Reach us on WhatsApp