The UAE Ministry of Finance has issued Cabinet Decision No. 129 of 2025, introducing significant reforms to administrative penalties across VAT, Excise Tax, and Corporate Tax. These changes — effective from 14 April 2026 — aim to simplify the compliance landscape, reduce unnecessary financial burdens, and make enforcement more transparent and business-friendly.

As a trusted audit and tax advisory firm in the UAE, Swenta breaks down the updated framework to help businesses navigate the new penalty rules confidently and avoid unintended non-compliance.

🗓 Effective Dates You Need to Know

1. New Penalty Rules

• Applicable from 14 April 2026

2. Existing Penalties (Cabinet Decision No. 108 of 2021)

• Continue until 13 April 2026

Businesses operating in the UAE must be prepared for a smooth transition. At Swenta, we recommend reviewing internal tax controls well before April 2026 to avoid disruptions.

🔍 Why the Penalty Framework Was Revised

The updated penalties are designed to:

• Harmonize the rules across three major taxes

• Encourage timely compliance

• Reduce financial strain on businesses

• Offer more proportional, fair, and predictable enforcement

• Establish a unified structure aligned with global best practices

These changes reflect the UAE’s commitment to enhancing transparency and fostering a supportive regulatory environment for investors and companies.

📌 Key Highlights of the New Penalty System (Explained in Detail)

1. Standardized Penalties Across VAT, Excise & Corporate Tax

Instead of separate structures for each tax, penalties are now aligned.
This reduces confusion and makes compliance easier — especially for companies handling multiple tax types.
Swenta has seen many businesses struggle with inconsistent penalty rules, making this a welcome improvement.

2. Significant Reduction in Fines for Common Compliance Lapses

Revised fines now apply to:

• Record-keeping lapses

• Missing Arabic records

• Failure to maintain tax documentation

• Delays in notifying changes in legal representatives

This shift removes the heavy financial burden that earlier penalties imposed, especially on SMEs.

3. Late Payment Penalties: Now Monthly at 14% Per Annum

The old system had:

• A high cumulative monthly penalty rate

• A maximum cap of 300%

This cap has now been removed but replaced with a more reasonable 14% per annum, calculated monthly.

This encourages timely payments without overwhelming businesses with excessively high fines.

4. Move Away from Heavy Fixed Fines

The penalty model now uses:

• Monthly and

• Annual percentage rates

Rather than large one-time fines.
This makes penalties proportionate to the nature and size of the issue — a more balanced enforcement approach.

5. Incorrect Tax Return Penalties Simplified to AED 500

Two big advantages under the new rule:

1. Penalty is a flat AED 500

2. No penalty applies if:

   • The error is corrected before the due date

   • The error doesn’t change the tax liability

This encourages taxpayers to self-correct errors early — something Swenta always advices clients to prioritize.

6. Voluntary Disclosure (VD) Penalty Set at 1% Per Month

Earlier VD penalties were higher and more complex.

Now, it is simply:

• 1% per month

• Calculated on the tax difference

This makes the system more predictable and rewards timely self-correction.
Swenta strongly recommends reviewing past filings before April 2026 to ensure no discrepancies carry forward.

7. Clearer Conditions for Repeat Offences

Repeat violations within a 24-month period now follow clearer guidelines.

This transparency helps businesses understand their risk profile and maintain cleaner compliance records.

8. A More Transparent and Proportionate Enforcement Approach

Overall, the penalty system now focuses on:

• Fairness

• Clarity

• Business-friendliness

• Encouraging compliance rather than punishing

Swenta believes this is one of the most positive reforms released in recent years for UAE taxpayers.

What UAE Businesses Should Do Next 

To prepare for the 2026 transition:

✔ Conduct a tax compliance health check

Swenta’s audit & tax teams can review VAT, Excise, and Corporate Tax processes.

✔ Update accounting and ERP systems

Many businesses need system updates to align with new penalty calculations.

✔ Train internal teams

Finance, compliance, and tax teams must understand the new structure.

✔ Review voluntary disclosure opportunities

Before penalties change in April 2026, correcting old errors strategically may save significant fines.

✔ Maintain better documentation

Especially Arabic records and legal representative updates — both now monitored more closely.