The UAE Cabinet has approved Cabinet Decision No. 129 of 2025, introducing a revised and more business-friendly administrative penalty framework for violations of UAE tax laws. The decision, published on 10 November 2025, will take effect on 14 April 2026, giving businesses time to prepare for the new structure.

The reforms aim to promote voluntary compliance, enhance transparency, and harmonise penalty rules across VAT, Excise Tax, Corporate Tax, and the Tax Procedures Law.

Key Changes at a Glance

• Simplified penalty system: Replaces the previous compounding penalty model with a clear, non-compounding structure.

• Aligned definitions: Excise Tax, VAT, Due Tax, Tax Audit, and Tax Difference are now standardised across tax regulations.

• Lower penalties: Significant reductions for violations such as failure to submit information in Arabic, failure to update tax records, and incorrect tax returns.

• Revised late payment penalties: A new annualised 14% rate applies, accrued monthly on unpaid taxes.

• More lenient voluntary disclosure regime: A flat 1% monthly penalty applies until submission, with a 15% fixed penalty if filed after an audit notice.

• Enforcement of 14-day tax invoice rule: AED 2,500 penalty per detected case for failure to issue tax invoices or credit notes within the legally specified timeframe.

What Businesses Should Do Now

Companies should review internal processes, strengthen compliance controls, and prepare for the upcoming e-Invoicing obligations. The transition period until April 2026 offers an opportunity to update systems, correct errors voluntarily, and minimise potential exposure under the new regime.