Value Added Tax penalties amended in the United Arab Emirates 

As part of Cabinet Decision No.49 of 2021, the United Arab Emirates (UAE) Cabinet has amended the rules concerning administrative penalties applicable to tax violations in the UAE. These changes are effective 60 days from the date of the issuance of this Decision, which was issued on 28 April 2021.

The original administrative penalties, which will be in effect up to the effective
date of the new penalties, are available in English here.

Summary of main changes

The new Cabinet Decision makes a number of changes to the Administrative Penalties regime. One of the most notable changes is the introduction of a
concessionary measure which may reduce the quantum of penalties imposed on some taxpayers. Below is a short overview of the amendments to the penalties for late payments of tax and errors in tax returns, tax assessments and refund applications. 

Late payment penalties

The late payment penalty applies to the late payment of tax (such as VAT or excise tax) in a submitted tax return, voluntary disclosure, or tax assessment.

The penalty for an unpaid amount of tax will now be imposed at a rate of 4% per month, where previously there was a 1% daily accruing rate on any tax amounts after one month, which quickly led to a very large penalty quantum being aggregated. 

Here is a quick comparison of how the late payment penalty is calculated on unpaid tax amounts under the original and new rules:

Penalty milestone
Original rule 
New rule 

On the first day the tax payment is late



On the seventh day following the deadline for payment



One calendar month following the deadline for payment

1% daily (with a limit of 300%)

4% monthly (with a limit of 300%)


Furthermore, in circumstances where a taxpayer is required to make an additional tax payment to the Federal Tax Authority (FTA) due to a voluntary disclosure or a tax assessment (e.g. issued by the FTA following a tax audit), the taxpayer will now have 20 business days to make this payment in order to avoid the application of the late payment penalty. This is a significant change from the application of the penalty in similar scenarios under the original rule, which would have applied from the date when the original tax return relating to unpaid tax was due.

Penalties for errors

A percentage-based penalty may be imposed in respect of any errors in submitted tax returns, tax assessments or refund applications. Under the new rules the amount of the penalty will depend on the timeframe in which the taxpayer notifies the FTA of the errors by way of a voluntary disclosure, after the due date of submission of the original relevant tax return, tax assessment or refund application.

The penalties will be incremental and range from 5% (if the error is disclosed within a year) to 40% (for disclosures after 4 years) and will be imposed on the difference between the tax that was calculated and the tax which should have been calculated in a submitted tax return, tax assessment or refund application. As such, the penalty may be imposed where, for example, a tax return submitted by a taxpayer incorrectly reports the tax that is due for payment to the FTA or which may be refunded to the person.

In contrast, where a person does not submit a voluntary disclosure in respect of an error before being notified of an audit, the person will be subject to a fixed 50% penalty on the amount of error. In addition, the taxpayer will be required to pay a 4% penalty for every month where there is unpaid tax due to the FTA (including any overclaimed refunds) from the date payment is due for the relevant tax period, up until the date of receipt of the tax assessment from the FTA. 

Reliefs for existing penalties

The Cabinet Decision also provides a relief for existing penalties, potentially allowing for the reduction of administrative penalties which have already been imposed under the original rules to 30% of the original penalty amounts.  

In order to benefit from the relief, the VAT registered taxpayer would need to meet certain conditions, including paying all the tax due and 30% of the total unpaid administrative penalties by 31 December 2021.

The relief appears to apply to penalties which are still unpaid to the FTA prior to the effective date of the Cabinet Decision.  As such, taxpayers who have already accounted to the FTA in respect of any imposed penalties are unlikely to be able to benefit from the relief. Taxpayers should look out for any guidance from the FTA on the procedures for implementing this relief.

Opportunities and risks 

Once the Cabinet Decision No. 49 of 2021 comes in effect, the substantial amendments to the administrative penalties regime will provide businesses with both new opportunities and risks.

Specifically, the new penalty structure encourages the early submission of voluntary discloses for errors by applying relatively low percentages of penalties for disclosures submitted closer to the due date of the relevant tax return. On the other hand, the penalties for cases where a business does not submit a voluntary disclosure are much more significant and continue to accumulate from the due date of the relevant tax return. Since greater penalties will apply where errors are discovered in the course of a tax audit (or disclosed after a taxpayer is notified of an impending audit) it is critical that businesses work
towards identifying such errors and reporting them to the FTA before it is
notified of any FTA audit.

In order to determine if a voluntary disclose is required, businesses should immediate commence a careful review their VAT position for previous periods for the purposes of identifying any errors – in particular, the periods where there were uncertainties relating to VAT treatments of supplies or recovery of expenses.

We note that where a business has already conducted such a health check before, it is prudent to repeat the exercise for any subsequent tax periods to ensure new errors have not been made. 

Furthermore, where a VAT-registered taxpayer has already been subject to penalties under the original administrative penalties regime, the taxpayer should consider whether it may benefit from the relief for existing penalties that allows to reduce the amounts of penalties which are still unpaid before the effective date of the Cabinet Decision. Businesses should carefully evaluate whether they meet the conditions for the relief, in order to take advantage of these concessions. Note that the amnesty does not apply where penalties have already been paid – although further guidance would be welcome whether this extends to penalties settled under the compulsory administrative procedures, such as penalties settled by taxpayers in order to be able to appeal FTA’s decisions to the Tax Disputes Resolution Committee and then the Courts.

Next steps

Businesses should now consider how the changes announced as part of the Cabinet Decision No. 49 of 2021 apply to them specifically.  We recommend that businesses should, as a matter of priority, speak to their tax advisers on conducting a comprehensive review of their tax affairs.

Deloitte has extensive experience in this area, and we would encourage
businesses to reach out to us to discuss how we can assist you with conducting
an effective and efficient health check exercise. 

Once a business is aware of any tax errors, it will need to consider which penalties may be applicable (e.g. penalties for the errors, late payment penalties, etc.) and the steps that should be taken to minimize the impact of the penalties. 

Finally, where a business is already subject to the penalties under the existing penalties regime, Deloitte may help to determine whether it is possible to mitigate and reduce the effects of these penalties. Taxpayers who are currently litigating tax matters should consider their position also.

In summary the new rules are welcome but are also more complicated in some
aspects. In addition, taxpayers should be careful to consider further guidance
published by the FTA, the date of effect of the changes and the full implications
of all the changes.

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