UAE Federal Tax Authority Enhances Compliance with Expanded Penalty Waiver Initiatives 

The UAE government continues to reinforce its commitment to economic resilience and regulatory compliance through strategic penalty relief measures. Building on the recent corporate tax penalty waiver, the Federal Tax Authority (FTA) has expanded its efforts to include Value Added Tax (VAT) penalty exemptions and installment plans, offering businesses and individuals a structured pathway to rectify non-compliance. This dual initiative underscores the UAE’s adaptive governance model, designed to alleviate financial burdens while promoting adherence to tax laws. 

Corporate Tax Penalty Waiver: Key Updates 

Effective May 7, 2025, the FTA implemented a Cabinet Decision allowing eligible corporate taxpayers to waive penalties for delayed registration or tax return submissions. Key criteria include: 

• Reduced Submission Window: Tax returns or annual declarations must be filed within 7 months (down from 9 months) after the first tax period concludes. 

• Refund Mechanism: Penalties already paid by compliant entities will be reimbursed to their FTA accounts. 

• Broad Eligibility: Applies to registered and unregistered entities, provided violations are rectified within stipulated timelines.

• FTA Director-General Khalid Ali Al Bustani reported 543,000 corporate tax registrations in Q1 2025, reflecting robust compliance momentum. Businesses are urged to utilize the EmaraTax portal to meet deadlines and avoid penalties. 

VAT Penalty Waiver Framework: Eligibility and Processes 

Parallel to corporate tax relief, the FTA offers VAT penalty waivers under Cabinet Decree No. 105 (2021), effective March 1, 2022. This framework targets businesses facing administrative fines for VAT non-compliance, provided violations were unintentional and rectified. 

Conditions for VAT Penalty Relief 

Waiver Eligibility:

 Violations must not involve tax evasion. Requests must be submitted within FTA-specified timelines. Valid excuses include severe illness/death of key personnel, government-imposed restrictions, or technical failures in FTA systems. 

Installment Plans: 

Available for penalties exceeding AED 50,000. Requires full settlement of owed taxes before application. Defaulting on installments permits the FTA to revoke the plan. 

Application Requirements :

• Tax registration number, penalty details, and justification for relief. 

• Proof of rectified violations and commitment to future compliance. 

• Applications must be submitted via authorized representatives, including registered tax agents or legal advisors. 

Processing Timeline 

• 40 working days for initial review. 

• Decision communicated within 20 additional days; absence of response implies rejection. 

• Refunds processed within 90 days post-approval. 

Mechanisms for Contesting Penalties 

Businesses may challenge penalties through: 

1. Reconsideration Requests: Submitted within 20 days of penalty notice, requiring legal and factual justification. 

1. Tax Dispute Resolution Committee (TDRC) Appeals: Filed if reconsideration is denied, within 20 days of FTA’s decision. 

1. Reduction/Exemption Applications: Under Cabinet Decision No. 51 (2021), for unintentional errors with documented evidence. 

Strategic Impact and Compliance Support 

These initiatives align with the UAE’s broader goals to: 

• Enhance Liquidity: Freeing capital for SMEs via penalty relief. 

• Boost Transparency: Streamlined processes reduce administrative bottlenecks. 

• Encourage Voluntary Compliance: Proactive engagement through awareness campaigns and digital tools like EmaraTax. 

Al Bustani emphasized, “Compliance is pivotal to economic growth. Our evolving tax ecosystem prioritizes flexibility to address sector-specific challenges.” 

Role of Tax Consultants 

Professional audit firms assist businesses in navigating complex waiver applications, ensuring adherence to FTA guidelines.

Services include: 

• Document preparation and submission. 

• Legal representation in disputes. 

• Strategic advice to prevent recurring violations. 

Consequences of Non-Compliance 

Failure to address penalties may result in: 

• Accrued Interest: 2% monthly charges on overdue amounts. 

• Tax Audits: Increased scrutiny of financial records. 

• Legal Action: Property seizures or court proceedings in severe cases. 

FAQs: Clarifying Key Concerns 

Q: How do I apply for a VAT penalty waiver? 
A: Submit requests via the FTA portal, authorized tax agents, or legal representatives. Include proof of extenuating circumstances. 

Q: What is the penalty for late VAT payments? 
A: A 2% monthly charge on overdue amounts, escalating after 30 days. 

Q: Can insolvent businesses qualify for waivers? 
A: Yes, if insolvency was unintentional and taxes were paid pre-crisis. 

Conclusion 

The UAE’s dual penalty waiver initiatives exemplify its balanced approach to fostering compliance and economic growth. By leveraging digital platforms like EmaraTax and engaging tax professionals, businesses can mitigate liabilities and align with regulatory expectations. These measures not only alleviate immediate financial pressures but also reinforce the UAE’s reputation as a business-friendly hub. 

Why Consult DPTC for UAE Tax Compliance?

Navigating the UAE’s evolving tax regulations, from corporate tax waivers to VAT penalty exemptions, requires specialized expertise to avoid costly errors. DPTC, a leading taxation consultancy and transfer pricing firm, works with a panel of auditing experts in Dubai and offers tailored guidance to ensure compliance with FTA guidelines while maximizing cost-saving opportunities. Our team of tax associates and auditors provides:

• End-to-End Support: Streamlined applications for penalty waivers, installment plans, or disputes.

• Proactive Compliance: Strategic advice to align your business with UAE’s tax laws and avoid future penalties.

For Tax Disputes: Our experts at cygalattorneys.com can help with representation before the Federal Tax Authority (FTA).

For personalized assistance with corporate tax, VAT, or penalty waiver processes, visit dptc.ae to explore our services or schedule a consultation. Act Now: Review your tax obligations, submit pending returns, and explore waiver options to avoid escalating penalties. 

Contact us today: bd@dptc.ae

📞   Call us: +971 0509434155