VAT Penalty Waivers in UAE: Latest 2025 Updates & How to Qualify

Did you know that over 60% of UAE businesses facing VAT penalties don’t realize they could qualify for a waiver? With the Federal Tax Authority (FTA) introducing new relief measures in 2025, understanding penalty waivers could save your business thousands of dirhams.

The UAE’s VAT system has strict rules, but the FTA also offers flexibility for businesses struggling with compliance. Whether it’s late payments, incorrect filings, or registration delays, penalty waivers and instalment plans can provide relief, if you act fast.

This guide breaks down the latest 2025 waiver rules, how to calculate penalties, and step-by-step strategies to reduce or eliminate fines.

What Is a VAT Penalty Waiver in the UAE?

A VAT penalty waiver is when the FTA reduces or cancels fines for late payments, incorrect filings, or other violations. These waivers are not automatic—businesses must apply and prove they meet specific conditions.

Who Can Apply?

• Businesses facing genuine financial hardship (e.g., cash flow crises).
• Companies affected by unavoidable circumstances (e.g., natural disasters, sudden owner illness).
• Taxpayers who voluntarily disclose errors before an FTA audit 

Key 2025 Updates

1. Extended Waiver Window: The FTA now allows waiver requests within 40 days of penalty issuance (up from 20 days) 
2. Instalment Plans: Businesses with fines over AED 50,000 can pay in instalments (if not under audit)
3. Corporate Tax Link: Some VAT penalties may be waived if the company files its first corporate tax return within 7 months

Do you need Professional VAT Support?

Contact us to schedule a free consultation to learn how we can help you with VAT & Accounting Support for your business.

BOOK A FREE CONSULTATION

Common VAT Penalties & How to Calculate Them

1. VAT Late Payment Penalty UAE

• Immediate penalty: 2% of unpaid tax after the due date.
• After 7 days: +4% of the remaining amount.
• After 1 month: +1% daily (capped at 300%)

Example:

Scenario	Penalty
Unpaid VAT: AED 50,000	Day 1: AED 1,000 (2%)
Due date: May 28, 2025	Day 8: +AED 2,000 (4%)
Paid on: July 30, 2025	Day 30+: +AED 500/day (1%)
Total after 2 months: AED 8,500+

2. Incorrect VAT Return Penalties

• First offence: AED 3,000 + 5%–50% of underpaid tax (depending on disclosure timing)
• Repeat offence: AED 5,000 + higher percentages.

3. Late Registration/Deregistration

• Late VAT registration: AED 10,000
• Late deregistration: AED 1,000/month (max AED 10,000)

Looking for Professional Tax Consultant in Dubai ?

Click Here Now

How to Qualify for a VAT Penalty Waiver

Step 1: Check Eligibility

The FTA grants waivers for:
✔ Illness/death of key personnel.
✔ Government restrictions (e.g., sudden lockdowns).
✔ Technical errors (e.g., FTA portal crashes) 

Case Study: A Dubai trading firm avoided AED 15,000 in penalties by proving that their accountant’s sudden resignation caused late filings

Step 2: Submit a Waiver Request

1. Gather evidence: Medical reports, bank statements, or IT logs.
2. File via EmaraTax: Use the \”Penalty Reconsideration\” form.
3. Wait 40 days: FTA reviews requests within 40 working days

Step 3: Negotiate an Installment Plan

For large penalties (AED 50,000+):

• Apply for monthly payments (no interest).
• Stick to the plan, missing payments voids the agreement

1. Missing the 40-Day Deadline

Mistake: Waiting too long to apply.

• The FTA strictly enforces a 40-business-day window from the penalty notice date to submit a waiver request
• After this period, waivers are automatically denied—no exceptions.

Example:
A Dubai trading firm missed the deadline by 5 days and lost its chance to waive AED 15,000 in late-filing penalties

How to Avoid:

• Set calendar reminders as soon as you receive an FTA penalty notice.
• Submit your request within 30 days to allow processing time.

2. No Proof of a \”Reasonable Excuse\”

Mistake: Claiming financial hardship without evidence.

• The FTA only accepts waivers for proven unavoidable circumstances, such as:
  • Death/illness of a key employee (requires medical reports)
  • Government restrictions (e.g., sudden lockdowns—need official notices)
  • FTA system failures (requires IT logs or support tickets)

Rejected Case:
A restaurant claimed \”cash flow issues\” but had no bank statements to prove it waiver was denied

How to Avoid:

• Gather documented proof (medical records, bank statements, FTA error screenshots).
• Attach a signed letter from your auditor or legal advisor.

3. Tax Evasion or Intentional Non-Compliance

Mistake: Trying to waive penalties for deliberate fraud.

• The FTA never grants waivers for:
  • False invoices or underreported sales.
  • Intentional late filings to delay tax payments 
• If the FTA suspects fraud, you could face criminal charges beyond fines

Example:
A construction firm was caught hiding AED 500,000 in cash sales—its waiver request was rejected, and the owner faced legal action

How to Avoid

• Never misreport transactions.
• If you made errors, file a Voluntary Disclosure first (reduces penalties by up to 70%).

4. Repeated Violations (History of Non-Compliance)

Mistake: Applying after multiple penalties for the same issue.

• The FTA flags businesses with:
  • 3+ late filings in a year.
  • Repeat accounting errors (e.g., wrong VAT calculations)
• These cases are seen as negligence, not \”unavoidable\” mistakes.

Rejected Case:
A retail chain with 4 late VAT returns in 2024 was denied a waiver, despite blaming staff turnover 

How to Avoid:

• Fix root causes (e.g., automate filings with QuickBooks/Xero).
• Hire a VAT consultant to review processes.

Do you need Professional VAT Support?

Contact us to schedule a free consultation to learn how we can help you with VAT & Accounting Support for your business.

BOOK A FREE CONSULTATION

5. Late Voluntary Disclosures

Mistake: Disclosing errors after an FTA audit begins.

• Voluntary Disclosures (VDs) reduce penalties only if filed before an audit.
• If the FTA already flagged your mistake, waivers are much harder to get.

Penalty Difference:

Scenario	Penalty
VD filed before audit	5% of unpaid tax
VD filed after audit	50% of unpaid tax

How to Avoid:

• Conduct quarterly internal audits to catch errors early.
•  File VDs immediately upon discovering mistakes.

Dealing with VAT penalties? Let Beaufort Associates guide you to relief. Get in touch today!

FAQ: VAT Penalties & Waivers

1. How is VAT penalty interest calculated?

It’s 1% daily after 1 month, up to 300% of the unpaid tax.

2. Can I pay VAT penalties in installments?

Yes, for fines over AED 50,000. Apply via EmaraTax.

3. Do I pay VAT on penalty charges?

No penalties are separate from VAT dues.

4. What’s the fastest way to pay a VAT penalty?

Use EmaraTax or an FTA-approved bank transfer.

5. Can waived penalties be refunded?

Yes, refunds are processed within 90 days.

Need Help? Firms like Beaufort Associates Chartered Accountants specialize in penalty waivers. Book a free consultation to save thousands.

The information provided herein is for the general information of the user and is provided in good faith. We make no representation or provide warranty of any kind, express or implied, regarding the adequacy, suitability, validity, or completeness of the information. Our advice in regard to UAE corporate tax and value added tax is based on our understanding of the relevant laws and the regulations issued. We cannot be held responsible for new regulations and/or interpretation of existing regulations by the FTA that is not consistent with our advice. Under no circumstance shall we have any liability to any user of this information or to third parties for any loss or damage of any kind incurred as a result of the use or reliance of this information.