FTA Practice Confirms the Split Approach to applying Late Tax Payment Penalties after the recent Amendment

A follow-up to our article – “Applying the New Late-Payment Penalty to Pre-Effective Date VAT: Immediate Effect or Retroactivity?”

In short: Where VAT fell due before 14 April 2026, the date Cabinet Decision No. 129 of 2025 came into force, and is still unpaid, the FTA charges the old penalty rate up to that date and the new rate under the said Cabinet Decision from it.

The question we left open

In June we asked which penalty rate applies where VAT fell due under the old regime but is still unpaid after new Cabinet Decision No. 129 of 2025 took effect on 14 April 2026.

The Cabinet Decision contains no transitional provision, and the FTA has also issued no clarification. In light of the same, we set out three possible answers:

• The split approach — the old rate up to 14 April 2026, the new rate from it.
• The procedural approach — the new rate applies to the whole period, because the assessment came after the change.
• Complete exclusion — the old rate runs to the end, whenever the assessment is issued.

We concluded that the real contest was between the first two. We now confirm that the FTA applies the first.

What a Company’s EmaraTax account shows

The Company had outstanding VAT liability which became due in early 2025. Its Returns was corrected by voluntary disclosure. The tax remains unpaid and so late-payment penalties have been posted to its EmaraTax account month after month, before and after the new rules came in.

The pattern is clear. Every monthly posting up to and including April 2026 is at the old 4% rate. The first posting after that is at the new 14% per annum, charged monthly. Every posting since has stayed there.

This is the split approach we previously discussed in our article.

Two things worth noting

The base does not move. Every posting, before and after the change, is worked out on the same outstanding tax. The FTA did not recalculate the amount owed, and it did not go back and redo the earlier postings. Only the rate on future months changed. That matters constitutionally. Nothing that had already crystallised under the old rules was disturbed, which is what keeps the treatment clear of the non-retroactivity principle.

The cut-off is your accrual date, not 14 April. The last posting before the change fell in early April and was charged at 4% in full, even though the month it covers runs past 14 April. There is no apportionment within a month. So the real dividing line is the first monthly accrual date on or after 14 April 2026. That date differs from taxpayer to taxpayer.

What this rules out

Complete exclusion previously discussed is out. The old rate did not survive the effective date, even for a liability that had arisen well before it.

The procedural approach, also previously discussed, is out too. On that reading the assessment date governs, so a penalty quantified after 14 April 2026 would be calculated at the new rate for the whole period of non-payment. That did not happen. The earlier postings stand at the old rates, untouched. The FTA has treated the accrual period as decisive, not the date of assessment.

How far this takes one

This is one taxpayer’s account. It is not a published clarification and it is not a court ruling. It also does not bind the FTA.

What it does give one is a working assumption, based on FTA’s current practise. For any pre-14 April 2026 liability still outstanding, one can determine the penalty exposure by applying the split calculation.

Disclaimer

The MoF’s press-release issued on 19 May 2023 states that “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA.

The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that we have tried my best to avoid. If you find any inaccuracies or errors, please let us know so that we can make corrections.