Tables 2 and 3 of Cabinet Decision No. 40 of 2017 — Excise Tax and VAT Administrative Penalties Explained in Full
Beyond the 15 Tax Procedures penalties in Table 1, Cabinet Decision No. 40 of 2017 contains two further penalty schedules: Table 2 for violations of Federal Decree-Law No. 7 of 2017 on Excise Tax, and Table 3 for violations of Federal Decree-Law No. 8 of 2017 on Value Added Tax. Table 3 was most recently amended by Cabinet Decision No. 129 of 2025 (effective 14 April 2026). This post covers all 9 penalties across these two tables.
Table 2 — Excise Tax Penalties (3 Violations)
Table 2, amended by Cabinet Decision No. 49 of 2021, came into effect on 1 October 2017. It covers violations specific to excise-taxable goods and the Designated Zone regime.
Excise Penalty 1 — Failure to Display Prices Inclusive of Excise Tax
Violation: The Taxable Person fails to display prices of excise goods inclusive of the applicable Excise Tax.
Penalty: AED 5,000 (fixed).
Note: This mirrors the equivalent VAT pricing obligation in Table 3. Retail outlets and importers of excise goods must ensure all displayed prices include the excise tax component — currently 50% for carbonated drinks and 100% for tobacco products and energy drinks.
Excise Penalty 2 — Non-Compliance in Designated Zone Transfer
Violation: Failure to comply with the conditions and procedures of transferring Excise Goods from one Designated Zone to another, and the mechanism of preserving, storing, and processing such Excise Goods.
Penalty: The higher of AED 50,000 or 50% of the Tax, if applicable, chargeable on the goods in relation to the violation.
Note: This is one of the highest-exposure penalties in the entire decision on a per-transaction basis. Given that excise tax rates on tobacco products reach 100%, a single shipment of excise goods moved between Designated Zones without proper documentation could trigger a penalty equal to the full value of the excise tax on those goods — potentially hundreds of thousands of dirhams on large consignments.
Excise Penalty 3 — Failure to Provide Price Lists to the FTA
Violation: The Taxable Person fails to provide the FTA with the price lists of the Excise Goods that it produces, imports, or sells.
Penalty:
- AED 5,000 for the first time.
- AED 10,000 for repetition.
Note: The FTA uses price lists to verify the declared retail selling price (RSP) used as the basis for excise tax calculation. Failure to submit updated price lists when prices change — not just at initial registration — can trigger this penalty repeatedly.
Table 3 — VAT Penalties (6 Violations) — As Amended by Cabinet Decision No. 129 of 2025
Table 3 came into effect on 1 January 2018 and was most recently updated by Cabinet Decision No. 129 of 2025. It covers violations specific to the VAT system.
VAT Penalty 1 — Failure to Display Prices Inclusive of VAT
Violation: The Taxable Person fails to display prices inclusive of VAT.
Penalty: AED 5,000 (fixed).
Note: Every price displayed to a consumer — on a shelf, in a menu, on a website — must include VAT. Displaying prices excluding VAT (even with a footnote) violates this requirement if the displayed price is what the customer sees first. B2B contexts have different obligations under the invoice rules.
VAT Penalty 2 — Failure to Notify FTA of Margin Scheme Application
Violation: The Taxable Person fails to notify the FTA of applying tax based on the Margin.
Penalty: AED 2,500 (fixed).
Note: The margin scheme applies to specific categories of second-hand goods. A taxable person applying the margin scheme without prior notification to the FTA applies VAT incorrectly — not just the AED 2,500 penalty, but also the risk of having VAT recalculated on the full selling price rather than the margin.
VAT Penalty 3 — Non-Compliance in Designated Zone for VAT Goods
Violation: Failure to comply with the required conditions and procedures related to keeping the Goods in a Designated Zone or moving them to another Designated Zone.
Penalty: The higher of AED 50,000 or 50% of the Tax, if applicable, chargeable on the goods in relation to the violation.
Note: The Designated Zone regime under UAE VAT treats certain free zones as outside the UAE for VAT purposes, enabling suspension of import VAT on goods stored there. Non-compliance with zone conditions collapses this suspension and triggers VAT on the full value of goods — plus this substantial penalty.
VAT Penalty 4 — Failure to Issue Tax Invoice Within Legally Specified Period
Violation: The Taxable Person fails to issue a Tax Invoice or the alternative document when making any supply, within the period legally specified.
Penalty: AED 2,500 for each detected case.
Note: The UAE VAT Executive Regulation specifies a 14-day window for issuing a tax invoice after the date of supply. Each individual supply for which no invoice is issued within 14 days is a separate "detected case" — creating aggregation risk for high-volume suppliers. A business that issues 100 late invoices detected in a single FTA audit faces AED 250,000 in penalties from this item alone.
VAT Penalty 5 — Failure to Issue Tax Credit Note Within Legally Specified Period
Violation: The Taxable Person fails to issue a Tax Credit Note or the alternative document within the period legally specified.
Penalty: AED 2,500 for each detected case.
Note: Tax Credit Notes must be issued when a supply is cancelled, the consideration is reduced, or goods are returned. The same 14-day window applies. The per-case penalty structure means that businesses with high volumes of returns or price adjustments are at significant risk if their credit note issuance process is not tightly controlled.
VAT Penalty 6 — Failure to Comply with Electronic Invoice/Credit Note Requirements
Violation: The Taxable Person fails to comply with the conditions and procedures regarding the issuance of a Tax Invoice and a Tax Credit Note electronically.
Penalty: AED 2,500 for each detected case.
Note: The UAE's e-invoicing requirements impose specific technical and procedural conditions on electronically-issued tax documents. Non-compliance with these conditions — even where the underlying commercial document exists — constitutes a separate violation from the failure to issue the document at all under item 4.
Cross-Table Summary — Tables 2 and 3
Quick Reference — Excise & VAT Penalties
- Excise Penalty 1 — No tax-inclusive price display: AED 5,000
- Excise Penalty 2 — Designated Zone transfer failure: AED 50,000 or 50% of tax (higher)
- Excise Penalty 3 — No price lists: AED 5,000 / AED 10,000 (repeat)
- VAT Penalty 1 — No VAT-inclusive price display: AED 5,000
- VAT Penalty 2 — No margin scheme notification: AED 2,500
- VAT Penalty 3 — Designated Zone conditions failure: AED 50,000 or 50% of tax (higher)
- VAT Penalty 4 — Late/missing tax invoice: AED 2,500 per case
- VAT Penalty 5 — Late/missing credit note: AED 2,500 per case
- VAT Penalty 6 — Electronic invoice/credit note non-compliance: AED 2,500 per case
When does the "higher of AED 50,000 or 50%" penalty apply, and how is it calculated?
The AED 50,000 floor ensures that even low-value goods violations carry a material penalty. The 50% of Tax component applies when the excise or VAT chargeable on the goods in relation to the violation exceeds AED 100,000. For example, if the applicable tax on the goods involved in a Designated Zone transfer failure is AED 200,000, the penalty is AED 100,000 (50% of AED 200,000), not AED 50,000. For small shipments where the tax is less than AED 100,000, the AED 50,000 floor applies.
Do VAT Penalties 4, 5, and 6 apply per invoice or per audit detection?
The penalty is AED 2,500 per "detected case." Each invoice or credit note that is missing, late, or non-compliant is a separate detected case. If an FTA audit identifies 200 invoices issued outside the 14-day window, the penalty for item 4 alone is AED 500,000. This per-case structure makes invoice issuance compliance a material financial risk management issue for high-volume VAT registrants.
What is the "alternative document" that can substitute for a Tax Invoice under VAT Penalty 4?
The UAE VAT legislation allows simplified tax invoices in certain B2C contexts, and the FTA may approve alternative documentation in specific circumstances. The "alternative document" is a document approved by the FTA as an equivalent to the formal tax invoice for a particular supply type. It is not a general exemption — the conditions for eligibility must be verified against the relevant Executive Regulation provisions and any applicable FTA public clarifications.
How does the 2025 amendment affect Table 3?
Cabinet Decision No. 129 of 2025, effective 14 April 2026, amended Table 3. The per-case penalty structure for invoice and credit note failures (items 4, 5, and 6 at AED 2,500 each) is confirmed in the amended text. Businesses should review their invoicing processes against the current text to ensure they are prepared for the updated requirements.
Are Tables 2 and 3 penalties in addition to Table 1 penalties?
Yes. Table 2 and Table 3 penalties apply for specific Excise Tax and VAT violations and are separate from the Table 1 Tax Procedures penalties. A VAT registrant can face concurrent penalties from both tables — for example, a business that files a late VAT return (Table 1, Penalty 8), fails to pay the VAT (Table 1, Penalty 9), and also fails to issue tax invoices within 14 days (Table 3, Penalty 4) faces all three penalty streams simultaneously.
How Abdelhamid & Co. Can Help
As a licensed UAE Tax Agent (TAN: 30003958, TAAN: 20033908), we conduct compliance reviews that specifically identify exposure under Tables 2 and 3, assist with FTA notifications and registrations, and prepare voluntary disclosure and objection files. Based in Sharjah with UAE-wide coverage.
Last reviewed: 16 May 2026 — Abdelhamid M. Abdelhamid, FTA Tax Agent TAAN: 20033908 | EAAA Fellow No. 124 | IASCA Fellow No. 1361