UAE Tax Penalties: FSC Confirms the 200% Cap Applies Per Breach, Not Per Assessment

The UAE tax system has witnessed a crucial settlement of a core dispute regarding the application of the administrative penalties cap. The Federal Supreme Court (FSC) has issued a significant judgment clarifying how the maximum limit for penalties is calculated, setting a new course for the Federal Tax Authority (FTA) and all taxable persons.

The controversy centered on how to interpret the statutory maximum penalty of 200% of the tax amount: Does this cap apply to the total penalties imposed in a single assessment, or to each penalty individually?
The Legal Provision in Question
The disagreement stems from the interpretation of Article 24(4) of the Federal Decree-Law No. 28 of 2022 on Tax Procedures, which stipulates: “The amount of any Administrative Penalty shall not exceed two times the amount of Tax in respect of which the Administrative Penalties Assessment was issued.”

While the text aims to cap the total penalties imposed in connection with a specific amount of tax, it did not explicitly define whether this limit applies to the individual penalty or the aggregate amount contained in the assessment.
The Conflicting Interpretations
Lower courts were faced with two opposing interpretations of the text, each carrying major financial implications:

1. The Taxpayer’s Position: The Cap Applies to the Entire Assessment
   The taxpayer, in the case before the FSC, argued that the text refers to the “Administrative Penalties Assessment” as one document. Therefore, the total sum of administrative penalties imposed for related violations should not exceed double (200%) the total amount of the underlying tax assessed. This interpretation aimed to limit the accumulation of penalties resulting from multiple breaches.
2. The FTA’s Position: The Cap Applies to Each Penalty
   The Federal Tax Authority maintained the opposite view, arguing that Article 24(4) should be read to limit each individual administrative penalty. Since each penalty is calculated based on the specific violation it relates to, the legal requirement is met as long as each separate penalty does not exceed 200% of the tax amount that triggered it, even if the total penalties surpass that threshold when aggregated.
   The Federal Supreme Court’s Ruling: Cap Applies Per Penalty
   In its judgment issued on 23 April 2025 in Administrative Appeal No. 337 of 2025 (Tax), the Federal Supreme Court agreed with the FTA, confirming that the 200% cap applies to each penalty independently, and not to the aggregate penalties within the assessment.
   The Supreme Court confirmed in its judgment: “Each penalty, individually and specifically, must not exceed double [the tax amount].”

The Court focused on the literal and grammatical structure of the law, interpreting the phrase “any Administrative Penalty” to mean each specific penalty. This stance settles the debate and leaves little room for alternative interpretations.
Implications for Taxpayers and Compliance
While the decision ultimately ruled against the taxpayer in this specific case, it establishes a defined legal principle and has immediate practical consequences:

1. Constraints on Challenging Total Amounts: Taxpayers may no longer successfully argue that the total amount of penalties in an assessment must be limited to 200% of the overall tax. Future challenges must demonstrate that a specific, individual penalty exceeded its legal maximum.
2. Increased Importance of Compliance: Given that each breach (even minor or repeated errors) can now generate a separate penalty of up to 200% of the associated tax, taxpayers must be even more meticulous with administrative requirements. Maintaining accurate records, meeting deadlines, and full compliance are now paramount to avoid the cumulative accumulation of significant liabilities.
   The FSC’s ruling reinforces the principle of proportionality, where each penalty must be calibrated against its associated tax obligation. This judgment is a defining moment for the UAE tax penalties regime and necessitates that all taxable persons re-evaluate their compliance strategies.