Introduction
On 23 April 2025, the UAE’s Federal Supreme Court issued a significant judgment in Administrative Appeal No. 337 of 2025 (Tax), clarifying the scope of administrative penalties under Article 24(4) of the Federal Decree-Law No. 28 of 2022 on Tax Procedures (“Tax Procedures Law”). The case addressed a core question- amongst others – in the rules pertaining to the imposition of administrative penalties for tax purposes: whether the statutory limit on administrative penalties—set at 200% of the amount of tax—applies per penalty, or to the entire penalties assessment.
The Court’s conclusion could reshape the taxpayer community’s perspective on how the Federal Tax Authority (“FTA”) calculates and imposes administrative penalties going forward and likely has indirect consequences for all taxable persons operating in the UAE.
The Legal Provision in Question
Article 24(4) of the Tax Procedures Law states:
“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.”
On a plain reading, this provision appears to create a cap on the total amount of administrative penalties that can be levied in connection with a given amount of tax. But the law does not explicitly define whether this cap applies to each individual penalty, or to the overall penalty amount contained in an assessment issued by the FTA.
The Taxpayer’s Position: A Cap on the Entire Assessment
In this case, the taxpayer—a UAE-registered business—argued that the penalties imposed by the FTA exceeded what was legally permissible under Article 24(4) of the Tax Procedures Law. According to the taxpayer, the interpretation of the provision is that the total amount of penalties included in a penalties assessment cannot exceed twice the total tax amount assessed in the underlying tax assessment.
The taxpayer did not dispute the FTA’s right to impose penalties for distinct violations. However, it argued that the FTA had applied penalties in such a way that the aggregate penalty amount exceeded double the total tax assessed. The taxpayer pointed out that the law speaks of “any Administrative Penalty” in the context of “the Administrative Penalties Assessment”—implying that the cap should be applied to the document (Assessment) as a whole.
Accordingly, the taxpayer claimed that the penalty total in this case exceeded the statutory limit.
The FTA’s Position: A Cap on Each Penalty
The FTA took the opposite view. It maintained that Article 24(4) should be read to limit each individual administrative penalty, not the total sum. According to the FTA, each penalty is calculated based on the specific violation it relates to and must be judged against the amount of tax that triggered it. So long as each separate penalty does not exceed 200% of the corresponding tax amount, the legal requirement is satisfied—even if, when aggregated, the total penalties exceed that threshold.
The Supreme Court’s Ruling: The Cap Applies Per Penalty
The Federal Supreme Court agreed with the FTA and confirmed that the 200% cap under Article 24(4) applies to each penalty on its own, not to the penalties assessment as a whole. In its judgment, the Court stated:
“وأن الغرامة المقصود بها كل غرامة بذاتها وعينها لا تتجاوز الضعف”
Translation: “Each penalty, individually and specifically, must not exceed double [the tax amount].”
This position leaves little room for alternative interpretations. The Court focused on the grammatical and literal structure of the law, interpreting the phrase “any Administrative Penalty” to mean each specific penalty, not the collection of penalties in one document (Assessment).
This ruling also implicitly reinforces the principle of proportionality: each individual penalty must be calibrated against its associated tax obligation and cannot exceed double that amount. But this proportionality applies per infraction, not per assessment.
Implications for Taxpayers and the FTA
- Constraints on Future Challenges Based on Total Penalty Amounts
One of the practical effects of this judgment is that taxpayers may no longer argue that the total penalty amount in an assessment must be limited to 200% of the overall tax. Future arguments relying on the cumulative amount of penalties may likely be dismissed unless it can be shown that an individual penalty exceeded the legal maximum.
- Compliance and Record-Keeping Take Greater Importance
Taxpayers should now be even more mindful of administrative requirements under the law. Given that each breach can generate a separate penalty of up to 200% of the assessed tax, minor errors (especially if repeated) can accumulate into significant liabilities. The focus should be on maintaining accurate records, meeting deadlines, and full compliance with the applicable tax legislation.
- Monitoring Legislative and Judicial Developments
Taxpayers should monitor upcoming legislative developments and judicial trends which might confirm above interpretation and/or alter it further.
Conclusion
The Federal Supreme Court’s judgment in Appeal No. 337 of 2025 addresses a central debate about the scope of administrative penalties under UAE tax law. By proposing that the 200% ceiling applies to each individual penalty.
Although the decision ultimately went against the taxpayer in this case – particularly in respect of this argument and establishes an initial principle, it necessitates further consideration of future court applications and interpretations of this newly established interpretation/principle on abovementioned case.
Seek Legal Counsel
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For further information, please contact, Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com.
Disclaimer
The content provided in this article is intended for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy and completeness of this information, the article does not offer a guarantee or warranty regarding its content. The matters discussed in this article are subject to interpretation, and legal outcomes may vary based on specific facts and circumstances. We recommend that readers seek individual legal counsel before making any decisions based on the information provided. If you require specific legal advice, please contact us directly.
