Additional Compliance Procedures for QFZPs Engaged in the Distribution activity in or from a Designated Zone

Effective for tax periods starting on or after 1 January 2026

Purpose

This decision introduces additional compliance and verification requirements for Qualifying Free Zone Persons (QFZPs) that claim the Qualifying Activity of distributing goods or materials in or from a Designated Zone for UAE Corporate Tax purposes.

As per Ministerial Decision No. 84 of 2025, a Qualifying Free Zone Person is required to prepare and maintain audited financial statements. Article 2(3) of that decision further provides that a Qualifying Free Zone Person engaged in the distribution of goods or materials in or from a Designated Zone must comply with any additional procedures prescribed by the Federal Tax Authority.

Accordingly, the Federal Tax Authority has prescribed additional procedures vide FTA Decision No. 6 of 2026 to be complied with by Qualifying Free Zone Persons engaged in the qualifying activity of distributing goods or materials in or from a Designated Zone.

Key Requirement: Agreed-Upon Procedures (AUP) Report

A QFZP carrying on this distribution activity must obtain an Agreed-Upon Procedures (AUP) Report from:

• The independent external auditor that audits its financial statements; or
• Another independent auditor licensed in the UAE. The report must be prepared in accordance with ISRS 4400 (Agreed-Upon Procedures Engagements) issued by the IAASB.

What Must the AUP Report Demonstrate?

1. Customers are resellers

The QFZP supplies goods/materials to customers who:

• Resell the goods;
• Resell parts of the goods;
• Process or alter the goods for subsequent sale or resale.

2. Imports enter through a Designated Zone

Where goods are imported by the QFZP, the goods must enter the UAE through a Designated Zone.

Documentation Required to Obtain the AUP Report

Evidence of Customer Reseller Status

QFZPs must maintain supporting documentation from their customers, such as trade licences, signed customer declarations, sales agreements and invoices, demonstrating onward resale activity.

Evidence of import through a Designated Zone

QFZPs must maintain supporting documentation such as Customs/import declarations, Customs clearance documents; and bills of lading, airway bills, and other transport documents showing entry through a Designated Zone.

Auditor Procedures Required

Obtain and inspect a sample of trade licences or similar customer documents

To verify whether the listed activities relate to trading, wholesaling, distribution or other activities indicating that the customers resell the goods supplied by the QFZP.

Verify customer declarations

Obtain signed written declarations or confirmations from a sample of customers and state whether such declarations or confirmations affirm their status as resellers of the goods or materials.

Review sales agreements and other transactional records

Select and inspect a sample of executed sales agreements, invoices related to such agreements, or other transaction-related records issued by the Qualifying Free Zone Person.

Inspect import documentation, where goods are imported into the UAE

Inspect a sample of import-related documents, such as customs declarations, import permits, sales contracts and bills of lading, to verify that the goods or materials were imported into the State through a Designated Zone.

Confirm Designated Zone status

For a sample of imports, verify that the Free Zone, port or area identified in the import documentation is formally designated as a Designated Zone pursuant to relevant Cabinet Decisions or other legislation in force in the State. The QFZP should obtain confirmation from the relevant Free Zone Authority.

Inspect internal records

For a sample of imports, obtain and inspect internal records maintained by the QFZP, including inventory logs, warehousing reports, goods movement records and logistics documentation, to verify that the goods or materials were received, handled or stored within a Designated Zone before distribution.

Sampling Requirements

The auditor is not required to review every transaction. Instead, sampling must be used.

Sample Size Formula:

"Sample Size" = "Sample Population" /(1+("Sample Population" ×10%^2))

Where:

• Sample Population = total customers, agreements, or imports being tested.
• Margin of Error = 10%.

The samples must include the highest-value transactions in the relevant tax period.

Submission Deadline

The AUP report must be submitted to the FTA no later than 30 days after the Corporate Tax return filing deadline for the relevant tax period or any another date specified by the FTA.

Consequences of non-compliance

If the QFZP fails to submit the required AUP report:

• It will be considered not to have satisfied the conditions relating to Ministerial Decision No. 84 of 2025 in relation to audited financial statements for Corporate Tax purposes, as mentioned above.
• The qualifying activity of distributing goods or materials in or from a Designated Zone will be deemed not to have been met.

This may jeopardize the entity's ability to benefit from the Qualifying Free Zone Person regime and the associated 0% Corporate Tax treatment on qualifying income.

Practical Impact for Free Zone Distributors

Companies distributing goods from UAE Designated Zones should:

• Implement procedures to collect reseller evidence from customers.
• Obtain annual reseller declarations where appropriate.
• Retain customs and logistics documentation proving importation through Designated Zones.
• Coordinate early with auditors regarding AUP testing and sampling.
• Ensure timely submission of the AUP report after filing the Corporate Tax return.

In view of the above, as the decision applies to tax periods beginning on or after 1 January 2026, including current tax periods in most cases, it is important to act immediately to ensure timely compliance and preserve Qualifying Free Zone Person status.