Corporate Tax Update for QFZPs Engaged in Distribution Activities

Additional Compliance Requirements for Distribution Activities in or from a Designated Zone - FTA Decision No. 6 of 2026

The UAE Federal Tax Authority has introduced additional compliance procedures for Qualifying Free Zone Persons (QFZPs) engaged in the distribution of goods or materials in or from a Designated Zone. These procedures provide further details on the requirements set out in Ministerial Decision No. 84 of 2025.

The Decision applies to tax periods commencing on or after 1 January 2026.

Who does the Decision apply to?

The new requirements apply specifically where a QFZP carries out the qualifying activity of distributing goods or materials in or from a Designated Zone.

The requirements do not automatically apply to every Free Zone business or to other qualifying activities. Each business should review its activities, customer arrangements and movement of goods to determine whether it falls within the scope.

Mandatory Agreed-Upon Procedures report

An affected QFZP must obtain an Agreed-Upon Procedures (AUP) report from an independent external auditor.

The report may be prepared by:

• The auditor responsible for the annual audit of the QFZP’s financial statements; or
• Another independent auditor licensed in the UAE.

The engagement must be conducted in accordance with International Standard on Related Services 4400 - Agreed-Upon Procedures Engagements (ISRS 4400) and the applicable UAE legislation governing audit practices.

An AUP report is not an audit opinion or assurance conclusion. The auditor performs the prescribed procedures and reports the resulting factual findings.

What must the report demonstrate?

The report must document procedures and findings supporting the following conditions:

1. Customer reseller status
   

   The QFZP supplies goods or materials to customers that:

   • Resell the goods or materials, or part of them; or
   • Process or alter the goods or materials for the purpose of sale or resale.
   
   
2. Importation through a DZ
   Where goods or materials entering the UAE are imported by the QFZP, the documentation must demonstrate that they were imported through a Designated Zone.

 Evidence of Customer reseller status

The QFZP must collect, maintain and retain sufficient documentation demonstrating that customers qualify as resellers for each relevant transaction.

Supporting evidence may include:

• Valid trade, business or commercial licences indicating trading, wholesaling, retailing, distribution, manufacturing or similar activities
• Signed and dated customer declarations or written confirmations
• Confirmation that the goods were acquired for sale, resale or donation to a public benefit entity
• Executed sales agreements
• Sales invoices and purchase orders
• Transaction records demonstrating bulk purchases, resale terms or appropriate pricing structures
• Other records showing resale, onward supply, processing or alteration for sale

Recommended: Declarations should relate to the relevant tax period rather than being treated as permanent or open-ended confirmations.

Evidence of importation through a Designated Zone

Where the QFZP imports the relevant goods, it must retain documentation demonstrating that the goods entered the UAE through a Designated Zone.

Relevant records may include:

• Customs declarations and clearance documents
• Import permits
• Sales contracts
• Bills of lading
• Airway bills or equivalent transport documents
• Confirmation from the relevant Free Zone Authority that the location is formally recognised as a Designated Zone
• Inventory records
• Warehousing reports
• Goods-movement records
• Logistics documentation showing that the goods were received, handled or stored within the Designated Zone before distribution

Auditor testing procedures

The auditor must perform prescribed procedures covering areas such as:

• Inspection of customer licences
• Verification of signed customer declarations
• Review of sales agreements, invoices and other transactional records
• Inspection of import and customs documentation
• Confirmation of the relevant location’s Designated Zone status
• Review of internal inventory, warehousing and logistics records

Each procedure must be accompanied by details of the evidence obtained, the timing and extent of the work performed, and the related factual findings.

The selected samples must also be listed in an appendix to the report.

Sampling and margin of error

Separate sample populations may apply to:

• Customers
• Sales agreements
• Imports

The prescribed formula is: Sample size = Sample population ÷ [1 + Sample population × (10%)²]

The 10% figure is the prescribed margin of error. It does not mean that the auditor should simply test 10% of the population.

The selected samples must include the customers, sales agreements or imports with the highest transaction values during the relevant tax period.

For other documents not expressly covered by the prescribed procedures, the sampling approach should be agreed between the QFZP and its auditor based on the Decision’s requirements.

Submission deadline

The completed AUP report must be submitted to the FTA no later than 30 days after the deadline for filing the Corporate Tax return for the relevant tax period.

FTA may specify a different submission date.

Businesses should therefore engage their auditors well before the Corporate Tax return deadline. Waiting until after the return is filed may leave insufficient time to assemble evidence, calculate the required samples, perform the procedures and resolve documentation gaps.

Consequences of non-submission

If the QFZP fails to submit the required AUP report, the relevant qualifying conditions under the Ministerial Decision No. 229 of 2025 will be treated as not satisfied.

This may place the Corporate Tax treatment of the relevant distribution activity - and potentially the QFZP position at risk. The impact should be assessed based on the business’s specific facts and the wider Corporate Tax legislation.

Recommended actions for affected businesses

QFZPs engaged in distribution activities should consider taking the following steps:

1. Review distribution activities and confirm whether the Decision applies.
2. Map the movement of goods and identify which imports enter through a Designated Zone.
3. Appoint an independent UAE-licensed auditor early.
4. Agree the ISRS 4400 scope, sampling populations and reporting timetable.
5. Review customer licences and obtain updated, period-specific reseller confirmations.
6. Ensure sales agreements and invoices support resale or onward-supply activity.
7. Reconcile import, customs, shipping, inventory and warehouse records.
8. Identify and address missing documentation before the auditor begins testing.
9. Add the AUP report submission date to the Corporate Tax compliance calendar.