FTA Introduces Mandatory Independent Agreed‑Upon Procedures Report for Qualifying Free Zone Distributors

Executive answer

The 0% rate has acquired a new gatekeeper: documented proof tested by an independent auditor.

Federal Tax Authority Decision No. 6 of 2026 creates a new annual compliance requirement for a precisely defined class of UAE businesses: Qualifying Free Zone Persons that carry on the Qualifying Activity of distributing goods or materials in or from a Designated Zone. For Tax Periods beginning on or after 1 January 2026, an affected entity must obtain an Agreed-Upon Procedures report from an independent external auditor, prepared under International Standard on Related Services 4400, and submit it to the Federal Tax Authority within the statutory period.

The report is not a second audit opinion and it does not guarantee the 0% Corporate Tax rate. It records procedures performed and factual findings on two decisive matters: whether customers are genuine resellers or processors for resale, and whether goods imported by the Qualifying Free Zone Person entered the UAE through a Designated Zone. The taxpayer remains responsible for satisfying every substantive and procedural condition of the Qualifying Free Zone Person regime.

1. The legal change in one sentence

What used to be a tax position supported by ordinary records is now a tax position that must survive prescribed independent testing.

The legal framework works cumulatively. The Corporate Tax Law creates the Qualifying Free Zone Person regime. Cabinet Decision No. 100 of 2023 determines categories of Qualifying Income and defines a Designated Zone. Ministerial Decision No. 229 of 2025 identifies distribution of goods or materials in or from a Designated Zone as a Qualifying Activity and imposes its activity-specific conditions. Ministerial Decision No. 84 of 2025 requires all Qualifying Free Zone Persons to prepare and maintain audited financial statements and authorises additional procedures for Designated Zone distributors. Federal Tax Authority Decision No. 6 of 2026 supplies those additional procedures and makes the independent AUP report a distinct submission.

2. Who is affected – and who is not

A free-zone address does not trigger the rule; reliance on the designated distribution activity does.

The Decision does not apply to every free-zone company and it does not impose an AUP report on every Qualifying Free Zone Person. It applies where a Qualifying Free Zone Person is engaged in the Qualifying Activity described in paragraph (l), Clause 1, Article 2 of Ministerial Decision No. 229 of 2025: distribution of goods or materials in or from a Designated Zone.

• A Free Zone Person carrying on only another Qualifying Activity – such as manufacturing, headquarters services or logistics – is not brought within this particular AUP requirement merely because it is a Qualifying Free Zone Person.
• A business conducting several activities is within scope to the extent that it carries on the specified Designated Zone distribution activity; the compliance risk nevertheless sits at entity-status level, not merely at invoice level.
• A company incorporated in a Free Zone must not assume that the relevant place is a Designated Zone. Cabinet Decision No. 100 of 2023 defines a Designated Zone by reference to the UAE Value Added Tax framework and its status as a Free Zone for Corporate Tax purposes.
• The new Decision applies to Tax Periods commencing on or after 1 January 2026, even though it was issued on 2 June 2026 and published by the FTA in July 2026.

What counts as Designated Zone distribution?

The qualifying label follows the transaction chain, not the wording printed on the trade licence.

Ministerial Decision No. 229 of 2025 describes this distribution activity as buying and selling tangible, movable goods, materials, component parts or other items. It may include importation, storage, inventory management, handling, transportation and exportation. The activity must be conducted in or from a Designated Zone. Where the goods or materials enter the UAE and are imported by the Qualifying Free Zone Person, they must be imported through the Designated Zone.

The customer must fall within an authorised route. The principal route is a customer that resells the goods or materials, or parts of them, or processes or alters them for sale or resale. Ministerial Decision No. 229 of 2025 also expressly recognises supply to a public benefit entity. Federal Tax Authority Decision No. 6 of 2026 permits customer declarations to confirm acquisition for sale, resale or donation to a public benefit entity, although the central prescribed finding is otherwise framed around reseller or processor status. A business relying on the public-benefit route should document its legal basis and transaction facts with particular care.

The end-user trap

A customer may hold a trading licence and still consume the exact goods that destroy your factual case.

The statutory inquiry is transaction-specific. A corporate customer that consumes office equipment, machinery, supplies or materials for its own operations is not made a reseller merely because one activity on its licence mentions trading. Conversely, a manufacturer may satisfy the test where it processes or alters the purchased goods or materials for sale or resale. Direct-to-consumer sales are a separate warning sign: transactions with natural persons are generally Excluded Activities under Ministerial Decision No. 229 of 2025, subject to enumerated exceptions that do not include this distribution activity.

3. The AUP report is not the financial-statement audit

Two independent engagements can be performed by one auditor, but they remain two legally different deliverables.

Ministerial Decision No. 84 of 2025 already requires every Qualifying Free Zone Person to prepare and maintain audited financial statements, regardless of the AED 50 million revenue threshold that applies to other categories of taxable person. The new AUP report sits on top of that general obligation for the affected distributors.

Under the new Decision, the AUP practitioner may be the auditor responsible for the annual financial-statement audit or any other independent auditor licensed in the UAE. The report must comply with ISRS 4400, as issued by the International Auditing and Assurance Standards Board, and with applicable UAE audit legislation. Independence therefore cannot be treated as an administrative formality.

4. The two statutory questions the auditor must test

Every procedure returns to two questions: who ultimately uses the goods, and where did the goods enter the UAE?

Question one: are the customers genuine resellers or processors for resale?

The auditor must look beyond invoices and test the customer’s legal capacity, written confirmation and transaction reality.

For the prescribed sample, the independent auditor must perform three categories of procedure and state factual findings:

• Customer licences. Inspect valid trade, business or commercial licences, or equivalent documents, and determine whether the listed activities include trading, wholesaling, retailing, distributing, manufacturing or other activities indicative of resale.
• Customer declarations. Obtain signed written declarations or confirmations, check that they affirm reseller status, and verify that they are signed, dated and relate to the relevant Tax Period.
• Sales agreements and transaction records. Inspect executed agreements, related invoices or other records and identify features of onward sale, including bulk quantities, resale conditions or relevant pricing structures.

The required factual finding must address whether the reviewed records show that customers resell the goods or materials, or process or alter them for sale or resale. The existence of a document is therefore not the only issue; its content must support the statutory character of the transaction.

Question two: did imports enter through a Designated Zone?

The words ‘shipped to the UAE’ are no longer enough; the evidence must identify the legally recognised entry point.

Where the relevant goods or materials are imported by the Qualifying Free Zone Person, the auditor must perform three further procedures on the prescribed sample:

• Import documentation. Inspect customs declarations, import permits, sales contracts, bills of lading and other records to verify importation through a Designated Zone.
• Designated Zone status. Verify that the Free Zone, port or area identified in the import records is formally designated under the applicable Cabinet Decisions or other UAE legislation. The relevant Free Zone Authority must confirm this status to the Qualifying Free Zone Person.
• Internal movement trail. Inspect inventory logs, warehousing reports, goods-movement records and logistics documents showing that the goods were received, handled or stored within a Designated Zone before distribution.

The phrase ‘if imported by the Qualifying Free Zone Person’ matters. Supply chains involving third-party importers, drop shipments, offshore stock, mainland entry points or mixed customs routes require transaction-specific analysis. Managers should not infer an exemption merely because a third party appears on one customs document.

5. Sampling is prescribed – and it targets the largest exposures

The auditor is directed toward the transactions management would least want to explain after the year closes.

Federal Tax Authority Decision No. 6 of 2026 prescribes the following formula for each relevant sample:

Sample Size = Sample Population ÷ [1 + (Sample Population × (10%)²)]

The Sample Population changes with the procedure. It is the total number of customers for the customer-licence and declaration tests, the total number of sales agreements for the contract test, and the total number of relevant imports for the import tests. The sample must include the customers, agreements or imports with the highest transaction values in the relevant Tax Period. This is not a random-sampling safe harbour.

For other documents, the sampling process is to be agreed between the Qualifying Free Zone Person and the auditor, consistently with the Decision. The Decision fixes the Margin of Error at 10%, but its English text does not prescribe a rounding convention where the formula yields a fraction. That point should be settled with the auditor and documented rather than assumed.

Each reported procedure must describe the nature of the evidence obtained, the timing and extent of the work, and the related factual findings. Details of the samples must appear in an appendix. If the wording of a prescribed procedure is changed without changing its substance, the change must also be disclosed in an appendix.

6. The evidence file managers must build during the year

The most dangerous missing document is usually held by someone outside the tax department.

The statutory evidence crosses sales, legal, logistics, customs, warehouse, finance and information-technology functions. A defensible file should be transaction-linked rather than a folder of generic licences and declarations.

Customer and sales evidence

A licence proves what a customer may do; the declaration and transaction trail help prove what the customer did with your goods.

• Current customer trade, business or commercial licence, or equivalent official record.
• Signed and dated declaration for the relevant Tax Period confirming resale, processing or alteration for sale or resale, or the applicable public-benefit route.
• Executed sales agreement, purchase order, invoice and delivery record linked by customer and transaction identifier.
• Commercial terms consistent with onward supply, including product description, bulk quantity, resale conditions and pricing architecture where relevant.
• Recorded follow-up where a customer’s licence, business model or declared use changes during the Tax Period.

Import, customs and physical-movement evidence

If the legal entry point and the physical stock trail do not match, the auditor must report what the documents show.

• Import declaration, customs clearance and import permit identifying the importer and entry point.
• Bill of lading, airway bill or equivalent transport record that can be reconciled to the customs entry and purchase documentation.
• Written confirmation from the relevant Free Zone Authority that the identified zone, port or area is a Designated Zone under the applicable legal instruments.
• Inventory receipts, warehouse reports, stock cards, goods-movement logs and logistics records showing receipt, handling or storage within the Designated Zone before distribution.
• A reconciliation linking each tested import to the goods or materials supplied by the Qualifying Free Zone Person in the relevant Tax Period.

Record-retention period

Filing the report ends the deadline; it does not end the evidence obligation.

The Corporate Tax Law generally requires a Taxable Person to retain records and documents for seven years following the end of the Tax Period to which they relate. The retention system should preserve source documents, approvals, declarations, correspondence, samples and the final AUP report in a form that can be retrieved and reconciled during an FTA review.

7. The filing deadline – and the date many summaries get wrong

The clock starts from the legal return deadline, not from the day the finance team presses ‘submit’.

The AUP report must be submitted to the FTA no later than 30 days following the deadline to file the Corporate Tax return for the relevant Tax Period, or another date determined by the FTA. The Corporate Tax Law generally requires the return within nine months after the end of the Tax Period, unless the FTA directs otherwise.

This wording is important. An early return filing does not, by itself, shorten the AUP deadline to 30 days after the actual filing date. Conversely, a late return does not move the AUP deadline forward. Both obligations should be calendared by reference to their legal due dates.

8. Non-compliance can endanger five Tax Periods

This is not designed as a routine late-filing fee; it is designed as a condition of the tax benefit itself.

Article 2(8) of Federal Tax Authority Decision No. 6 of 2026 states that if the Qualifying Free Zone Person fails to submit the required AUP report, the additional-procedure condition in Ministerial Decision No. 84 of 2025 and the Designated Zone distribution condition in Ministerial Decision No. 229 of 2025 are not considered met.

That consequence must be read together with Article 5(2) of Ministerial Decision No. 229 of 2025. A Qualifying Free Zone Person that fails a condition in Article 18 of the Corporate Tax Law, that Ministerial Decision, or another condition prescribed by the Minister ceases to be a Qualifying Free Zone Person from the beginning of the relevant Tax Period and for the following four Tax Periods. The practical exposure can therefore extend across five Tax Periods, not merely the period in which the report was missed.

Loss of status removes the special 0% treatment for Qualifying Income and places the entity under the ordinary Corporate Tax framework for the affected periods, subject to the facts and all otherwise applicable tax rules. It is inaccurate to describe this automatically as ‘9% on every dirham of revenue’: Corporate Tax is imposed on Taxable Income, and the ordinary rate structure and other statutory provisions must still be applied correctly.

The new Decision does not itself state a separate fixed monetary penalty specifically for late or missing AUP submission. That does not make non-compliance inexpensive. The status and tax consequences are express, and additional tax, payment consequences and general administrative penalties may arise depending on the connected failures – including inaccurate returns or failure to keep legally required records.

9. The AUP report does not replace the rest of the QFZP regime

Passing six prescribed procedures cannot rescue a business that fails substance, transfer pricing or the de minimis test.

Managers should resist turning the AUP engagement into the entire Qualifying Free Zone Person analysis. An affected entity must still satisfy all continuing requirements, including:

• Maintaining actual and sufficient substance in the UAE, with core income-generating activities, adequate assets, qualified full-time employees and operating expenditure in the required Free Zone or Designated Zone, subject to the permitted outsourcing rules and adequate supervision.
• Deriving Qualifying Income within Cabinet Decision No. 100 of 2023 and the relevant Ministerial Decisions.
• Not having elected into the ordinary Corporate Tax regime under Article 19 of the Corporate Tax Law.
• Complying with the arm’s-length principle and transfer-pricing documentation requirements under Articles 34 and 55 of the Corporate Tax Law.
• Keeping non-qualifying Revenue within the lower of 5% of total Revenue or AED 5 million for the Tax Period.
• Preparing and maintaining audited financial statements under Ministerial Decision No. 84 of 2025.
• Registering, filing, paying and retaining records in accordance with the Corporate Tax Law and Tax Procedures Law.

The AUP report is therefore best understood as a new evidentiary gate within a larger status test. A manager should require a full annual Qualifying Free Zone Person memorandum that reconciles the AUP findings to the broader legal conditions before the return is approved.

10. A manager’s compliance architecture

If this remains a finance-only project, the evidence will fail at the point where sales, customs and warehouse data meet.

The statutory obligation belongs to the Qualifying Free Zone Person, but UAE managers should establish clear ownership and escalation. The following operating model is practical and proportionate:

Management should also run a mid-year dry test using the statutory formula and highest-value selection rule. A missing declaration or incorrect entry route discovered in month six is an operational problem; the same issue discovered after the return deadline is a legal and tax crisis.

11. Contracts and onboarding should be redesigned now

The cheapest compliance document is the one the customer signs before the first shipment.

The Decision does not prescribe a mandatory customer-declaration template. Affected businesses should nevertheless standardise their contracting and onboarding, while ensuring that the paper record reflects actual conduct. Depending on the transaction, the following provisions may be appropriate:

• A representation that the customer acquires the specified goods for resale, or to process or alter them for sale or resale, with separate wording for any public-benefit route.
• An obligation to provide and keep current the customer licence or equivalent official document.
• A signed, dated confirmation for each relevant Tax Period and an obligation to notify any change in intended use or licensed activity.
• Consent to provide relevant records to the independent auditor and competent tax authority, subject to applicable confidentiality and data-protection requirements.
• Cooperation obligations for reasonable evidence requests, and a negotiated allocation of loss caused by a materially false customer representation.

Contract language is risk allocation, not conclusive proof. The AUP procedures test licences, declarations and transaction records together. A clause asserting ‘for resale’ will not cure invoices, quantities, delivery patterns or correspondence showing consumption by the customer.

12. Issues requiring particular legal judgment

The new Decision is detailed, but detail is not the same as eliminating every hard case.

Managers should identify uncertainty early and obtain UAE tax and legal advice before the return is finalised. The following issues deserve documented analysis:

• Public benefit entities. Ministerial Decision No. 229 of 2025 recognises supply to a public benefit entity, while the new AUP’s central customer test is framed around resellers/processors and its documentation clause also refers to donation to a public benefit entity. The exact transaction route and evidence must be analysed rather than assumed.
• Mixed customer use. A customer may resell part and consume part. The Decision expressly recognises resale or processing of goods or parts thereof, but the transaction population and supporting records must allow the auditor to report the facts accurately.
• Third-party importers and complex logistics. The statutory condition speaks to goods imported by the Qualifying Free Zone Person. Agency, drop-shipment, consignment and mainland-entry models should be mapped by legal importer, title, physical route and transaction.
• Formula rounding. The Decision prescribes the formula and 10% Margin of Error but does not state how fractional sample sizes are rounded. The agreed treatment should be conservative and documented with the auditor.
• Submission mechanics. The Decision fixes the obligation and deadline but does not, in its text, prescribe a specific portal field, file format or naming convention. Businesses must follow any procedural instructions subsequently issued by the FTA.
• Adverse factual findings. ISRS 4400 requires factual reporting, not advocacy. Exceptions should trigger legal analysis of transaction treatment, non-qualifying Revenue, the return position and any corrective disclosure required under applicable law.

13. Immediate action plan for UAE management

The first report may be due in 2027, but the evidence is being created – or lost – today.

1. Confirm legal scope. Identify each entity claiming Qualifying Free Zone Person status and each revenue stream relying on paragraph (l) Designated Zone distribution.
2. Verify the location. Obtain written confirmation of Designated Zone status for every relevant zone, port or area used in the import chain.
3. Map the supply chain. Record purchaser, seller, importer of record, title passage, entry point, warehouse, delivery route and ultimate customer use.
4. Appoint the auditor early. Confirm UAE licensing, independence, ISRS 4400 competence, scope, timetable, access and deliverables in writing.
5. Rebuild customer onboarding. Make licences and Tax Period-specific signed declarations mandatory before credit approval or shipment.
6. Modify contracts. Add accurate use representations, update duties, evidence cooperation and proportionate remedies.
7. Configure systems. Link customer, contract, invoice, shipment, customs and warehouse records through unique identifiers.
8. Create statutory populations. Maintain complete customer, sales-agreement and import populations throughout the year; do not reconstruct them from samples at year-end.
9. Run quarterly exceptions. Flag expired licences, missing declarations, end-user indicators, inconsistent importer data and non-Designated Zone entries.
10. Perform a pre-close dry run. Apply the formula and highest-value rule before the Tax Period ends, then remediate process gaps without altering historical facts.
11. Approve the full QFZP memorandum. Reconcile AUP readiness with substance, audited accounts, transfer pricing and de minimis calculations.
12. Calendar both deadlines. Record the Corporate Tax return deadline and the separate AUP deadline, including executive escalation well before each date.

14. Frequently asked questions

The safest answer is often narrower than the question suggests.

Does every UAE free-zone company need the new AUP report?

No: incorporation in a Free Zone is not the statutory trigger.

The new AUP applies to a Qualifying Free Zone Person engaged in the specified Qualifying Activity of distribution of goods or materials in or from a Designated Zone.

Is every Free Zone a Designated Zone?

No: ‘Free Zone’ and ‘Designated Zone’ are not interchangeable legal labels.

Designated Zone status depends on the applicable UAE legal instruments. The AUP procedures require confirmation from the relevant Free Zone Authority for the places shown in the import documents.

Can the existing statutory auditor issue the AUP report?

Yes, but convenience does not dilute independence.

The report may be issued by the external auditor responsible for the annual financial-statement audit or by another independent auditor licensed in the UAE.

Is the AUP report an audit opinion?

No: it reports factual findings rather than an assurance conclusion.

The Decision requires an ISRS 4400 engagement documenting the procedures performed and their factual results. Responsibility for the legal tax position remains with the Qualifying Free Zone Person.

If the Corporate Tax return is filed early, is the AUP due 30 days later?

Not under the wording of the new Decision.

The stated deadline is 30 days following the deadline to file the Corporate Tax return, not 30 days after the actual submission date, unless the FTA determines another date.

Can the 5% / AED 5 million de minimis rule excuse a missing AUP?

No: the de minimis test and the AUP submission are separate conditions.

The new Decision expressly treats the relevant conditions as unmet where the AUP report is not submitted. The de minimis rule should not be used as a substitute for filing.

How long should the evidence be retained?

Long enough for the FTA to test the legal position well after filing.

The Corporate Tax Law generally requires relevant records for seven years following the end of the Tax Period to which they relate.

What is the first likely due date for a calendar-year company?

For many affected businesses, the first practical AUP deadline will fall in October 2027.

For a Tax Period from 1 January to 31 December 2026, the Corporate Tax return is generally due by 30 September 2027 and the AUP report by 30 October 2027, unless the FTA directs otherwise.

15. Conclusion

The UAE’s 0% free-zone regime has not disappeared; it has become more evidence-driven.

Federal Tax Authority Decision No. 6 of 2026 turns two substantive conditions of Designated Zone distribution into a prescribed, independently tested annual compliance process. The legal risk is not confined to a missing attachment. Read together with the Corporate Tax Law and Ministerial Decision No. 229 of 2025, failure can threaten Qualifying Free Zone Person status for the current Tax Period and the following four Tax Periods.

For UAE managers, the proper response is not to wait for the first filing cycle. The company should verify its legal scope, appoint an independent auditor, redesign customer onboarding, control import routes, integrate transaction data and receive a documented full-status review before approving the Corporate Tax return. The difference between a defensible 0% position and a five-period exposure will often be the evidence the business collected months before the auditor selected the sample.

Accuracy and legal status note

Reliable tax advice begins by stating what the source can – and cannot – prove.

This article states the law and published guidance available as at 20 July 2026. The English versions of several UAE tax instruments cited below are expressly described as unofficial translations. The Arabic text published through the legally competent channels prevails where interpretation or inconsistency arises. This article is general information and not legal or tax advice for a specific transaction. Qualifying Free Zone Person status, import-route treatment, customer classification and filing consequences must be assessed on the full facts.

Primary UAE legal sources and selected UAE legal commentary

Every material legal proposition in this article was checked against the primary UAE instruments below.

• Federal Tax Authority Decision No. 6 of 2026 – Determining the Additional Procedures for the Compliance of Qualifying Free Zone Persons Engaged in Distribution in or from a Designated Zone
• Ministerial Decision No. 229 of 2025 – Qualifying Activities and Excluded Activities
• Ministerial Decision No. 84 of 2025 – Audited Financial Statements
• Cabinet Decision No. 100 of 2023 – Determining Qualifying Income for the Qualifying Free Zone Person
• Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses, as amended – UAE Legislation portal
• Cabinet Decision No. 40 of 2017 and amendments, including Cabinet Decision No. 129 of 2025 – Administrative Penalties for Violation of Tax Laws
• Federal Tax Authority – Corporate Tax Guide for Free Zone Persons (CTGFZP1)
• Willow Tax & Legal – FTA mandates AUP report for Designated Zone distributors (15 July 2026)