FTA Decision No. 6 of 2026: Mandatory Agreed-Upon Procedures (AUP) Report for QFZP Engaged in Distribution Activity

For tax periods starting on or after 1 January 2026, a Qualifying Free Zone Person (QFZP) dealing with the distribution of goods or materials must comply with additional compliance requirements required by FTA if they want to retain their 0% Corporate Tax rate status.

On 2 June 2026, the UAE’s Federal Tax Authority FTA published Decision No. 6 of 2026, determining the additional compliance procedures for a Qualifying Free Zone Person (QFZP) dealing with Distribution Activity in or from the Designated Zones. The decision emphasizes that the QFZP must obtain an Agreed-upon Procedure (AUP) report from an external auditor. This decision also prescribes specific procedures and timelines that must be followed for such engagements.

The decision only applies to Qualifying Free Zone Persons carrying out qualifying distribution activities, i.e., goods and materials supplied to customers are for the purpose of reselling (including processing or altering for reselling) and the QFZP uses the designated zone for import of goods and materials.

Key Features of the Report:

The Core Requirement: The AUP Report

A qualifying free zone person dealing with distribution activity of the goods must obtain an Agreed-Upon Procedure report, prepared by an external independent auditor who is also responsible for the yearly free zone audit of the financial records or any UAE licensed auditor. The AUP report must be prepared in accordance with International Standard on Related Service (ISRS) 4400, Agreed-Upon Procedure Engagement issued by IAASB, and current laws governing auditing practice in the UAE.

What the Auditor Must Verify?

The report must validate the factual finding that proves the distribution activity happening actually meets the qualifying condition. The report should include the procedure performed and the findings that validates the following:

• Reseller status: The goods or material are supplied to the customer who resell them, process or alter them for the purpose of sales or resale (Reseller Status)
• Designated Zone Importation: The goods or material imported by QFZP are imported through a Designated Zone

Verification of Customer Reseller Status

In order to obtain an Agreed-Upon procedure report, the QFZP must collect, maintain, and hold enough documentation that verifies that the customer qualifies as a reseller.

For verification of customer reseller status, the external auditor shall inspect a prescribed sample of customer trade licenses, declarations, and sales agreements.

a) Customer Trade License Verification: Inspect a sample of valid trade, business, or commercial licenses or equal certificate of the QFZP’s customers and verify whether the listed business activities (manufacturing, trading, wholesaling, distribution, and retailing) or other commercial activities demonstrate or reflect the purpose of reselling.

b) Customer Declarations Verification: The auditor is required to obtain written and signed declarations from a sample size of customers and verify whether such declarations confirm the customer as a reseller. The auditor shall also inspect the dates and signatures on the declarations and ensure that they belong to the relevant tax period.

c) Sales Agreements and Transactional Records Verification: The auditor is required to inspect a sample of sales invoices and sales agreements and document the terms and conditions (such as pricing structures, resale conditions and quantities) specified in the invoices and agreements. The agreements or transactional records must indicate that the goods, products, or materials sold by the QFZP are either for the purpose of resale or value addition through altering for the purpose of reselling.

Verification of Designated Zone Importation

The Qualifying Free Zone Person should have enough documentation that proves that the goods or materials entering the UAE are imported through the Designated Zone. These include (but are not limited to) import documentation, designated zone status, and physical movement records of the goods.

a) Inspection of Import Documentation: QFZP will provide a sample of all import-related documents (e.g. import permit, customs declaration, bill of lading, and sales contracts) for inspection to the auditor. This is to verify that goods and materials for distribution are imported through a designated zone in the UAE.

b) Verification of Designated Zone Status: For a sample of imported goods and material, the auditor will identify that the free zone, port, or import area mentioned in the import documents is specifically recognized as a ‘designated zone’.

c) Inspection of Internal Records: A sample of internal records maintained by QFZP, including logistics documentation, goods movement records, inventory logs, and warehouse records, must be inspected by the auditor. This is to make sure that the imported goods and material for distribution were received, handled, and stored within a designated zone. 

Audit Procedure to be Based on Sample Size Methodology

The external auditor may not be able to inspect hundreds of customers’ information due to time and cost constraints. Therefore, a sample of customers is selected for validation for the purpose of the AUP.  For this purpose, the Federal Tax Authority has provided the formula for choosing the sample size.

Where,

Sample Population: The total number of customers, invoices, sale agreements, and import documents.

Sample Size: The number of documents or records selected from “Sample Population” for inspection and inclusion in the AUP report.

Margin of Error

Margin of statistical error fixed at 10 %.

Each procedure included in the agreed-upon procedures report shall be accompanied by a description of the nature of the evidence obtained, timing, and extent of work performed, along with the related factual findings. All the details of the selected samples should be incorporated in an appendix of the report.

Timeline and Applicability

• Effective tax period: The Decision will be implemented on the tax periods starting on or after 1 January 2026.
• Submission deadline: The Agreed-Upon procedures report prepared in accordance with the conditions mentioned above shall be submitted to the Authority no later than 30 days after your Corporate Tax Return filing deadline or any other date determined by the FTA.

Consequences of Non-Compliance

If a person fails to submit the Agreed-Upon procedures report to the Authority on time or fails the auditor’s verification, the authorities will assume you failed to meet the statutory requirements needed to qualify as a QFZP. As a result, the person will no longer be considered a Qualifying Free Zone Person. This means the business is at risk of losing special tax benefits (0% corporate tax rate) specified for the qualifying person and may be subject to a 9% corporate tax rate. The taxable person also needs to ensure that a legitimate licensed audit firm is appointed and their auditing rights are verified. Please refer to our Abu Dhabi Audit Firms list if your company is registered in Abu Dhabi, and if your company is registered in a Dubai Free Zone, please refer to our guide on the Top 10 Audit Firms in Dubai. 

Business’s Immediate Action Plan

Free zone distributors should not wait until the tax season. The essential documentation should be collected and maintained promptly; for that, the QFZP should speak to their financial auditor at their earliest and understand the exact documentation and timing expectations.

This decision by FTA has substantially increased compliance responsibilities for Qualifying Free Zone Persons (QFZPs) engaged in distribution activities. This shifted UAE’s internal audit (self-assessment) model towards a greater reliance on independent audit. For tax filing with zero percent tax, a company must get an AUP report from an independent auditor. Instead of a basic customer declaration, businesses must maintain a comprehensive record, requiring additional efforts, time and resources.