The UAE’s 0% Corporate Tax regime for Qualifying Free Zone Persons is not automatic.
A Free Zone business must continue satisfying the statutory conditions governing its status, qualifying activities, income, substance and compliance. A newly introduced reporting obligation now adds another important requirement for certain businesses engaged in distributing goods or materials in or from a Designated Zone.
Federal Tax Authority Decision No. 6 of 2026 requires affected Qualifying Free Zone Persons to obtain an Agreed-Upon Procedures Report prepared by an independent external auditor and submit it within the prescribed deadline.
The requirement applies to relevant Tax Periods beginning on or after 1 January 2026. It does not apply to every Free Zone company or every Qualifying Free Zone Person. Its scope is directed at businesses conducting the qualifying activity of distributing goods or materials in or from a Designated Zone.
For businesses within that category, however, the consequences are potentially significant.
Failure to obtain and submit the required report does not merely create an administrative gap. It may mean that the conditions governing the relevant distribution activity are treated as unmet, potentially placing the affected income’s eligibility for the 0% Corporate Tax rate at risk.
What Has Changed?
The UAE Corporate Tax framework permits a Qualifying Free Zone Person to benefit from a 0% Corporate Tax rate on Qualifying Income, provided the business satisfies the relevant statutory conditions.
Distribution of goods or materials in or from a Designated Zone may constitute a Qualifying Activity where the applicable requirements are met.
FTA Decision No. 6 of 2026 introduces additional procedures through which qualifying distributors must substantiate compliance with those requirements.
Affected businesses must now obtain an Agreed-Upon Procedures Report confirming whether prescribed conditions have been satisfied.
The report must be prepared by an appropriately qualified and independent external auditor and submitted to the FTA within the specified timeframe.
The introduction of the report reflects an important development in the administration of the Free Zone Corporate Tax regime. Businesses are no longer expected merely to maintain a general understanding that their transactions qualify. They must be able to support that position through independently tested evidence.
Who Falls Within the Decision?
The new requirement does not apply to all businesses established in UAE Free Zones.
It is specifically relevant to a Qualifying Free Zone Person carrying out the qualifying activity of distributing goods or materials in or from a Designated Zone.
A business should not assume that it falls within the Decision merely because:
- it is incorporated in a Free Zone;
- it imports or exports goods;
- it operates a warehouse;
- it supplies customers outside the UAE; or
- it currently applies the 0% Corporate Tax rate.
The legal analysis depends on the precise nature of its activity, the location from which distribution is conducted, the identity and activities of its customers, the movement of the goods and the conditions imposed under the wider Corporate Tax framework.
Businesses with multiple revenue streams must also distinguish between the activities falling within the scope of the Decision and their other operations.
A Free Zone company may conduct distribution alongside manufacturing, services, logistics or other commercial activities. The AUP requirement should therefore be assessed by reference to the specific qualifying distribution activity rather than the business’s licence description alone.
What Is an Agreed-Upon Procedures Report?
An Agreed-Upon Procedures Report is different from a conventional audit opinion.
Under an AUP engagement, the external auditor performs specified procedures on defined information and reports the factual findings arising from those procedures.
The auditor does not ordinarily provide a broad assurance opinion that the business is fully compliant with every aspect of the Corporate Tax regime.
Instead, the report records what the auditor found when performing the procedures prescribed for the engagement.
This distinction matters.
The business, its tax advisers and other users of the report must evaluate the findings and determine their legal and tax implications. An AUP report should not be treated as a substitute for a complete Corporate Tax assessment.
It is nevertheless an important compliance document because it provides independent evidence concerning whether specific statutory conditions have been met.
What Must the Auditor Verify?
The Decision focuses on two central areas of compliance.
Customer eligibility
The auditor must verify whether customers satisfy the relevant requirements applicable to the qualifying distribution activity.
Broadly, this concerns whether the customer is purchasing the goods or materials for resale, processing or alteration for subsequent sale or resale, rather than for its own consumption.
This condition is commercially important because the tax treatment may depend not only on what the Free Zone business sells, but also on what the customer intends to do with the goods.
A transaction that appears to be an ordinary distribution sale may not necessarily qualify where the customer is the final user of the product.
The affected business must therefore maintain sufficient documentary evidence concerning customer status and intended use.
That evidence may include:
- customer declarations;
- trade licences;
- constitutional documents;
- commercial registration information;
- purchase orders;
- contracts;
- invoices;
- product descriptions;
- customer activity records; and
- correspondence confirming resale, processing or modification.
A generic statement that the customer is a business may not be enough. The evidence should demonstrate how the customer satisfies the specific qualifying conditions.
Entry of imported goods through a Designated Zone
Where the Qualifying Free Zone Person imports the relevant goods or materials into the UAE, the auditor must verify that they entered the country through a Designated Zone, where that requirement applies.
This makes customs and logistics documentation particularly important.
Relevant evidence may include:
- customs declarations;
- import records;
- bills of lading;
- airway bills;
- port or terminal records;
- warehouse records;
- goods-received documentation;
- inventory movement reports; and
- records linking imported goods to the relevant transactions.
Businesses should ensure that their tax, customs, logistics and accounting records can be reconciled.
A business may face difficulties if its commercial records identify the sale but cannot clearly demonstrate the route through which the goods entered the UAE.
Why Customer Due Diligence Is Now More Important
The Decision effectively places greater emphasis on transaction-level customer verification.
Many distributors currently collect sufficient information to satisfy ordinary commercial onboarding, credit control, sanctions screening or anti-money laundering requirements. Those processes may not necessarily establish the customer’s eligibility for the Free Zone Corporate Tax treatment.
The relevant question is not simply whether the customer exists or is licensed.
The business must understand whether the customer is acting as:
- a reseller;
- a processor;
- a modifier of the goods for subsequent sale or resale; or
- an end user.
This information may not be apparent from the customer’s name or licence alone.
Businesses may therefore need to revise their onboarding procedures and contractual documentation. Customer declarations should be sufficiently precise, supported by appropriate evidence and periodically refreshed.
Reliance on an unsupported checkbox or standard contractual wording could create difficulties during an AUP engagement or FTA review.
What Does the Auditor’s Testing Involve?
The Decision does not treat the report as a general confirmation exercise.
The auditor must perform the prescribed procedures, select and review appropriate transaction samples and document the work undertaken.
The engagement is expected to record matters such as:
- the information tested;
- the sampling basis applied;
- the evidence reviewed;
- the procedures performed;
- the timing and extent of the work; and
- the factual findings identified.
This means affected businesses should not wait until the submission deadline before collecting their documentation.
If customer records, import evidence and transaction data are incomplete, reconstructing them after the end of the Tax Period may be difficult.
The volume of transactions may also make preparation time-consuming. Businesses with large customer bases, multiple product lines or complex logistics chains should begin organising their records well before the Corporate Tax return deadline.
When Must the Report Be Submitted?
The required AUP Report must generally be submitted no later than 30 days after the deadline for filing the Corporate Tax return for the relevant Tax Period, unless the FTA specifies another submission date.
The deadline is therefore linked to the business’s Corporate Tax filing obligation.
This is an additional submission requirement. It should not be confused with the deadline for filing the Corporate Tax return itself.
The business must manage both obligations:
- file its Corporate Tax return within the applicable statutory timeframe; and
- submit the AUP Report within the additional period prescribed by the Decision.
Companies should incorporate the report into their annual tax compliance calendar and agree the external auditor’s timetable in advance.
Leaving the engagement until after the Corporate Tax return has been filed may not provide enough time to address missing evidence, inconsistent data or adverse factual findings.
What Happens if the Report Is Not Submitted?
This is the most important aspect of the Decision.
Failure to submit the report may result in the prescribed conditions for the relevant qualifying distribution activity being treated as unsatisfied.
That consequence can be more serious than an ordinary late filing issue.
The 0% Corporate Tax rate applies only where the business and its income continue meeting the requirements of the Qualifying Free Zone Person regime. Where a required condition is not met, the tax treatment of the relevant income may be affected.
The precise consequences will depend on the business’s circumstances, the nature of the failure and the operation of the wider Corporate Tax provisions.
However, affected companies should not assume that an absent report can simply be corrected without consequence after the deadline.
The report forms part of the evidence required to support the claimed tax treatment.
Does One Failure Affect the Entire Free Zone Status?
The answer requires careful legal and tax analysis.
The Decision concerns compliance with conditions relevant to a particular qualifying activity. A failure involving those conditions may affect whether the associated income is treated as Qualifying Income.
Depending on the facts, this may also interact with:
- the de minimis requirements;
- the calculation of non-qualifying revenue;
- the conditions for maintaining QFZP status;
- the treatment of income for the relevant Tax Period; and
- the consequences of ceasing to satisfy the qualifying conditions.
Businesses should therefore avoid treating the report as an isolated audit form.
An adverse finding may have wider implications for the company’s Free Zone Corporate Tax position and should be considered promptly with legal, tax and accounting advisers.
Can the Auditor Correct the Business’s Compliance?
The auditor’s role is principally to perform the required procedures and report factual findings.
The auditor cannot retrospectively create customer evidence that did not exist, change the actual route through which goods entered the UAE or convert an end-user sale into a qualifying distribution transaction.
This is why operational compliance must precede the audit.
The report can verify the evidence available. It cannot repair the underlying commercial facts.
Where weaknesses are identified early, the business may be able to improve its procedures for future transactions. It may also be able to obtain missing documentation where the information genuinely existed but was not retained properly.
However, the report should not be approached as an exercise in producing documents after the event merely to support a preferred tax outcome.
What Records Should Businesses Maintain?
Affected QFZPs should maintain a clear evidence trail connecting each tested transaction to the relevant qualifying conditions.
A robust file may include:
- the customer’s legal and commercial details;
- evidence of the customer’s business activities;
- a declaration explaining the intended use of the goods;
- contracts and purchase orders;
- invoices and payment records;
- product and quantity information;
- customs and import documentation;
- warehouse and inventory records;
- transport and delivery documents;
- proof of entry through a Designated Zone, where applicable; and
- internal approval records demonstrating that eligibility was reviewed.
The records should be accurate, consistent and readily retrievable.
Information held across separate departments should also be reconciled. For example, the tax team’s transaction schedule should correspond with accounting records, customs documents and warehouse movements.
Contradictory records may undermine the business’s ability to demonstrate compliance even where the underlying transaction was intended to qualify.
What Should Existing QFZPs Do Now?
Businesses potentially within the scope of the Decision should begin with a formal applicability assessment.
That assessment should identify:
- whether the entity is currently treated as a Qualifying Free Zone Person;
- whether it conducts distribution of goods or materials;
- whether the activity is performed in or from a Designated Zone;
- which customers and transactions fall within the qualifying activity;
- whether imported goods entered through the required route;
- whether adequate customer evidence is already retained; and
- whether the accounting system can produce the information required for auditor testing.
The next step should be a documentation gap analysis.
Businesses should review a representative selection of existing transactions to determine whether their records would satisfy the required procedures. Any deficiencies should be addressed before they become systemic.
An independent external auditor should also be engaged sufficiently early. The business should confirm the scope, information requirements, testing process and expected timetable.
The Need for Coordinated Compliance
The new requirement cannot be managed by the finance department alone.
Successful compliance may require coordination between:
- tax;
- finance;
- sales;
- customer onboarding;
- procurement;
- logistics;
- customs;
- warehousing;
- legal;
- compliance; and
- external auditors.
Sales teams may need to obtain customer declarations. Legal teams may need to revise contractual wording. Logistics teams must retain evidence of import routes. Finance teams must identify the affected transactions, while tax advisers assess the consequences.
Without coordination, important information may be lost before the annual reporting process begins.
Businesses should therefore incorporate the qualifying conditions into their ordinary transaction workflow rather than treating them as a year-end tax exercise.
Why the Decision Matters
FTA Decision No. 6 of 2026 reflects a broader movement towards evidence-based Corporate Tax compliance.
The 0% Free Zone regime remains commercially attractive, but businesses must be able to demonstrate that they fall within its conditions.
A trade licence, Free Zone address or general description of the company’s activity is not sufficient by itself.
The tax treatment depends on what the business actually does, who it transacts with, how goods move and whether those facts are supported by reliable records.
The AUP requirement formalises that expectation for qualifying distribution activities conducted in or from Designated Zones.
It also increases the importance of obtaining legal and tax advice before implementing commercial structures. A distribution model should be designed around the statutory conditions from the outset rather than reviewed only after transactions have occurred.
Conclusion
A missing Agreed-Upon Procedures Report may create consequences extending well beyond an incomplete compliance file.
For affected Qualifying Free Zone Persons, the report forms part of the framework through which eligibility for the 0% Corporate Tax treatment must be substantiated.
Businesses engaged in distributing goods or materials in or from a Designated Zone should therefore determine promptly whether the Decision applies to them.
They should review customer eligibility, import routes, contractual documentation, transaction records and auditor readiness before the relevant submission deadline approaches.
The central lesson is clear: access to the 0% Free Zone Corporate Tax rate depends not only on conducting a potentially qualifying activity, but also on proving that every relevant condition has been satisfied.
Al Kabban & Associates
For businesses seeking guidance, Al Kabban & Associates, with over 30 years of experience in UAE law and recognition by Legal 500, stands ready to help corporations build resilience against legal risks while ensuring compliance with local and international standards. For more information or to schedule a consultation, contact us at +971 4 453 9090 or visit www.alkabban.com. You can also follow us on social media for more updates on everything law related in the UAE: @Alkabban_Law
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