FTA Decision No. 6 of 2026: What Free Zone Distributors Must Do to Protect the 0% Corporate Tax Benefit

For tax periods commencing on or after 1 January 2026, Qualifying Free Zone Persons (QFZPs) engaged in the distribution of goods or materials will be subject to an additional compliance requirement to continue benefiting from the 0% Corporate Tax rate.

The decision does not change the applicable tax rate. Instead, it introduces an annual compliance process requiring eligible businesses to demonstrate that their distribution activities satisfy the prescribed conditions. 

The Federal Tax Authority issued FTA Decision No. 6 of 2026 on 2 June 2026, introducing additional procedures for Qualifying Free Zone Persons carrying out distribution activities in or from a Designated Zone. To continue benefiting from the 0% Corporate Tax rate, affected businesses must now obtain an Independent Agreed-Upon Procedures (AUP) Report from an independent external auditor.

Why This Decision Matters

The decision is important because it directly affects Free Zone businesses that rely on qualifying distribution income to benefit from the 0% Corporate Tax rate. If the required procedures are not followed, the Federal Tax Authority may treat the relevant income as non-qualifying, which could expose the business to the standard 9% Corporate Tax rate.

The Core Requirement: An Annual Agreed upon procedures (AUP) Report

A Qualifying Free Zone Person engaged in the relevant distribution activity must obtain an Agreed-Upon Procedures report from an independent external auditor every year. This report is prepared in accordance with ISRS 4400, the International Standard for agreed-upon procedures engagements, using a margin of error sampling methodology. It is important to understand that an AUP report is not the same as a full audit opinion. The auditor does not provide an assurance conclusion. Instead, the auditor performs specific procedures and reports factual findings. The responsibility for meeting the Corporate Tax conditions remains with the business.

The Deadline for submission of Agreed Upon procedures report 

The report must be submitted to the Federal Tax Authority no later than 30 days after the Corporate Tax return is filed. Missing this deadline may result in the business being considered as not having met the conditions required to apply the 0% Corporate Tax rate on the relevant qualifying income.

Effective date 

This requirement applies to tax periods commencing on or after 1 January 2026. Accordingly, affected businesses should begin preparing now to ensure compliance throughout the tax period, rather than waiting until the time of filing their Corporate Tax return.

What the Auditor Will Check

The Agreed Upon Procedures (AUP) engagement focuses on verifying two key conditions to support the eligibility for the 0% Corporate tax. 

1. Proving that customers are resellers 

The auditor will verify that the business supplies goods or materials to customers who are genuine resellers , or who process or alter the goods for the purpose of sale or resale. Entities must maintain appropriate documentation to support the customers’ resale activity. The auditor may review the following documentation:

• Customer reseller status – Evidence that the customer is engaged in resale or related activity.
• Trade or commercial license - Valid business license showing the customer’s commercial activity.
• Signed reseller declaration -Declaration or confirmation from the customer regarding their resale activities.
• Sale agreements, invoices and supporting records – Contracts, invoices, delivery notes and other records that support the retail transactions. 

2. Proving entry through a designated zone 

The auditor will verify that the goods imported into the UAE entered through a Designated Zone before distribution. Businesses should maintain sufficient evidence to demonstrate that the goods were received, handled, stored, or transported through the Designated Zone. The auditor may review the following documentation:

• Import declarations 
• Customs clearance documents 
• Shipping records (e.g., Bills of Lading, Air Waybills, or equivalent transport documents) 
• Warehouse and inventory records 
• Goods movement records 
• Logistics and transportation document

How Sampling Works

The auditor is not required to review every document in all cases. Instead, the decision sets out a sample-based approach using a formula with a 10% margin of error. Importantly, the sample is value weighted. This means the auditor must start with the customers, agreements, and import transactions with the highest transaction values first , rather than selecting items randomly.

What Businesses Should Do Now

Free Zone distributors should not treat this as a year-end exercise. The required evidence must be collected and maintained throughout the tax period. A practical first step is to speak with an independent external auditor early and understand the exact documentation and timing expectations.
Businesses should also strengthen customer onboarding procedures by collecting trade licences, reseller declarations, and relevant customer confirmations as a standard practice. This helps avoid last-minute gaps when the auditor begins the AUP procedures.From an import and logistics perspective, a master register of customers and import transactions sorted by transaction value, can also make the annual AUP process more efficient.

Conclusion

FTA Decision No. 6 of 2026 is not about introducing a new tax rate. It is about proving that the distribution activity genuinely meets the conditions required for the 0% Corporate Tax benefit. For Qualifying Free Zone Persons involved in distribution activities in or from a Designated Zone, preparation should begin now.
The businesses that prepare early will be better positioned to complete the AUP process smoothly, protect their tax position, and avoid unnecessary compliance pressure. Those that wait until filing time may face rushed documentation, higher costs, and avoidable Corporate Tax risk.
How CLA Emirates can help: CLA Emirates can support Free Zone distributors in reviewing their documentation readiness, identifying gaps, and coordinating the AUP process and issuing the AUP report to help businesses stay compliant and prepared.