FTA Decision No. 6 of 2026: What Free Zone Distributors Need to Know
Federal Tax Authority Decision No. 6 of 2026 (FTA Decision No. 6) introduces additional compliance requirements for Qualifying Free Zone Persons (QFZPs) engaged in the distribution of goods or materials in or from a Designated Zone. The Decision was issued on 2 June 2026 and applies to tax periods commencing on or after 1 January 2026.
Under Ministerial Decision No. 229 of 2025, the distribution of goods or materials in or from a Designated Zone is considered a Qualifying Activity for QFZPs, subject to prescribed conditions. Further, Ministerial Decision No. 84 of 2025 on preparing and maintaining audited financial statements required a QFZP engaged in the distribution business to comply with additional procedures by the FTA. While the underlying regulations established the substantive requirements, FTA Decision No. 6 sets out how those requirements must be evidenced, tested, and reported.
Key Requirements Introduced
1. Mandatory Agreed-Upon Procedures (AUP) Report
QFZPs carrying on the qualifying distribution activity must obtain an AUP report prepared by:
- The independent external auditor responsible for the annual audit; or
- Another independent auditor licensed in the UAE.
The report must be prepared in accordance with ISRS 4400 - Agreed-Upon Procedures Engagements issued by the International Auditing and Assurance Standards Board (IAASB).
2. Procedures to be Verified by the Auditor
The report must document the procedures performed and the factual findings.
Core Conditions to be verified
The AUP report must demonstrate that:
- Customers acquire goods or materials for resale, onward supply, or processing for sale or resale.
- Goods imported into the UAE by the QFZP enter the State through a Designated Zone.
To support this requirement, QFZPs must maintain the adequate prescribed documentation. The documentation required and procedures to be applied by auditors are as below -
| Sr. No. | Documentation to be maintained by QFZP | AUP to be performed by auditor |
|---|---|---|
Verification of Reseller condition | ||
| 1. | Valid trade or commercial licenses of the customer | Verify whether the listed business activities in the license include trading, wholesaling, retailing, distributing, manufacturing, or other commercial activities indicative of reselling of the goods or materials, or parts thereof, supplied by the QFZP. |
| 2. | Signed Customer declarations or confirmations confirming goods are acquired for resale (or donation to public benefit entities); | Obtain signed customer declarations and confirmations and verify whether the declarations are signed, dated, and relate to the relevant Tax Period. |
| 3. | Sales agreements, invoices, purchase orders and other transactional records demonstrating resale or onward supply activities. | Examine sales agreements and transactional records to identify and document terms or features of onward sale or resale activity, such as bulk quantities, resale conditions, or applicable pricing structures for the relevant goods or materials. |
Verification of Designated Zone Importation | ||
| 1. | Import declarations and customs clearance documents, Shipping documents, such as a bill of lading, an airway bill, or equivalent transport documents clearly evidencing lawful entry through a Designated Zone; | Inspect import documentation including but not limited to customs declarations, import permits, sales contracts and the bill of lading, to verify that the goods or materials were imported into the State through a Designated Zone. |
| 2. | Designated Zone documentation | Verify that the Free Zone, port, or area identified in the import documentation is formally designated as a "Designated Zone" pursuant to relevant Cabinet Decisions, or other legislation in force in the State. This should be confirmed by the relevant Free Zone Authority to the QFZP. |
| 3. | Internal records like inventory logs, warehousing reports, goods movement records, and logistics documentation | Verify internal records that evidence that the goods or materials were received, handled, or stored within a Designated Zone prior to distribution. |
3. Sampling Methodology
The Decision prescribes a statistical sampling approach for auditor testing. The formula for determining the quantum of the sample is prescribed below -
| Sample Size = | Sample Population |
| 1 + (Sample Population × (Margin Error)2) |
Sample population means the total customers, sales agreements, or imports, as applicable. The sample must include transactions with the highest values. Further, the margin of error is fixed at 10%.
The selected samples and related findings must be documented and included in the AUP report.
4. Submission Deadline
The AUP report must be submitted to the FTA within 30 days after the deadline for filing the Corporate Tax return for the relevant tax period, unless the FTA specifies otherwise.
Consequences of Non-Compliance
If a QFZP fails to submit the required AUP report, the qualifying conditions for the distribution activity will not be considered satisfied. This may affect the taxpayer's ability to treat income from such activities as Qualifying Income under the UAE Free Zone Corporate Tax regime.
Practical Considerations for Businesses
The Decision reflects the FTA's increasing focus on ensuring that Free Zone entities claiming preferential Corporate Tax treatment maintain robust records supporting qualifying activities.
Tax advisors have widely recommended the requirement of signed declarations from customers confirming that they are resellers. This is now a mandatory requirement. Further, businesses must envisage potential challenges they may face in respect of revisiting the sale agreements with customers to document reseller terms. Further, in case of long-standing relations where agreements are usually sacrosanct, especially with non-UAE customers, negotiations for inserting the relevant terms for reseller need to be initiated well in advance to ensure the timely availability of records for audit. In the absence of clarity in the agreement terms on the reseller condition, it will be difficult to prove otherwise, except where detailed records of onward sale are obtained from the customer, which would be a greater challenge.
Key Action Points
- Implement reseller declaration processes during customer onboarding.
- Review customer agreements to ensure resale activities are appropriately documented.
- Strengthen import, inventory and logistics record-keeping procedures.
- Engage auditors early to align on sampling requirements and evidence expectations.
- Conduct a readiness assessment before the first reporting cycle.
Businesses that proactively strengthen their documentation and governance frameworks will be better positioned to preserve access to the benefits available under the QFZP regime.
