UAE Introduces Additional Compliance Requirements for Free Zone Distribution Activities
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The UAE Federal Tax Authority has issued Decision No. 6 of 2026, introducing additional compliance procedures for Qualifying Free Zone Persons carrying out qualifying distribution activities.
While the Decision does not modify the availability of the 0% Corporate Tax regime for qualifying distribution income, it introduces a new reporting requirement that affected businesses must satisfy in order to support their entitlement to the preferential tax treatment.
What is changing?
Under the new framework, QFZPs engaged in qualifying distribution activities will be required to obtain an Agreed-Upon Procedures (AUP) Report prepared by an independent auditor.
The report is intended to verify compliance with the conditions applicable to qualifying distribution activities, including customer qualification requirements and the movement of goods through a Designated Zone. The auditor will be required to perform specific procedures prescribed by the FTA and issue a report based on the findings.
This represents an additional compliance obligation for businesses seeking to benefit from the 0% Corporate Tax rate on qualifying distribution income.
When does the new requirement apply?
The new rules apply to tax periods beginning on or after 1 January 2026.
As a result, taxpayers with calendar-year reporting periods will first need to comply with these requirements in respect of the tax year ending 31 December 2026.
Although the first reporting obligation may still appear some time away, businesses should use 2026 to assess whether their existing documentation and operational processes will enable them to meet the new requirements efficiently.
A new filing obligation
The AUP Report must be submitted to the FTA within one month following the due date of the relevant Corporate Tax return, unless the Authority specifies a different deadline.
This effectively creates an additional post-filing compliance requirement for affected taxpayers and should be incorporated into annual tax compliance calendars and governance procedures.
Failure to adequately support qualifying distribution activities may place a taxpayer's access to the Free Zone Corporate Tax benefits at risk.
What should businesses do now?
Businesses operating distribution models through UAE Free Zones should consider:
Confirming whether their activities fall within the scope of qualifying distribution activities.
Reviewing the documentation maintained in relation to customers, inventory movements and supply chain arrangements.
Assessing whether existing processes capture the information that will be required for the auditor's review.
Engaging with auditors early to understand the scope, timing and practical implications of the new AUP requirement.
Identifying any gaps in documentation or procedures before the end of the 2026 financial year.
Altair Tax Insight
The introduction of the AUP Report signals the FTA's increasing focus on evidencing compliance with the Free Zone Corporate Tax regime. The key challenge for taxpayers will not simply be meeting the qualifying conditions, but demonstrating compliance through appropriate records, documentation and audit-ready processes.
For tax periods beginning in 2026, businesses intending to apply the 0% Corporate Tax rate on qualifying distribution activities should proactively review their internal procedures and documentation framework. Early preparation will be critical to ensure a smooth compliance process and avoid potential challenges when the reporting obligation becomes due.
If your business operates a distribution model through a UAE Free Zone, our team can assist with assessing the impact of the new requirements, reviewing existing procedures and preparing for the upcoming compliance obligations.
The UAE Federal Tax Authority has issued Decision No. 6 of 2026, introducing additional compliance procedures for Qualifying Free Zone Persons carrying out qualifying distribution activities.
While the Decision does not modify the availability of the 0% Corporate Tax regime for qualifying distribution income, it introduces a new reporting requirement that affected businesses must satisfy in order to support their entitlement to the preferential tax treatment.
What is changing?
Under the new framework, QFZPs engaged in qualifying distribution activities will be required to obtain an Agreed-Upon Procedures (AUP) Report prepared by an independent auditor.
The report is intended to verify compliance with the conditions applicable to qualifying distribution activities, including customer qualification requirements and the movement of goods through a Designated Zone. The auditor will be required to perform specific procedures prescribed by the FTA and issue a report based on the findings.
This represents an additional compliance obligation for businesses seeking to benefit from the 0% Corporate Tax rate on qualifying distribution income.
When does the new requirement apply?
The new rules apply to tax periods beginning on or after 1 January 2026.
As a result, taxpayers with calendar-year reporting periods will first need to comply with these requirements in respect of the tax year ending 31 December 2026.
Although the first reporting obligation may still appear some time away, businesses should use 2026 to assess whether their existing documentation and operational processes will enable them to meet the new requirements efficiently.
A new filing obligation
The AUP Report must be submitted to the FTA within one month following the due date of the relevant Corporate Tax return, unless the Authority specifies a different deadline.
This effectively creates an additional post-filing compliance requirement for affected taxpayers and should be incorporated into annual tax compliance calendars and governance procedures.
Failure to adequately support qualifying distribution activities may place a taxpayer's access to the Free Zone Corporate Tax benefits at risk.
What should businesses do now?
Businesses operating distribution models through UAE Free Zones should consider:
Confirming whether their activities fall within the scope of qualifying distribution activities.
Reviewing the documentation maintained in relation to customers, inventory movements and supply chain arrangements.
Assessing whether existing processes capture the information that will be required for the auditor's review.
Engaging with auditors early to understand the scope, timing and practical implications of the new AUP requirement.
Identifying any gaps in documentation or procedures before the end of the 2026 financial year.
Altair Tax Insight
The introduction of the AUP Report signals the FTA's increasing focus on evidencing compliance with the Free Zone Corporate Tax regime. The key challenge for taxpayers will not simply be meeting the qualifying conditions, but demonstrating compliance through appropriate records, documentation and audit-ready processes.
For tax periods beginning in 2026, businesses intending to apply the 0% Corporate Tax rate on qualifying distribution activities should proactively review their internal procedures and documentation framework. Early preparation will be critical to ensure a smooth compliance process and avoid potential challenges when the reporting obligation becomes due.
If your business operates a distribution model through a UAE Free Zone, our team can assist with assessing the impact of the new requirements, reviewing existing procedures and preparing for the upcoming compliance obligations.
