QFZPs Engaged in Distribution Activities – New Compliance Requirements

There is a new update on Corporate Tax for Qualifying Free Zone Persons (QFZPs) engaged in the Distribution of Goods in the UAE. The additional compliance procedures require obtaining an approval letter from government registered tax agents.

So, trading companies in the Designated Zones must get an ‘Agreed-Upon Procedures (AUP) Report’ from the independent government-approved external tax auditor. The company must meet certain requirements and appoint the tax auditor to prepare and submit the AUP report to the Federal Tax Authority.

Key Takeaways

• FTA Decision No.6 of 2026 introduces specific compliance requirements for QFZPs engaged in distribution.
• The requirement for an AUP report means QFZPs must contact Government Approved Auditors to prepare the report.
• QFZPs must have evidence ready proving their business activities and reseller status. Imports into the UAE must be through a Designated Zone.
• The QFZP must be in touch with the Free Zone and the customs process to keep track of any updates on their supply chain. Also, maintain customs documentation, financial record-keeping, etc.
• Submit the AUP Report within 30 days of the corporate tax filing.

These new requirements are to strengthen compliance and ensure that only businesses genuinely carrying out qualifying distribution activities continue to benefit from the 0% UAE Corporate Tax regime.

Qualifying Free Zone Person indulged in Distribution of Goods in UAE – What Has Changed?

Under the latest regulations, a Qualifying Free Zone Person engaged in distribution activities must now:

Maintain audited financial statements

They must obtain an ‘Agreed-Upon Procedures (AUP) Report’ from the independent external auditor responsible for auditing the company’s financial statements or another government-approved tax auditor.

The company must prepare the AUP Report in accordance with the International Standard on Related Services (ISRS). This additional reporting requirement supports the company’s continued eligibility as a Qualifying Free Zone Person (QFZP).

Who is AUP Report for?

The new requirements apply to Qualifying Free Zone Persons (QFZPs) whose qualifying activity is the distribution of goods or materials in or from a Designated Zone.

What will the Auditor Verify?

The appointed independent auditor will perform agreed-upon procedures to confirm that the company satisfies the conditions for qualifying distribution activities.

Key Verification Areas include:

1. Goods Enter Through a Designated Zone

The auditor will verify that imported goods enter the UAE through a recognized Designated Zone, ensuring the physical point of entry complies with the Corporate Tax regulations.

2. Goods Are Intended for Trade or Manufacturing

The purchaser of the goods should not be the final consumer.

Instead, the buyer must:

• Resell the goods in whole or in part, or
• Transform or manufacture the goods with the intention of selling them to the final consumer.

This confirms that the transaction forms part of a genuine commercial distribution supply chain.

Documents and Records the Auditor Will Review

To support the AUP Report, businesses should maintain comprehensive records throughout the financial year.

Typical documents include:

• Customer Business Licences – Demonstrating that buyers are authorised for trading, wholesale, retail, or manufacturing activities.
• Customs Documentation – Confirming lawful import clearance through a Designated Zone.
• Buyer Declarations or Confirmations – Stating that the goods will be resold or further processed rather than consumed.
• Shipping Documents – Including Bills of Lading (B/L) and Air Waybills (AWB), showing the goods entered through a Designated Zone.
• Contracts, Purchase Orders, Invoices, and Billing Records – Evidencing wholesale transactions, pricing, and resale arrangements.
• Warehouse, Inventory, and Stock Movement Records – Demonstrating storage and movement of goods within the Designated Zone.

Maintaining proper documentation throughout the year will significantly simplify the AUP process and reduce compliance risks.

 Timeline for Submission of the AUP Report

Businesses should not wait until year-end to prepare the required documentation.

The recommended approach is:

• Throughout the Financial Year – Maintain complete supporting records and evidence for every qualifying distribution transaction.
• Within 30 Days – Submit the Agreed-Upon Procedures (AUP) Report to the Federal Tax Authority (FTA) within 30 days after the Corporate Tax Return filing deadline for the relevant Tax Period.

Timely preparation is essential to avoid last-minute compliance issues.

The AUP Report must confirm that:

• The QFZP supplies goods or materials to customers that resell them, including after processing or alteration.
• Goods or materials entering the state, if imported by the QFZP, are imported through a designated Zone.

Why Timely Compliance Matters

Failure to submit the required AUP Report may result in the business being treated as non-compliant with the regulations.

This could jeopardise the company’s eligibility for the 0% Corporate Tax regime available to Qualifying Free Zone Persons, potentially resulting in the loss of valuable tax benefits.

Businesses engaged in qualifying distribution activities should therefore review their documentation processes, coordinate with their auditors well before year-end, and ensure all compliance requirements are met within the prescribed deadlines.

Disclaimer: This article is intended for general informational purposes only and is based on publicly available information regarding the UAE Corporate Tax framework. It should not be considered legal, tax, or financial advice. Businesses should consult a qualified UAE Corporate Tax advisor or professional consultant before making any decisions based on these regulations.