Dubai Company Formation

Tax 3 min read

Free zone distributors will need a second auditor’s report to keep the 0%

Two pale jade paper documents on a deep teal-green ground, the second one smaller and set slightly behind the first, with a small brass clip joining them

The expensive part of a tax rate is rarely the rate. It is the evidence you have to be able to produce two years later to show you were entitled to it.

What was decided

Decision No. 6 of 2026 was issued by the Federal Tax Authority on 2 June 2026 and published on 14 July 2026. It applies to any Qualifying Free Zone Person carrying out the qualifying activity of distribution of goods or materials in or from a Designated Zone, as defined in Ministerial Decision No. 229 of 2025, and it bites on tax periods commencing on or after 1 January 2026.

It changes none of the substantive conditions for the 0% rate. It adds an evidentiary layer on top of them: an agreed-upon procedures (AUP) report under ISRS 4400, prepared by an independent auditor licensed in the UAE, alongside the audited financial statements that were already required.

What an AUP report is not

An AUP engagement produces no opinion. The auditor performs pre-agreed procedures and reports factual findings. Two things have to be shown: that customers resell the goods, or process and alter them for resale, and that anything imported enters the UAE through a Designated Zone.

What the auditor will actually look at

Article 3 lists the procedures — inspection of customer trade licences to confirm the licensed activity is consistent with reselling; signed, dated reseller declarations from customers for the relevant tax period; sales agreements, invoices and purchase orders read for terms indicating onward sale, such as bulk quantities or resale pricing; customs declarations, import permits and bills of lading; confirmation with the free zone authority that the area used is formally a Designated Zone; and internal inventory, warehousing and logistics records.

Sampling is not left to judgement. The Decision prescribes a statistical formula with a 10% margin of error, and the sample details go into an appendix.

The date that matters

For a calendar-year taxpayer the first report covers 1 January to 31 December 2026 and is due 30 days after the corporate tax return deadline — in practice 30 October 2027. There is nothing to file today. The transactions being tested are the ones going through the warehouse this month.

If it is missing

The conditions for the qualifying distribution activity are not considered to be met. That puts the 0% rate on that income, and the QFZP status attached to it, at risk.

Read this as a documentation project, not an audit fee. The procedures are all retrospective inspections of paperwork that either exists at the moment of the transaction or does not exist at all: a customer’s signed reseller declaration for the 2026 period is easy to collect in 2026 and awkward to collect in late 2027, when the customer may have changed hands, changed activity or stopped buying. The same is true of bills of lading and warehousing logs held by third-party logistics providers on retention schedules of their own. The sensible response is to add the declaration to the customer onboarding pack now and to agree a records-retention clause with the 3PL, so that the auditor in 2027 is inspecting a file rather than reconstructing one. The second-order point is about who this catches. A group whose free zone entity sells to end users rather than resellers has a substantive problem that no report will fix; a group that genuinely sells to resellers has an administrative one. The Decision is worth using as a prompt to work out, honestly, which of those describes the business.

Source: GFLO Consultancy checked against the source

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