The Federal Tax Authority has issued Decision No. 6 of 2026 (issued 2 June 2026), introducing a mandatory compliance layer that every corporate tax consultant advising Qualifying Free Zone Persons (QFZPs) now needs to factor in — specifically for those engaged in the Qualifying Activity of distribution of goods or materials in or from a Designated Zone. The Decision applies to Tax Periods commencing on or after 1 January 2026 — which means the compliance clock is already running for calendar-year taxpayers.
In substance, the FTA has converted what was previously a self-assessed factual position — “our customers are resellers, and our goods enter the UAE through a Designated Zone” — into a position that must now be independently tested by an auditor and reported to the FTA under ISRS 4400. This article unpacks the Decision, the prescribed procedures, the statistical sampling formula, and the consequences of non-compliance.
The legislative context
Under Cabinet Decision No. 100 of 2023 and Ministerial Decision No. 229 of 2025, the distribution of goods or materials in or from a Designated Zone is a Qualifying Activity (paragraph (l) of Clause 1 of Article 2 of MD 229/2025) — but only where two substantive conditions hold:
- The reseller condition — the QFZP supplies goods or materials to customers who resell them (or parts thereof), or who process or alter them for the purposes of sale or resale; and
- The Designated Zone importation condition — where the QFZP imports goods into the UAE, those goods enter the State through a Designated Zone.
Separately, Ministerial Decision No. 84 of 2025 (Clause 3 of Article 2) contemplated additional procedures for such QFZPs in connection with their audited financial statements. FTA Decision No. 6 of 2026 is the instrument that operationalises those additional procedures.
The core obligation: an ISRS 4400 agreed-upon procedures report
Article 2 of the Decision requires the QFZP to obtain an agreed-upon procedures (AUP) report from an independent external auditor — many QFZPs will source this through established external audit services in Dubai. Two points on the choice of auditor are worth noting:
- The report may be prepared by the same auditor who performs the annual audit of the financial statements, or by any other independent auditor licensed in the UAE. There is no forced separation of the audit and AUP engagements — a practical concession that will simplify procurement for most QFZPs.
- The report must be prepared in accordance with ISRS 4400 (Revised), Agreed-Upon Procedures Engagements, issued by the IAASB, and UAE legislation governing auditing practice. This matters: an ISRS 4400 engagement is not an assurance engagement. The auditor performs prescribed procedures and reports factual findings — it expresses no opinion or conclusion. The burden of the underlying tax position remains squarely with the QFZP.
The report must document procedures and findings demonstrating the two substantive conditions above: reseller status of customers, and Designated Zone importation.
The documentation the QFZP must maintain
The Decision is explicit that the QFZP — not the auditor — must collect, maintain, and retain the evidence base. For the reseller condition, this includes:
- Valid business, trade, or commercial licences (or equivalent documents) of customers indicative of reselling;
- Signed declarations or written confirmations from customers that goods are acquired for sale or resale (or donation to a public benefit entity);
- Sales agreements, invoices, purchase orders, and other transactional records that collectively demonstrate resale or onward supply.
For the importation condition:
- Import declarations and customs clearance documents evidencing lawful entry through a Designated Zone;
- Shipping documents — bills of lading, airway bills, or equivalent — clearly indicating entry through a Designated Zone.
Our observation: for many distribution businesses, the customer declaration is the weakest link. Very few distributors currently obtain signed, dated, period-specific reseller confirmations from customers as a matter of routine. This needs to become a standard onboarding and annual refresh process — retrofitting declarations at year-end, across a large customer base and multiple jurisdictions, is operationally painful.
The prescribed procedures (Article 3)
Article 3 prescribes the AUP work programme itself. For reseller verification, three procedures:
- Inspection of customer trade licences — verifying that licensed activities include trading, wholesaling, retailing, distributing, manufacturing, or other activities indicative of reselling;
- Verification of customer declarations — confirming declarations affirm reseller status and are signed, dated, and relate to the relevant Tax Period;
- Review of sales agreements and transactional records — identifying features of onward sale such as bulk quantities, resale conditions, or applicable pricing structures, and documenting whether customers resell, or process/alter goods for sale or resale.
For Designated Zone importation, three further procedures:
- Inspection of import documentation — customs declarations, import permits, sales contracts, bills of lading;
- Confirmation of Designated Zone status — verifying that the free zone, port, or area identified in the import documentation is formally designated under the relevant Cabinet Decisions, with confirmation from the relevant Free Zone Authority to the QFZP;
- Inspection of internal records — inventory logs, warehousing reports, goods movement records, and logistics documentation evidencing that goods were received, handled, or stored within a Designated Zone prior to distribution.
Where the wording of a procedure is adapted without changing its substance, the changes must be disclosed in an appendix to the report. Details of the samples selected must also be included in an appendix, and each procedure must be accompanied by a description of the nature, timing, and extent of the evidence obtained.
The sampling formula — Slovin’s formula with a 10% margin of error
Perhaps the most distinctive feature of the Decision is that the FTA has legislated a statistical sampling formula:
Sample Size = Sample Population ÷ [1 + (Sample Population × (Margin of Error)²)]
with the Margin of Error fixed at 10%. Practitioners will recognise this as Slovin’s formula. Critically, the Decision also fixes the selection basis: the sample must comprise the customers, agreements, or imports with the highest transaction values in the relevant Tax Period — this is value-targeted selection, not random sampling.
Worked illustrations:
| Sample Population | Calculation | Sample Size (rounded up) |
|---|---|---|
| 50 customers | 50 ÷ (1 + 50 × 0.01) = 33.3 | 34 |
| 250 customers | 250 ÷ (1 + 250 × 0.01) = 71.4 | 72 |
| 1,000 imports | 1,000 ÷ (1 + 1,000 × 0.01) = 90.9 | 91 |
| 10,000 imports | 10,000 ÷ (1 + 10,000 × 0.01) = 99.0 | 99 |
Note the mathematical property: as the population grows, the sample size asymptotically approaches 100 (1 ÷ 0.10²). But for smaller populations the coverage is punishing — a QFZP with 50 customers must have 34 of them tested. Small and mid-sized distributors should not assume the sampling burden will be light.
The Sample Population is defined separately for each procedure — total customers supplied in the Tax Period (licence and declaration testing), total sales agreements (transactional testing), and total imports (all three importation procedures). For any other documents, the sampling process is to be agreed between the QFZP and the auditor based on the Decision’s requirements.
Filing deadline and the consequence of failure
The AUP report must be submitted to the FTA no later than 30 days following the deadline to file the Corporate Tax return for the relevant Tax Period (or such other date as the FTA determines). For a calendar-year 2026 QFZP with a 30 September 2027 return deadline, the AUP report would fall due by 30 October 2027.
The consequence of failure is severe and automatic. If the report is not submitted, the conditions in Clause 3 of Article 2 of MD 84/2025 and paragraph (l) of Clause 1 of Article 2 of MD 229/2025 are deemed not met. In practical terms, the distribution activity ceases to be a Qualifying Activity. For a distributor whose revenue is predominantly from Designated Zone distribution, that income becomes non-qualifying, the de minimis threshold will almost certainly be breached, and QFZP status — with its 0% rate on Qualifying Income — is lost for the relevant Tax Period and the subsequent four Tax Periods under the standard cessation rule. A missed AUP filing is therefore not a procedural slip; it is potentially a five-year, 9% exposure on the entire taxable income base.
A gray area: mid-period issuance and the retrospective evidence problem
The Decision applies to Tax Periods commencing on or after 1 January 2026 (Article 5) — yet it was issued on 2 June 2026, five months into the first Tax Period it governs. It contains no transitional or savings provision, and that timing creates a practical gap worth naming.
For every calendar-year QFZP, transactions from January through May 2026 occurred before anyone knew that period-specific, signed reseller declarations and Free Zone Authority confirmations of Designated Zone status would be tested by an independent auditor under prescribed procedures. Distribution businesses that were fully compliant with the framework as it stood at the time may simply not have collected that evidence contemporaneously — because no instrument yet required it in that form.
Nothing in the Decision prohibits obtaining this documentation retrospectively for the auditor’s sample. But the evidential quality differs: a reseller declaration signed in November 2026 covering supplies made in February 2026 is inherently weaker than one obtained at the time of supply, and an ISRS 4400 report records factual findings as they stand — including dates. Affected QFZPs should therefore begin retrospective evidence-gathering for the pre-issuance months immediately, rather than deferring it to the AUP engagement, and should run contemporaneous collection for all transactions from here forward.
Two points of comfort on timing. First, no in-scope return could have been due before the Decision issued: the earliest possible in-scope period (a short period ending, say, 31 March 2026) carries a filing deadline of around 31 December 2026, well after 2 June 2026. Second, even the rare taxpayer that voluntarily filed an in-scope return early — realistically only liquidating entities closing out a final short period — is not prejudiced procedurally, because Article 2(7) anchors the AUP submission to 30 days after the return deadline, not the filing date. The compliance window remains open for all in-scope taxpayers; the challenge is evidential, not procedural. Formal FTA clarification on the treatment of pre-issuance months would nonetheless be welcome.
Practical action points
- Confirm scope. Establish whether your free zone entity relies on paragraph (l) distribution as a Qualifying Activity. Entities distributing from non-Designated free zones, or whose distribution income sits within de minimis tolerance, face a different analysis.
- Engage the auditor early. Agree the AUP engagement terms with one of the established audit firms in Dubai alongside the FY2026 statutory audit, so procedures, populations, and data extraction are planned in parallel — not sequenced after the audit.
- Build the declaration process now. Implement a standard reseller declaration template — signed, dated, referencing the Tax Period — into customer onboarding and annual account reviews.
- Map the import trail. Reconcile customs declarations, bills of lading, and warehouse/inventory records to demonstrate physical entry, receipt, and storage in a Designated Zone. Obtain written confirmation of Designated Zone status from the relevant Free Zone Authority.
- Quantify the sampling burden. Run the Slovin’s computation on your actual customer, agreement, and import populations and rank by transaction value — this defines the document set to be assembled.
- Diarise the deadline. Build the AUP submission (return deadline + 30 days) into the corporate tax compliance calendar with internal milestones well ahead of it.
How TSAC can help
As one of the tax advisory firms based in Dubai, TSAC advises free zone businesses across the full QFZP lifecycle — Qualifying Activity classification, de minimis modelling, documentation frameworks, and coordination of the ISRS 4400 AUP engagement with your external auditor. If your business distributes goods in or from a Designated Zone, the FY2026 Tax Period is already subject to this Decision, and the evidence base must be built contemporaneously not reconstructed at year-end.
This publication is for general information only and does not constitute tax advice. Based on the unofficial English translation of FTA Decision No. 6 of 2026. Please contact TSAC for advice specific to your circumstances.