Free zone businesses that distribute goods have a new compliance step to keep their 0% Corporate Tax on that income, and it is easy to overlook because it falls after the return is filed. A recent FTA decision requires a qualifying free zone distributor to obtain an independent auditor's report proving the distribution genuinely qualifies. Miss it, and the qualifying conditions are treated as not met. Here is what FTA Decision No. 6 of 2026 asks for and who it applies to.
Who this affects
The rule targets a specific group: a qualifying free zone person whose qualifying activity is distributing goods or materials in or from a Designated Zone. Distribution is one of the qualifying activities that carries the 0% rate, but only where the goods are genuinely resold, processed, or altered by the customer, and where imported goods entered the country through the Designated Zone. FTA Decision No. 6 of 2026, for tax periods starting on or after 1 January 2026, adds a procedure to prove exactly that.
The agreed-upon procedures report
The core requirement is an agreed-upon procedures report, or AUP report, from an independent external auditor, prepared under the international standard ISRS 4400. The report has to demonstrate that the customers resell, process, or alter the goods, and that imported goods entered the State through a Designated Zone. In other words, an outside auditor tests and confirms that the distribution really meets the conditions the 0% rate depends on.
| Element | What is required |
|---|---|
| The report | An AUP report from an independent auditor under ISRS 4400 |
| What it proves | Customers resell, process or alter the goods; imports entered via a Designated Zone |
| Records to keep | Customer trade licences, reseller declarations, sales agreements, invoices, customs and import declarations, bills of lading, inventory logs |
| Deadline | Submit the report within 30 days after the Corporate Tax return filing deadline |
The deadline falls after you file
The timing is the trap. The AUP report must be submitted to the Authority within 30 days after the Corporate Tax return filing deadline, not with the return itself. A distributor that files its return and considers the job done can still fail this step a month later. And the consequence is serious: if the report is not submitted, the relevant qualifying conditions are treated as not met, which puts the 0% rate on that income at risk.
Filing the return is not the end for a free zone distributor. A separate auditor's report is due within 30 days after the filing deadline, and without it the qualifying conditions are treated as not met.
Sampling and evidence
The report is evidence-based. The decision sets a sampling method, using a defined formula with a 10% margin of error and focusing on the highest-value transactions, and it lists the records the distributor must retain to support the testing: customer trade licences, signed reseller declarations, sales agreements, invoices, import and customs declarations, bills of lading, and internal inventory logs. A distributor that keeps these through the year makes the report straightforward; one that does not has to reconstruct them under time pressure.
What to do about it
If you are a free zone distributor relying on the 0% rate, plan for the AUP report now. Keep the customer, sales, import, and inventory records the decision lists as you go, engage an auditor who can prepare an ISRS 4400 report, and diarise the deadline at 30 days after your Corporate Tax filing date, not the filing date itself. The 0% rate on distribution income is valuable, and this report is now the price of keeping it. Treating it as an afterthought is how a compliant distributor loses the benefit on a technicality.
This article is general information and is not tax advice. The requirement is set out in FTA Decision No. 6 of 2026, which should be confirmed against its current text. We would be glad to help you prepare for the AUP report and keep the supporting records.