# The 0% Rate Is Not Automatic. For Distribution QFZPs, It Now Comes With a Condition.

When the UAE corporate tax framework introduced the Qualifying Free Zone Person regime, the headline was straightforward: entities meeting the qualifying criteria could apply a 0% rate to their qualifying income. The underlying logic was always more conditional — qualifying status is not a designation that, once obtained, runs indefinitely without scrutiny. [FTA Decision No. 6 of 2026](https://tax.gov.ae/Datafolder/Files/Legislation/2026/FTA%20Decision%20No.%206%20of%202026%20on%20Determining%20the%20Additional%20Procedures%20for%20the%20Compliance%20of%20QFZP%20-%20for%20publishing%20-%2007%202026.pdf) makes that conditionality explicit, and it does so in a way that will require direct action from any QFZP whose qualifying income derives from distribution activity.

The Decision, issued on 2 June 2026 and published on the Federal Tax Authority's official portal at tax.gov.ae, introduces a mandatory Agreed-Upon Procedures report for QFZPs that carry out the qualifying activity of distributing goods or materials in or from a Designated Zone. This is not a documentation request or an audit recommendation. It is a condition. Without the report, distribution income that a QFZP has treated as qualifying — and therefore subject to 0% corporate tax — becomes vulnerable to reassessment. The practical consequence of that reassessment is a 9% rate applied to income that was never provisioned for it.

What the AUP Report Must Establish

The report must be prepared under ISRS 4400 by an independent auditor licensed in the UAE. It is not an audit opinion and it is not a tax opinion. An Agreed-Upon Procedures engagement is narrower than either: the auditor performs specific, defined procedures and reports on their findings without expressing a conclusion or assurance on the subject matter as a whole. That distinction matters because the procedures here are precisely specified, and a report that addresses something adjacent — rather than the two required elements — does not satisfy the requirement.

The two elements the AUP report must verify are: first, that the customers of the QFZP hold reseller status; and second, that the goods in question were imported into the Designated Zone. Both have evidentiary implications that work backwards through the transaction record.

On reseller status, the QFZP needs to be able to demonstrate, for each customer or class of customer, that the customer meets the relevant definition. In practice, this means obtaining and retaining customer classification documentation — trading licences, import-export registrations, or equivalent — and ensuring that the commercial terms on which goods are sold are consistent with a reseller relationship. A distribution arrangement that in substance involves end consumers, even if structured through intermediaries, will create difficulty at the AUP stage.

On the importation condition, the goods must have been brought into the Designated Zone. This is a physical and documentary fact, not a legal characterisation. Shipping records, customs declarations, and warehouse receipts form the foundation of what an auditor conducting the AUP procedures will examine. Entities that have not maintained organised records at the transaction level — rather than at the aggregated financial reporting level — will find the preparation process significantly more demanding than those that have.

The Timeline and What It Requires Now

For a calendar-year taxpayer, the AUP report is due by 30 October 2027. The corporate tax return for the period ending 31 December 2026 is due 30 September 2027. The sequencing is deliberate: the AUP report follows the return, but is tied to the same tax period.

The operative phrase, however, is that the Decision applies to tax periods commencing on or after 1 January 2026. That means the period that is currently running — 1 January 2026 to 31 December 2026 for a calendar-year entity — is the first period to which this requirement attaches. The transactions being entered into now, the customer documentation being obtained or not obtained now, the goods movements being recorded or not recorded now, are the factual record from which the AUP report will eventually be prepared.

An entity that waits until late 2027 to begin assembling its AUP documentation is not managing a future compliance obligation. It is reconstructing a past one — and reconstruction, in an audit context, carries its own risks. The auditor's procedures are designed to verify contemporaneous records, not to accept a retrospective narrative.

The practical implication is straightforward: the work required to support an AUP report is not an audit preparation exercise conducted in the months before submission. It is a transaction-level discipline applied throughout the period. Customer onboarding processes should capture reseller classification as a standard step. Logistics and customs documentation should be retained at the shipment or consignment level, not archived in summary form. The commercial substance of distribution arrangements — who the customers are, what they do with the goods, how title passes — should reflect the qualifying activity definition, not merely approximate it.

The Structural Question Behind the Compliance Question

FTA Decision No. 6 of 2026 sits within a broader pattern. The QFZP regime has always required that qualifying status be substantiated by qualifying activity and adequate substance, not asserted by virtue of free zone registration. Each additional layer of evidential requirement — AUP reports, auditor verification of specific facts, mandatory documentation standards — narrows the gap between entities whose structures were designed with the regulatory framework in mind and entities that adopted the qualifying activity classification on the basis that it appeared to fit, without examining whether the underlying transactions met the relevant conditions.

That trajectory reflects an international direction of travel. The OECD's work on substance requirements and preferential regimes, available in detail at oecd.org, has long signalled that zero-rate or low-rate treatments tied to specific activities would face increasing pressure to demonstrate genuine economic nexus. The UAE's progressive tightening of QFZP evidentiary requirements is consistent with those international standards — and with the UAE's stated commitment to maintaining a compliant, internationally recognised tax framework as formalised through the Ministry of Finance at mof.gov.ae.

For QFZP entities whose primary qualifying income derives from distribution in or from a Designated Zone, the question is not whether to commission an AUP report. That question has been answered. The question is whether the entity's commercial operations, documentation practices, and customer relationships are configured in a way that an independent auditor, applying the specified procedures, will find what the Decision requires them to find.

If the answer to that question is uncertain, the time to resolve that uncertainty is during the period to which the requirement applies — not after the corporate tax return has been filed.

We work with a small number of QFZP entities on exactly this kind of structural and compliance review. If your distribution structure warrants a closer look before the year-end position is locked in, we are available to have that conversation.

Founded in 2010. In DMCC Dubai since 2014. Affinitas was the first firm authorised by DMCC to establish Special Purpose Vehicles for clients when that product launched.