FTA Decision

This decision matters to any company that meets two conditions at the same time. First, the company must already qualify as a Qualifying Free Zone Person under the corporate tax law, which generally means it operates in a free zone and meets a set of substance, income, and reporting requirements. Second, the company must carry out distribution of goods or materials in or from a Designated Zone, which is one of the recognized Qualifying Activities listed in Ministerial Decision No. 229 of 2025.

If a company fits both of those descriptions, it now has an added compliance obligation on top of everything it already had to do. Companies that do not engage in this particular distribution activity are not directly affected by this decision, though they remain subject to the other corporate tax rules that already apply to them.

Article 1: Definitions

The decision keeps its definitions section short. Rather than creating new terms, it simply says that words used in the decision carry the same meaning given to them in the Corporate Tax Law, Cabinet Decision No. 100 of 2023, and Ministerial Decision No. 229 of 2025, unless the surrounding text makes it clear that a different meaning is intended. This approach keeps the new decision consistent with the rules already in place, rather than introducing a separate vocabulary that businesses would need to learn.

Article 2: The Core New Requirement

Article 2 is where the substance of the decision really begins. It introduces a new obligation for any Qualifying Free Zone Person engaged in distributing goods or materials in or from a Designated Zone.

An Independent Report Is Now Required

Companies that fall under this category must now obtain what is called an agreed-upon procedures report. This is a specific type of report produced by an independent auditor after the auditor carries out a defined set of checks on the company’s records and transactions. The report does not offer an opinion in the way a standard audit report does. Instead, it states plainly what procedures were carried out and what was found, leaving interpretation to the reader, which in this case is the Federal Tax Authority.

The auditor who prepares this report can be the same external auditor already responsible for the company’s annual financial statement audit, or it can be a different independent auditor, as long as that auditor is licensed to practice in the UAE.

What the Report Has to Prove

The report needs to document the procedures performed and the results found for two separate points, summarized below.

Table 2: The two-part test at the center of Article 2

Both points matter because they go to the heart of what makes this activity a Qualifying Activity in the first place. A company that supplies goods to end users rather than resellers, or that brings goods into the country outside a Designated Zone, would not be performing the activity the tax law intends to benefit.

Evidence a Company Should Keep on Hand

The decision lists examples of documentation a company can rely on to support each part of the test. These are described as non-exhaustive examples, meaning other forms of proof can also work.

Table 3: Supporting documentation for the two-part test

The Auditing Standard Behind the Report

The report cannot be put together in whatever format the auditor prefers. It has to follow International Standard on Related Services 4400, commonly referred to as ISRS 4400, which is the standard issued by the International Auditing and Assurance Standards Board for agreed-upon procedures engagements. On top of that international standard, the auditor also has to follow any local legislation that governs auditing practice in the UAE. The report itself must describe both the procedures the auditor carried out and the factual results of those procedures, without adding subjective conclusions.

Deadline for Submitting the Report

Once the report is ready, it has to reach the Federal Tax Authority within a set window. The deadline is thirty days after the deadline for filing the Corporate Tax return for the relevant Tax Period, unless the Authority sets a different date. This gives companies a short buffer after their tax return is due, rather than requiring the report to be submitted alongside the return itself.

What Happens If the Report Is Missing

The consequence for skipping this step is significant. If a Qualifying Free Zone Person fails to submit the agreed-upon procedures report on time, the conditions needed for the distribution activity to count as a Qualifying Activity will simply be treated as unmet. That means the company could lose the favorable tax treatment tied to that activity for the relevant Tax Period, even if the underlying business genuinely met every other requirement. The report, in other words, is not optional paperwork sitting on the side. It is treated as a condition for qualifying in the first place.

Article 3: How the Auditor Actually Performs the Checks

Article 3 gets into the mechanics. It spells out exactly which procedures the auditor is expected to carry out to support the two claims described in Article 2, and it explains how large a sample of records the auditor needs to review.

Confirming That Customers Are Resellers

Three separate procedures are laid out for this part of the review, each pulling from the customers or agreements with the highest transaction values in the Tax Period.

Table 4: Procedures used to confirm reseller status

Confirming That Imports Come Through a Designated Zone

A separate set of three procedures applies to this second requirement, and it only matters for companies that import goods themselves.

Table 5: Procedures used to confirm Designated Zone importation

How the Sample Size Is Worked Out

Rather than leaving sample size up to guesswork, the decision provides a formula. The company starts with its Sample Population, meaning the total number of relevant customers, sales agreements, or imports for the Tax Period, depending on which procedure is being applied. That number is plugged into a standard statistical sampling formula that also factors in a fixed Margin of Error. The result tells the auditor exactly how many records need to be pulled and reviewed.

Under each procedure, the decision also specifies that the Sample Size should be made up of the customers, sales agreements, or imports with the highest transaction values during the Tax Period. This means the auditor is not picking records at random, but instead focusing on the largest and most financially significant transactions first.

Table 6: Sample size terms at a glance

Documents That Fall Outside the Listed Procedures

The decision recognizes that not every situation will fit neatly into the procedures already described. For any other type of document that might come up, the sampling approach is left to be worked out between the company and its auditor, as long as it still follows the general requirements of the decision and draws on the methods already set out in Article 3.

What the Final Report Needs to Include

Every procedure written into the report needs to come with a description of the evidence gathered, the timing of the work, and how much work was actually performed, along with the factual results tied to each procedure. Details about the samples that were chosen also need to appear in an appendix attached to the report, giving the Authority a clear paper trail behind every conclusion.

Minor Wording Changes Are Still Allowed

The decision leaves a small amount of flexibility for auditors. If the wording of a procedure needs slight adjustment for a particular company’s circumstances, without changing what the procedure is actually meant to check, that adjusted wording can still be used, as long as it is documented in an appendix attached to the agreed-upon procedures report.

Article 4: Older Conflicting Rules Are Repealed

Article 4 is a standard legal cleanup clause. It states that any earlier text or provision that contradicts this new decision is repealed. This is a common feature in UAE legislation, used to prevent conflicts between older rules and newly issued ones, and it does not introduce any additional obligations on its own.

Article 5: Which Tax Periods This Applies To

Article 5 sets the scope of application. The decision applies to Tax Periods that start on or after January 1, 2026. Companies with Tax Periods that began before that date are not covered by this particular decision, though they remain subject to the rules that were in force during their own filing periods.

Article 6: When the Decision Became Effective

Article 6 confirms that the decision was to be published in the Official Gazette and that it took effect starting on its date of issuance, which was June 2, 2026. Even though the decision itself became legally effective on that issuance date, its practical application, as set out in Article 5, is tied to Tax Periods beginning on or after January 1, 2026.