An overview of Qatar's tax regulations

 

The current tax rules in Qatar are governed by Law No. 21 of 2009, which came into effect on January 1, 2010. The executive regulations – effective from July 1, 2011 – contain the detailed rules related to the administration of the tax regime.

The Qatar Tax Department (QTD) also periodically issues circulars to provide guidance on the interpretation of provisions in the Qatar tax law and its application in practice.

Electronic Tax Administration

The Qatar Ministry of Finance has launched a new online tax administration system to “modernise and transform tax administration functions”. This is available for use at the website www.tasportal.mof.gov.qa and became accessible on September 28, 2014. From that date, it has been mandatory for any correspondence (tax returns, withholding tax statements, extension requests, tax card applications, objections, appeals and so forth) to be submitted to the tax department through the new electronic filing system.

The intention is to move away from the requirement of submitting hard copies of correspondence. However, as the system is still in its early stages, hard copies still must be submitted in addition to any online submissions to mitigate the risk of record loss. The Qatar Financial Centre (QFC) has also now introduced mandatory online filing.

Local Source Income

Qatar tax law imposes income tax on local source income generated by residents and non-residents with permanent establishments in Qatar. Local source income includes the following:

• Gross income derived from an activity carried out in Qatar; and

• Gross income derived from contracts wholly or partially performed in Qatar. The legal provisions do not apply to the following:

• Private associations and foundations, and private foundations of public interest;

• Not-for-profit bodies;

• Salaries, wages and allowances;

• Gross income from legacies and inheritances; and

• QFC entities. The only exception to this is the withholding tax compliance obligation, which applies to all bodies other than those registered in the QFC.

Permanent Establishment

The definition of a permanent establishment in Qatar’s tax law is close to the terms of the definition in the OECD Model Convention: “a fixed place of business through which the business of the taxpayer is wholly or partially carried on, including for instance a branch, office, factory, workshop, mine, oil or gas well, quarry, building site, assembly project or place of exploration, extraction or exploitation of natural resources”.

The activity in Qatar of a dependent agent, i.e. a person other than an independent agent “acting on behalf of the taxpayer or in its interest”, may also create a permanent establishment in Qatar. Companies that have a permanent establishment in the country are likely to be subject to corporate income tax in Qatar.

Exemptions

The tax law provides that the following income be exempt from tax:

• Bank interest and returns due to natural persons other than those carrying on a taxable activity in the state, whether or not resident in the state;

• Interest and returns on public treasury bonds, development bonds and public corporation bonds;

• Capital gains on the disposal of real estate and securities derived by natural persons, provided that the real estate and securities disposed of are not part of the assets of a taxable activity;

• Dividends and other income from shares if the amounts distributed during a taxable year were taken from profits that were subject to the tax under Law No. 21 or other laws, or distributed by a company whose income is exempt from tax under Law No. 21 or other laws.

• Gross income from handicraft activities that do not use machines, provided that the gross income does not exceed QR100,000 ($27,500) per year, the average number of employees does not exceed three during the taxable year and the activity is carried out in one single establishment in accordance with the limits and conditions provided for in the executive regulations of Law No. 21;

• Gross income from agriculture and fishing;

• Gross income of non-Qatari air and sea transport companies that are operating in the state, subject to reciprocity;

• Gross income of Qatari natural persons resident in the state, including their shares in the profits of legal persons. Under the GCC reciprocity agreement, this exemption is extended to GCC nationals resident in the state; and

• Gross income of legal persons resident in the state and wholly owned by Qatari nationals. Under the GCC reciprocity agreement, this means that legal persons that are wholly owned by Qatari/GCC nationals are generally exempt from tax. However, they are still required to file a tax return and submit audited financial statements if the share capital is equal to or greater than QR2m ($549,000) or the gross revenue is equal to or greater than QR10m ($2.75m). Other tax exemptions may be provided for under special laws or international agreements, or may be granted by the Tax Exemption Committee under provisions 51 to 56 of the tax law.

Subsidiaries Of Limited Entities

Law No. 17 of 2014, which has effectively replaced the previous Law No. 20 of 2008, continues to provide a tax exemption for profits of companies listed on the Qatar Stock Exchange. This exemption was historically interpreted as applying equally to wholly owned Qatar tax resident subsidiaries of such listed companies. The QTD issued and then suspended an order that subsidiaries of listed companies should be prima facie within the scope of Qatar tax law. As such, there continues to be uncertainty whether this tax exemption will continue to apply under Law No. 17 of 2014.

Corporate Income Tax Rate

Profits attributable to non-Qatari nationals are generally subject to income tax at a flat rate of 10%. A different tax rate may apply to entities with oil and gas operations or when activities are carried out under an agreement with the government.

Non-residents who run a business in Qatar without a permanent establishment may be subject to withholding tax at either 5% or 7% of gross receipts, depending on the nature of the payment .

Deductions & Losses

Taxable income is determined by subtracting allowable deductions and losses from gross income. To be deductible, expenses must meet the following requirements:

• They are necessary to derive gross income;

• They are actually incurred and supported by documentary evidence;

• They do not increase the value of fixed assets used in the activity; and

• They are related to the taxable year. The following items are specifically non-deductible:

• Expenses and costs incurred to derive exempt income;

• Payments that are made in breach of the laws of the state;

• Fines and penalties for the breach of the laws of the state;

• Expenditures or losses in respect of which compensation is receivable or has been received if that compensation has not been included in the taxpayer’s gross income;

• The share of total expenditures on entertainment, hotel accommodation, restaurant meals, vacations, club fees and gifts to customers in accordance with the circumstances, conditions and limits provided for in the executive regulations of Law No. 21;

• Salaries, wages and similar remuneration including fringe benefits paid to the owner, his or her spouse and children, members of a general or limited partnership, or the director of a limited liability company who owns, directly or indirectly, the majority of the shares of the company; and

• The share of the branch in the headquarters’ or head office’s general and administrative expenses that exceeds the percentage determined in the executive regulations of Law No. 21. Tax losses may be carried forward for a period of up to three years.

Tax Depreciation

The executive regulations outline the depreciation methods and rates that are permitted when calculating allowable depreciation for tax purposes. For certain assets, depreciation is calculated on a straight line basis at the following rates:

• Buildings and infrastructure, including roads, bridges, pipelines, storage tanks and port ducks inside the establishment and excluding ready-made light constructions: 5% per annum;

• Ships and boats: 10% per annum;

• Airplanes and helicopters: 20% per annum;

• Drilling instruments: 15% per annum;

• Intangible assets: 0% per annum;

• Pre-establishment expenses: 50% per annum; and

• Trademarks and patents, amortised on expected lifetime of the asset provided that amortisation allowance shall not exceed 15% per annum. Other assets are divided into groups with tax depreciation available for the group on a reducing balance basis at the following rates:

• Computer hardware and software accessories: 33.33% per annum;

• Machineries, plants, office equipment, electric appliances, and transportation means of goods and persons, including cars, vehicles, tractors and cranes: 20% per annum; and

• Furniture, fixtures installation and other fixed assets depreciated as per groups not mentioned above: 15% per annum. The group value for an accounting period will be calculated as follows: The net carrying value of the assets of the group for the previous accounting period, plus the costs incurred to acquire any fixed assets during the accounting period, less the consideration of the assets disposed of in the group. Depreciation rates provided in the regulations may be increased by a decision of the Minister of Finance.

A taxpayer wishing to request permission to use an increased depreciation rate should submit an application to the QTD. It is also important to be aware that the executive regulations state that in the case of depreciation, the requirement for expenses to be “actually incurred and supported by documentary evidence” shall only be met if “the depreciation or provision is registered in the accounts, and only up to the amounts registered in the accounts”. The QTD interprets this provision narrowly to limit tax depreciation to accounting depreciation during the year.

Withholding Tax System

The tax law introduced a requirement for all entities registered in Qatar or with a permanent establishment in Qatar to withhold a percentage of certain payments made to non-residents. This means that although the withholding tax liability falls on the non-resident with activities in Qatar without a permanent establishment, the withholding tax compliance requirement is borne by the Qatar entity. The applicable withholding tax rates are as follows:

• 5% of the gross amount of royalties and technical fees; and

• 7% of the gross amount of interest (some exclusions apply), commissions, brokerage fees, director’s fees, attendance fees and any other payments for services carried out wholly or partially in the state. There is no withholding tax on dividends.

The company that makes the payment to its foreign supplier is required to withhold the tax and remit to the tax department the funds that were withheld by the 16th day of the following month. In the event that the company does not make a payment to the tax department, the company will be liable for a penalty equal to the amount of unpaid tax due, in addition to the withholding tax.

Circular No. 3 of 2011 confirmed that the requirement to withhold applies to all entities registered in the state of Qatar, including government bodies, public authorities and corporations. The circular also included instruction for such entities to refrain from including conditions relating to exemption from income tax or the bearing of its burden by them (e.g. gross-up clauses) unless written approval from the Ministry of Finance is obtained. Entities registered in the QFC do not have to withhold.

Taxation Of Non-Resident Capital Gains

Following a change in approach by the Qatar tax authority, certain practical barriers to non-residents filing tax returns have been overcome. In particular, the historic requirement that in order to file a Qatar tax return a company must have a Qatar tax card (which is not possible where the non-resident does not have either a formal legal presence, i.e. a commercial registration, or is registered as a permanent establishment with the Qatar tax authority) has been removed. 

As the practical barriers to non-residents filing a tax return have been removed, it may be necessary for non-residents to assess if they have realised Qatar-sourced income and are consequently required to file Qatar tax returns and pay the tax due. This may be of particular relevance to non-residents selling shares in a Qatar company, as in order to officially register the change in share ownership a no-objection letter or approval via an official stamp on the share transfer document must be obtained from the tax authority.

Tax Registration & Tax Card

The tax law says that if you are a taxpayer and carrying on a business activity in Qatar then you should register with the QTD and submit an application for a tax card within 30 days or earlier of obtaining commercial registration, or the first day of realisation of income from the activity. In practice it is prudent to act within 30 days of obtaining commercial registration, even if there may be a delay before you receive your first income from the activity. A penalty of QR5000 ($1370) may be imposed for failure to register and apply for a tax card within the deadline.

The duration of the first taxable period must be a minimum of six months and a maximum of 18 months. Thereafter, each period will be 12 months in duration. The default tax year-end date is December 31. An application may be made to the QTD to seek approval for a different year-end date.

Filing & Payment Requirements

Those subject to tax in Qatar are required to submit an income tax declaration and pay any tax due to the QTD within four months of the end of the accounting period (e.g. by April 30, 2017 for an accounting period that ends on December 31, 2016). The penalty for late filing of a return is QR100 ($27.46) per day of delay, capped at a maximum of QR36,000, ($9890). A separate penalty applies for the late payment of tax. This penalty is 1.5% the amount of tax due per month (or part of month) of the delay.

Audit Requirements

Businesses that are wholly or partially foreign-owned (foreign being classified as any non-GCC member state) are required to submit audited financial statements signed by a locally registered auditor along with the tax declaration to the QTD if:

• The capital of the taxable entity in Qatar exceeds QR100,000 ($27,460); or

• The annual taxable income of the entity exceeds QR100,000 ($27,460); or

• In the case of a branch, if the head office is situated outside of Qatar. The tax law requires accounts to be prepared in accordance with International Financial Reporting Standards. However, a taxpayer may make an application to the QTD to use another accounting method. There is a requirement that the tax return is co-signed by a registered auditor in Qatar.

The taxpayer is also required to keep and maintain records and documentation pertaining to their activities in Qatar for a period of 10 years following the end of the taxable year to which the records and documentation relate, unless released from this obligation through meeting conditions outlined in the executive regulations of the law.

The tax law states that taxpayers who are carrying out a tax-exempt activity shall also submit a tax return accompanied by audited financial statements. Circular No. 4 of 2011 dated August 7, 2011 confirms that companies and permanent establishments wholly owned by Qatari or GCC nationals are required to file corporate income tax returns (accompanied by audited financial statements) if:

• Their share capital is greater than or equal to QR2m ($549,000); or

• Their gross revenue is greater than or equal to QR10m ($2.75m). A penalty amounting to QR15,000 ($4120) may be imposed for failure to comply with the requirements to submit audited financial statements and keep accounting records as described.

Tax Assessments

Articles 22-24 of the tax law outline that tax is assessed on the basis of the taxable income as determined in the return, but the QTD has the right to seek information or clarifications from the taxpayer and to reassess the tax due. Once an assessment is made, the QTD should issue a notice of assessment to the taxpayer. The taxpayer may object within 30 days from the date of its notification, and the QTD should respond to an objection within 60 days. If no response is provided within 60 days, this is regarded as an implicit rejection of the objection.

Statute Of Limitations

The statute of limitations in Qatar is five years following the year in which the taxpayer submits the return. Where the taxpayer fails to submit the return, the statute of limitations is extended to 10 years following the taxable year in respect of which the taxpayer did not file the return.

Double Tax Treaties

Qatar has a growing network with over 66 treaties in force at the time of writing.

Retention Requirement

On June 12, 2011 the Ministry of Economy and Finance issued Circular No. 2 of 2011 in respect of the retention policy under the new tax law. The instructions provided under this circular replace the retention rules in previous circulars. Circular No. 2 of 2011 confirms the retention system continues to apply to payments made under contracts wholly or partly executed in Qatar, with the precise operation of retention dependent on the status of the recipient of the payment.

For taxpayers resident in Qatar and permanent branches (whose activities are not associated with a fixed period, contract or project), the final payment should be made when the taxpayer or branch submits a valid tax card issued by the QTD.

A tax assessment issued by the QTD is not required. In the case of registered branches with a period of activity of one year or more on a fixed period, contract or project, retention should be made on whichever is the higher of the final payment or 3% of the value of the contract (after excluding the value of supplies and work performed outside Qatar).

The retained amounts can be released once the branch produces a no-objection letter issued by the QTD. Interim contract payments can be made in full if a tax card is presented. Payments to taxpayers that do not have a commercial registration, or that are registered for an activity or project of less than one year, will be subject to withholding tax. Payments to taxpayers who are registered in the QFC may be made once the taxpayer submits a certificate issued by the QFC confirming that the taxpayer is registered there.

Contract Notification Obligation

The law requires ministries, other government bodies, public corporations and establishments, and companies to notify the QTD of the contracts that they have entered into if their amounts exceed limits specified in the executive regulations.

Anti-Avoidance & Transfer Pricing

The tax law gives power to the QTD to counteract any tax advantage obtained by arrangements, operations or transactions, one of the main purposes of which is to avoid paying tax. In those cases where tax avoidance is present, the QTD may apply the arm’s length value to the particular transaction and adjust the amount of tax due by the taxpayer. Executive regulations provide that the arm’s length value should be determined in accordance with the “unrelated comparable price method”. They also provide that the taxpayer should submit an application to the QTD if it wishes to apply any other pricing method approved by the OECD.

Oecd Base Erosion & Profit Sharing

Although Qatar is not an OECD or G20 member, the recommendations made under the OECD Base Erosion and Profit Sharing project have started to have an impact on the approach of tax authorities in the Middle East region, including Qatar, particularly in the areas of intercompany transactions, transfer pricing and documentation.

Value-Added & Excise Tax

On May 3, 2017 the Cabinet of Qatar approved a draft law and Executive Regulations on value-added tax (VAT) and excise tax as put forth by the Qatar Ministry of Finance. Although no official statement has been made as of yet regarding the introduction of VAT and excise tax in Qatar, this news confirms the State of Qatar’s commitment to introduce these taxes as per the GCC Unified Agreements for VAT and Excise Tax which were signed earlier by the GCC member states (see analysis).

VAT registration is mandatory for businesses with an annual turnover of 375,000 Saudi Rials ($100,000) or its equivalent in any other GCC member state currency. The GCC Unified Agreement for VAT has categorised tax rates on goods and services between a standard rate of 5%, zero rate or tax exempt.

While most goods and services will be subject to VAT at the standard rate, the treaty allows for exemption or zero rates to be applied for certain sectors. For instance, each member state is given the discretion to either exempt or zero-rate the education, health care, real estate and local transport sectors. Each member state can also decide on whether to zero-rate the oil, petrol derivatives and gas sectors, and certain food products. Financial services are exempted from VAT although the treaty allows each member state to apply other VAT treatments.

Specific place of supply rules apply for intra-GCC transactions to ensure VAT is levied at place of consumption to avoid double taxation or no taxation, and VAT due on the import of goods shall be paid at the first point of entry in the GCC Region.

As for excise tax – being a consumer tax – it is ultimately borne by the final consumers, but collected earlier in the supply chain. Importers, manufacturers and, in certain cases, other agents in the supply chain are liable to register for excise tax, submit periodic returns, pay the excise tax due to the local authorities and maintain specific excise tax records.

The list of goods subject to excise tax has not been officially announced, but is expected to be levied on goods “harmful to human health and environment” and some luxury goods, with an expected tax rate that ranges between 50% and 100%. Generally, the following goods are expected to be excisable:

• Tobacco products;

• Carbonated soft drinks and energy drinks; and

• Special purpose goods. The exact date of implementation of the excise tax law is not yet known. However, it is expected to be introduced during the course of 2017.

Customs Duties

Customs duties are applied to goods with an origin outside the GCC countries, normally at a rate of 5%.

Other Tax Regimes Within Qatar

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QFC: The QFC was established in 2005 to attract international financial institutions and multinational corporations to the financial services sector. It has its own tax regulations and rules, and the Qatari tax laws do not apply to the licensed activities of entities established in the QFC. QFC entities are generally subject to corporate income tax in respect of activities undertaken pursuant to their QFC licence at the rate of 10%. A 90% Qatari-owned QFC limited liability company that fulfils certain conditions may elect for its chargeable profits to be charged to tax at the concessionary rate of 0%.

Qatar Science & Technology Park (Qstp)

The QSTP is a special zone for technology-based companies. Entities of the QSTP must be physically located in the QSTP and are only able to engage in activities specified in their licence. However, they can apply for a full exemption from corporate income taxes and can import goods and services free of Customs duties.

Economic Zones

Manateq is the organisation working on the development of the economic zones in Qatar. Manateq’s key task is to develop and operate economic zones that will offer world-class infrastructure that supports various economic sectors at three locations across Qatar, with a focus on industry.

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The Report: Qatar 2017

Tax chapter from The Report: Qatar 2017

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