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The Qatari government has tried its utmost to establish a friendly and welcoming business environment for both foreign companies and expatriates based there.

Along with a new horizon of towering skyscrapers, there has also been a profound transformation of the Qatari economy, which led to the country being awarded emerging market status. In 2010, Qatar also introduced a new tax system, which has proved to be highly successful in providing an internationally competitive and attractive tax environment.

BUSINESS ENTITIES

Businesses in Qatar can operate as limited liability companies (LLC), public shareholding companies, or branches of foreign companies. Other forms of business include the simple partnership, joint partnership, limited share partnership, and joint venture.

Foreigners are allowed to own up to a maximum of 49% of the share capital of a Qatari company, except for when the entity concerned operates in certain earmarked industries, where an ownership of 100% is allowed. However, one positive feature to be noted is that the profit split for dividend purposes does not have to follow the same shareholding pattern. A branch office of a foreign company may be registered in Qatar only if the foreign company has been awarded a contract with a government department or entity, or quasi-government entity. Foreign firms within the field of accounting, law, engineering, or consulting are able to set up permanent, fully owned branches.

A corporate body is a tax resident in Qatar, if it is incorporated under Qatari law, its head office is in Qatar, or its place of effective management is in Qatar. An individual is a resident in Qatar if s/he has a permanent home in Qatar, has been in Qatar for more than 183 consecutive or separate days during any 12-month period, or has his/her center of vital interests in Qatar. There is no personal income tax in Qatar, which also applies to expatriate employees.

CORPORATE INCOME TAX

The tax rate in the State of Qatar is a flat 10% on the net taxable income of the foreign share. There are, however, exceptions to this rule as higher tax rates may apply in case of certain agreements entered with government bodies, depending on the rate of tax agreed in the agreement. Also, petroleum activities are governed under the Petroleum Law of Qatar. Therefore, in the absence of a specific rate stipulated in the agreement, the rate of 35% applies on petroleum activities.

The tax system in Qatar is based on the territoriality principle, which means that only income derived from sources in Qatar will be subjected to tax. The taxable income is derived as per the financial statements, which includes gross income from taxable sources of revenue minus allowable expenses.

Deductible expenses, from a tax perspective, are expenses incurred during the year and relate to the year in question. Apart from certain exceptions, deductions will be allowable if they are necessary to derive the gross income.

Resident Qatari or GCC nationals are exempted from paying tax on their share of the taxable profits in a Qatari company. Only the share of the foreign partners’ taxable profits as stipulated in the company Articles of Association is eventually subject to tax. Companies listed on the Qatar Stock Exchange are also exempted from taxation.

All accounting books, registers, and documents relating to the activity should be maintained in the place where the activity is carried on for a period of 10 years following that to which the books, registers, and documents are related. The financial statements are also required to be audited by an accredited auditor in the State of Qatar.

WITHHOLDING TAX

Withholding tax was introduced in 2010 and is primarily aimed at those foreign companies that provide services in Qatar without creating a permanent establishment.

The tax law stipulates that payments to non-residents without a permanent establishment in Qatar and with respect to activities performed wholly or partially within the State of Qatar shall be subject to a final withholding tax as follows:

• Royalties and technical service fees paid are subject to a 5% withholding tax.

• A 7% withholding tax will apply to interest, commissions, brokerage fees, director’s fees, attendance fees and any other payments for services carried out wholly or partly in Qatar.

TAX ADMINISTRATION

A Qatari resident entity is required to apply for a tax card by filing an application with the Tax Authority and providing certain documents within 30 days from incorporation or commencement of activity.

An entity in Qatar is required to file its income tax declaration along with audited financial statements prepared in accordance with International Financial Reporting Standards (IFRS). An annual corporate income tax return should be submitted within four months of the year-end and all corporate tax paid on the same date.

Failure to file a tax return by the deadline would lead to a penalty of QAR100 per day, up to a maximum QAR36,000. Failure to pay tax due by the deadline leads to a penalty of 1.5% of the amount of tax due per month of delay or part thereof, up to the amount of tax due.

QATAR SCIENCE & TECHNOLOGY PARK

Qatar Science and Technology Park (QSTP) is designed to facilitate the establishment of technology-based companies in Qatar. Permitted activities at the QSTP typically include technology development and applied research, especially in the fields of energy, environment, health sciences, and IT.

The QSTP allows for full capital ownership of registered companies, and they are allowed to trade directly in Qatar without a local sponsor or partner. QSTP entities are not taxed and companies can import goods and services free from Qatari customs duties. Nevertheless, although they are exempted from tax, QSTP entities are still obliged to file annual tax returns along with audited financial statements.

QATAR FINANCIAL CENTRE

It is important to note that Qatar actually operates a dual tax system, one being the tax system of the State of Qatar, as described above, and the other being the tax system of the Qatar Financial Centre (QFC). The QFC caters for the growing financial service industry in the Gulf region and has its own regulatory body, tax department, and tax laws. The QFC has no physical boundaries and, subject to approval, its licensed entities may be located anywhere in Qatar.

The QFC allows full foreign capital ownership of its licensed entities, while also providing full access to Qatar’s growing treaty network. The tax rate is identical to the State of Qatar at 10% and only local source profits are taxable. Further, there are no withholding taxes and the income and gains of captive insurance and reinsurance companies are currently taxed at the concessionary rate of 0%. The QFC also has its own set of rules on transfer pricing and thin capitalization and also offers advance tax rulings.

The filing date for QFC tax returns is six months after the company’s accounting period. Failure to file a tax return by the deadline would lead to a flat-rate penalty of QAR1,500. If the return is not filed until 12 months after the filing date, then there will be a penalty of 10% of the tax payable.

The QFC is currently in the process of expanding its range of licensed activities to facilitate the setup of special purpose companies, holding companies, IP holding companies, treasury operations, and headquarters of multinational companies.

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