The Nuts & Bolts

Taxation in Qatar

Overview

According to the World Bank’s Group “Doing Business“ report 2015, Qatar ranks #1 in the world for paying taxes with 99.44%. Qatar’s tax regime is regulated under Law No. 21 of 2009, the Income Tax Law. Under this law, tax is levied on the net income arising out of foreign owned entities carrying out activities in Qatar. Business activity is defined as any profession, vocation, service, trade, industry, speculation, contractual work, or any business carried on for the purpose of making a profit or income, including the exploitation of movable or immovable property, such as real estate. Circular 3 of 2011 prohibits Qataris from taking up tax burdens of foreign suppliers and stipulates the reporting requirement related to supplier agreements. Circular 4 of 2011 requires wholly Qatari/GCC owned and exempt entities to file the tax return. The double taxation treaties are used for clarity on transactions with entities residing in treaty network. Qatar Science and Technology (QSTP) entities with a standard license are not taxed and companies can import goods and services, free of Qatari tax or custom duties.
There is no VAT in Qatar and although there has been speculation in recent years that VAT of five to seven percent may be introduced at some point in the future, at present, there is no official policy to that effect. However, withholding tax as well as transfer pricing have been introduced.
The GCC is a member of the Greater Arab Free Trade Agreement and has entered into free trade agreements with Singapore and the European Free Trade Association states, and is discussing similar proposals in other jurisdictions. The reduction in tax revenue resulting from these actions is a key driver for the implementation of VAT in the GCC.

Qatar has two tax systems:

• State of Qatar
• Qatar Financial Centre (QFC)
The QFC tax regime was developed to be attractive to international financial services companies, delivering a high degree of certainty with clear regulations and a transparent administrative process.
Incentives like tax holidays, foreign capital investment incentives and incentives related to the (QFC) and the (QSTP) are given to investors.
Qatar’s tax regime is a territorial tax regime. Taxes are levied only on income generated wholly or partially in the sea or soil of Qatar. Income generated wholly outside Qatar is not subject to tax.
There are two streams of taxes in Qatar: Corporate tax and Withholding tax.

Corporate tax rates

• The general tax rate is a flat 10%
• 35% rate applies to oil and gas operations

Withholding tax rates

• 5% on royalties
• 5% on technical services
• 7% on commissions, interest, brokerage fees, directors’ fees, attendance fees, and for other services performed in whole or in part in Qatar.
For foreign companies that conduct business in Qatar without establishing a legal presence in Qatar, any payments made to the non-resident entity with permanent establishment in Qatar in respect to activities performed wholly or partially in Qatar are subject to withholding tax. In 2011, the PRTD extended the withholding tax to payments made under contracts of less than 12 months’ duration performed by foreign companies operating under a branch CR.
Entities operating in Qatar by way of a branch whose CR is tied to an activity or project of at least 12 months’ duration are subject to payment retention at the higher of 3% of the contract value (excluding the value of off-shore services and supply of goods) and the last payment due under the contract. The retained amount is released when the branch presents a ‘No Objection Letter’ from the PRTD for that particular project, the issuance of which may take up to three or four years following contract completion.
There is no income tax or social security levied on earnings by the Qatar government and people working in Qatar enjoy tax-free salaries; however for employees that are Qatari nationals, the employer must contribute 10% of basic salary each month.

Taxable Income

The main categories of taxable income include:
• Activities carried out in Qatar;
• Income from real estate in Qatar, including the sale of shares from companies or partnerships whose primary assets are real estate.
• Gross income from exploration, extraction or exploitation of natural resources situated in Qatar;
• Contracts wholly or partly performed in Qatar;
• Consideration for services paid to a head office, branch or related company;
• Interest income on loans and other financial facilities obtained in Qatar;
• Income from securities and shares in companies residing in Qatar
• Gross income subject to tax in the State under a double taxation agreement
A retention tax of 3% of the contract value or the final payment (whichever is higher) applies to payments made to a branch registered for a particular project (temporary branch).

Tax Exemptions

Tax exemptions exist for:
• Interest and returns on public treasury bonds, development bonds and public corporation bonds;
• Dividends, if the amounts received are derived from:
• Profit that is subject to tax under this Law
• Dividend distributed by a company that is tax exempted under this Law.
• Income from handcraft, agriculture, or fishing businesses;
• Income generated from non-Qatari companies involved in aviation or shipping in Qatar;
• Income of Qatari natural/GCC persons provided they live in the State;
• Capital gains from real estate/securities earned by natural persons;
• Profits from Qatari resident Companies wholly owned by GCC nationals.

Corporate Tax

Corporate Tax is levied on all foreign businesses operating in Qatar, whether the business is considered a natural person or a legal entity. The corporate tax rate for foreign-owned companies or partly owned by foreigners in Qatar, as of January 1, 2010, is a flat rate of 10%, which replaces a previous progressive rate. However, this rate may increase to 35% for oil and gas companies. Normal business expenses are deductible while losses may be carried forward to a maximum of three years. Profits of business establishments that are wholly owned by Qatari individuals are not taxed
Individuals—either natural persons or corporate entities—are taxed on the taxable income derived from the State during the previous taxation year.
Rental incomes and capital gains from business activity are taxed at the 10% flat rate.
Income from natural resources and gross income are subject to tax under a double taxation agreement
Qatari companies wholly owned by GCC nationals are exempt from corporation tax. With respect to Qatari firms with non-GCC shareholders, corporation tax is not levied on any share of the profits attributable to a Qatari (or other GCC) national.

Tax-deductible expense

• Salaries, wages and other employee cost deductible pursuant to an employment contract;
• Depreciation expense in excess of book depreciation vs. tax depreciation is disallowed;
• No deductions for general provision including bad debts and air tickets with exception to employee’s end of service benefits and leave;
• Donations allowed up to 5% and Entertainment is capped at 2% of the taxable income — before such expenses;
• Branches of non-resident companies are allowed for a deduction of allocation of head office overheads up to a maximum limit;
• No deduction for branch on interest paid on related party loan

Compliance for Corporations

Tax liabilities are computed in a manner similar to general British and American practice, on the basis of tax profits disclosed by audited financial statements, adjustments for tax depreciation and any items disallowed by the Income Tax Department.
• The tax year is the calendar year, however, a taxpayer may apply to prepare its financial statements for a 12-month period ending on a date other than 31 December.
• The first accounting period may be more or less than 12 months, but it should not be less than six months or more than 18 months.
• Accounting and auditing requirement follows the IFRS framework and audit is mandatory.
• Application for change in accounting period should be made 90 days before the expiry of the deadline for filing the return.
• Tax cards are to be obtained within 30 days of incorporation and renewed within 30 days of expiry.
• Taxpayers are required to submit an annual income tax return and pay the tax due at the end of the fourth month after the company’s financial year-end.
• Application for extension of filing deadline should be made 1 month from the fiscal year-end.
• Objection should be raised within 30 days of notice of assessment/penalty while appeal should be within 30 days of refusal of the department or completion of 60 days from date of objection and no response.
• An online “Tax Administration System” (TAS) has been introduced with the aim of achieving complete automation of the tax payment and management process. The TAS enables online registration and filing of tax returns and progress tracking.
• Failure to file tax return by the deadline leads to a penalty of QAR100 per day, up to a maximum of 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.

Withholding Tax

Withholding tax is applicable on all services rendered on or after 1 January 2010. It applies to payments made to nonresidents with respect to activities not connected with a permanent establishment in Qatar.

Technical Fees—5%

These include payments of any kind made as consideration for managerial, technical or consultancy services. Such services include:
• Computer services including software development, network services and maintenance services;
• Consulting and professional services in the legal and accounting fields;
• Advisory services in the areas of behavior and management provided by specialized consultants;
• Engineering services in various fields including mechanical, electrical and civil;
• Design services provided by architects and design consultants;
• Maintenance of industrial equipment and repairs performed by specialized technicians.

Royalties—5%

These include payments of any kind made as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, films or discs used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial, or scientific equipment or for information concerning industrial, commercial, or scientific experience.
• Leasing of Vessel
• Leasing of Equipment
•Payments made to an artist or an author to publish his book in Qatar.

Import Tax

An import tax is levied on all products brought into the country that are intended for commercial resale; this equates to approximately four to five percent of the value of the goods. This is not usually applicable to personal possessions brought into the country as part of an individual’s relocation, provided they are used and not newly purchased, and the person is planning to be a resident for more than 12 months.

Custom Duties

Customs duties are imposed on the import of all goods from outside the GCC, subject to certain exceptions. The standard rate of customs duties (standardized across the GCC) is 5% of the total amount of the goods and their associated insurance and shipment costs, plus a legalization fee if the commercial invoice and certificate or origin have not been attested by the Qatari embassy. Higher tariffs may apply to certain products such as iron bars and rods, cement, musical instruments and tobacco.

QFC Tax Regime

Special characteristics
• Territoriality principle—only local source profits are taxed in Qatar
• 10% tax (no withholding tax)
• Tax return filing after 6 months after year-end
• May use Double Tax Treaty network of the State of Qatar
• Transfer pricing manual (first jurisdiction in the GCC to issue)
• Participation exemption for capital gains tax derived from qualifying shareholdings

New QFC Tax Rules

The QFC Authority Board approved the amended QFC Tax Regulations and accompanying amended QFC Tax Rules on 10 June 2014. Following Board approval, the amended QFC Tax Regulations and QFC Tax Rules were enacted by the Minister (on June 18, 2014) in accordance with QFC Law.
• Zero tax concessionary rate for:
o QFC Captive insurance company
o Reinsurer
o Unregulated (greater or equal to) 90% Qatari-owned LLC
• In order to get concessionary rate, applicant must pay a charge of:
o QAR10,000 if issued share capital < (less than or equal to) QAR1,500,000
o QAR20,000 if issued share capital > QAR1,500,000
• Tax exempted entities:
o Special investment funds:
• Property investments
• Investing on behalf of a single family (Single family office)
o Special funding company:
• Special purpose company (SPC)
• Holding company
• Tax credit for losses
o For the first 2 accounting periods of setting up in the QFC
o Loss making with > or equal to 3 employees
o Not elected for special exempt status or concessionary zero rate
o On list of entitled QFC businesses
o Expenses incurred in State of Qatar
o Must be a going concern and not an artificial arrangement
o Claim in writing to tax department (within 6 months of reimbursable AP to which the reimbursable tax loss relates)
o Maximum pay-out is lower of: 8% of the tax loss or QAR200,000