New Tax Laws to be aware of in Qatar
Mark Rebello sheds some light on the key issues to be aware of when entering the Qatar market from a tax perspective, as well as highlighting recent updates/interpretations with respect to the Tax Law and its accompanying Executive Regulations (ER) and Tax Circulars.
With the introduction from 1 January 2010 of Qatar Tax Law No. 21 of the year 2009 (Tax Law), there have been a number of changes to the countrys tax regime that foreign investors considering investment into Qatar will need to consider carefully.
Tax Compliance Requirements
Every taxpayer carrying on an activity in Qatar is required to submit a tax card application to the Public Revenues and Taxes Department (PRTD) within thirty days from the commencement of activity.
A corporate tax return (along with Qatar based audited financial statements) is required to be filed by all entities (unless exempt, for example 100 percent wholly Gulf Cooperation Council (GCC) owned companies) which are resident or having a permanent establishment (PE) in Qatar for example have been issued a tax registration card for their gross income derived from activity carried on in Qatar and gross income derived from contracts wholly or partly performed in Qatar.
The Qatar retention system is designed to encourage foreign entities to meet their Qatar tax filing obligations. Under this system, part of foreign entities payment may be retained by the payer until a Tax Clearance Certificate is provided indicating proof that they have settled their corporate tax account with the PRTD for the relevant year. Circular No. Two of 2011 further provides: Payments made to the following will not be subject to retention (on producing a valid tax registration card):
Companies incorporated in Qatar such as a LLC, Qatari shareholding company etcetera.
Qatar/GCC natural persons resident in Qatar.
Registered permanent branches (for example branches not registered for a specific contract/project or period, such as engineering consultant firms, law firms, and audit firms).
Payments made to branches registered for a particular project or period (temporary branch) are subject to retention at the rate of three percent of the contract value or the final payment, whichever is higher.
The introduction of a withholding tax (WHT) system is one of the most significant developments to Qatars tax framework. Tax registered entities making payments to its suppliers, vendors etcetera must now self assess and deduct WHT where applicable and submit the same to the PRTD. The WHT regime applies to amounts paid to non-residents (for example generally entities without a Qatar tax registration card) where the activity is not related to a PE in Qatar and where the services are carried on either wholly or partly in Qatar. WHT will generally apply on the following basis and categories:
Five percent on technical fees and royalties;
Seven percent on interest, commissions, intermediary fees, board remunerations and other services wholly or partly performed in the State of Qatar.
WHT will be considered a final tax. Tax relief provided by tax treaties that Qatar has with the international community may prevail subject to PRTD approval.
Other Key Tax Considerations
Reporting Obligations:Article 38 of the ER provides that a company operating in Qatar has an obligation to notify the PRTD for contracts concluded with residents or non-residents who have a PE in Qatar, if the contract value attains QR 200,000 for service contracts and QR500,000 for contracting, supply, and supply and service contracts. Contracts concluded with non-residents with no PE in Qatar should be notified to the PRTD regardless of their value.
The Tax Law contains a broad anti-avoidance provision that allows the PRTD to override tax scenarios where taxpayers are deemed by the PRTD to have entered into arrangements for the purpose of gaining an undue tax advantage.
The PRTD has the power to impose market value on transactions where it deems a particular transaction is not carried out at arms length between related parties. The PRTD will also take a substance over form approach in assessing the reasonableness of transactions.
WHT statements must be submitted to the PRTD by the 15th of the month following the month the actual payment is made.
Tax declaration submission
The deadline for submission of a tax return is four months from the end of the accounting period. The accounting period of a taxpayer (unless approval for a different period is obtained from the PRTD) who carries on an activity shall generally be the taxable year (for example 1 January to 31 December).
Tax card registration: A penalty of QR5000 may be imposed for a delay in submitting a tax card application.
Failure to comply with the WHT rules may subject entities to a financial penalty equal to the amount of tax that has not been withheld, in addition to the payment of the tax due.
Tax declaration submission
All entities may be subject to a penalty of QR100 per day (capped to a maximum of QR36,000) for the delay in submission of their tax declaration with the PRTD.
For foreign entities, a penalty of 1.5 percent of the amount of tax due per month may be imposed for delay in the payment of tax liability up to the amount of tax due.
For exempt entities, a penalty of QR10,000 may be imposed for non-submission of a tax declaration and Qatar based audited financial statements.
This article is intended for information purposes only. It is not legal advice and should not be relied on as such.