New Income Tax Law
Qatar has recently introduced a new Income Tax Law, which was signed on 13 December 2018 and published on 17 January 2019. The fundamental principles underlying the new law are the same as under the old law; however, there are changes that could have a significant impact on companies operating in Qatar.
The new law also introduces some rules aimed at providing administrative simplification. One of those rules relates to the tax assessment procedure. Under the old law, the income tax was assessed on the basis of the taxable income as determined in the return, if such return was accepted by the General Tax Authority. Under the new law, however, the income tax return is deemed a tax assessment on the same day of its submission (self-assessment).
Qatar Free Zones
In 2018, the Qatar Free Zone Authority (QFZA) was set up as an independent entity to develop Free Zones in Qatar. It expects to launch two Free Zones in 2019: an Airport Free Zone (Ras Bufontas) and a Port Free Zone (Um Al Houl). The Airport Free Zone focuses on light manufacturing, international business services, the aviation sector, emerging technologies, and logistics hubs. The Port Free Zone focuses on maritime industries, heavy manufacturing, industrial sectors, emerging technologies, and logistics hubs.
Benefits of setting up in one of the Free Zones include 100% foreign ownership and a 20-year tax holiday (i.e. zero corporate tax, zero customs duties, and no personal income tax).
Implementation of a value-added tax (VAT)
The Gulf Cooperation Council (GCC) countries have signed a VAT common framework, which forms the legal basis for the introduction of a VAT system in each of the GCC member states (Kingdom of Bahrain, State of Kuwait, Sultanate of Oman, State of Qatar, Kingdom of Saudi Arabia, and the United Arab Emirates).
Saudi Arabia and the United Arab Emirates have implemented VAT as of January 2018. Bahrain has implemented VAT as of January 2019. The other GCC member states are also expected to issue their own VAT legislation. The Cabinet of Qatar has approved a draft law on VAT and its Executive Regulations as put forth by the Qatar Ministry of Finance. The laws and respective executive regulations have not been published yet. It was expected that VAT, at the rate of 5%, would be implemented in 2018 or 2019. However, it has been recently confirmed that VAT will not be introduced in 2019, and currently no official announcement has been made to confirm when VAT will actually be implemented in Qatar.
Introduction of excise tax
The Excise Tax Law is in effect from 1 January 2019 and sets out various rules and obligations for taxpayers. Excise tax is applicable on the following goods ('excise goods') at their respective tax rates:
- Tobacco products: 100%.
- Carbonated drinks (non-flavoured aerated water excluded): 50%.
- Energy drinks: 100%.
- Special purpose goods: 100%.
Special purpose goods may refer to alcohol and pork items, although this has not been officially confirmed by the Ministry of Finance/Customs yet. Persons engaged in the import and production of excise goods, as well as the operation of a tax warehouse, will be required to register for excise tax purposes.
Inclusive Framework on Base Erosion and Profit Shifting (BEPS)
On 14 November 2017, Qatar joined the ‘Inclusive Framework on BEPS’ and pledged to implement the new international BEPS minimum standards.
Multilateral Convention to implement tax treaty related measures
On 4 December 2018, the State of Qatar signed the Multilateral Convention (MLI) to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) backed by the Organisation for Economic Co-operation and Development (OECD). Qatar joined some of its key tax treaty partners to become the 85th jurisdiction to adopt the Convention and become fully compliant with OECD’s BEPS initiative.
Qatar has made the following key notifications/reservations through its adoption of the MLI:
- Include additional wording in the preamble of double taxation treaties (DTTs) stating the DTTs should not be used for treaty abuse (BEPS Action 6 minimum standard). Qatar’s implementation of this action is fully compliant with BEPS Action 6 (Prevention of Treaty Abuse) minimum standard.
- Include a Principal Purpose Test (PPT) without the ability to refer to a competent authority for final assessment of the availability of treaty benefits (BEPS Action 6 minimum standard). Once effective, the PPT clause in Qatar’s treaties could potentially disallow treaty benefits to inbound and outbound companies alike.
- Retain the existing permanent establishment (PE) definition in DTTs and no election to adopt the expanded PE definition.
- Election to include Mutual Agreement Procedure (MAP) in all of its DTTs to efficiently address dispute resolution in application of its DTTs.
Qatar opted to agree to specific changes to its initial MLI notifications/reservations, if any, through bilateral negotiation with its treaty partners. In order for the MLI to become effective, Qatar must ratify it through its domestic legislative process and the same is true for each of its treaty partners. Although timing remains uncertain, Qatar’s ratification could happen shortly and subject Qatari companies and foreign multinationals to an additional layer of complexity in managing their tax affairs.
Country-by-Country Reporting (CbCR) Multilateral Competent Authority Agreement (MCAA)
Qatar became a signatory of the Multilateral Convention on Mutual Administrative Assistance in Tax Matters on 10 November 2017 and the CbCR MCAA on 20 December 2017.
On 9 September 2018, CbCR was published in the Official Gazette, becoming effective as of 10 September 2018. On 26 September 2018, the Qatar Financial Centre (QFC) tax department released an announcement extending the CbCR requirement to QFC entities as well.
CbCR applies to entities that are tax residents in Qatar and are part of a multinational group of enterprises (MNE) with consolidated revenues equal to or exceeding 3 billion Qatari riyal (QAR) in the preceding financial year.
The CbCR requirements are applicable to financial years starting on or after 1 January 2017, and the CbC report is required to be submitted within 12 months from the end of the reportable financial year. However, on 11 December 2018, the General Tax Authority has made the following changes to the timeline for the reporting fiscal year beginning on or after 1 January 2017:
- There will be no CbCR filing requirements (or notifications) in the event that the MNE group (of which it is the ultimate parent entity) files a CbC report for that year through a surrogate parent entity.
- All CbCR related filings and notifications for constituent entities (i.e. entities and branches of non-Qatari headquartered MNE groups) have been suspended until further notice (specifically, until after the Global Forum on Transparency and Exchange of Information for Tax Purposes completes its assessment for the State of Qatar on confidentiality and data safeguards).
Common Reporting Standard (CRS)
On 10 November 2017, Qatar signed the CRS Multilateral Competent Authority Agreement (CRS MCAA).
Qatar Financial Centre (QFC): New ‘local source’ income definition
Recently amended QFC Tax Rules and Regulations modify the definition of ‘local source’ income. According to the new provisions, if certain conditions are met, profits arising in or derived from Qatar by a QFC non-regulated entity from the provision of services for use outside Qatar would not form a part of local source taxable profits and would not be subject to tax.