Taxable income is determined after deducting all expenditures, costs, and losses incurred to generate gross income. A deduction is usually available for expenses that are not considered to be 'capital' in nature and are incurred in generating Qatar-source revenue.
Depreciation should be calculated in accordance with rates specified by the New Tax Law and Regulations. In practice, however, the deduction for depreciation is restricted to the amount of the accounting depreciation.
For certain assets, depreciation is calculated on the cost on a straight-line basis. The rates of depreciation are provided in the Regulations. Under the new Regulations, more asset categories have been introduced with different permissible depreciation rates.
There are no specific provisions dealing with the taxation of goodwill. Accordingly, the accounting treatment should be followed from a tax perspective.
Interest on loans used for the purpose of the taxpayer’s activity is tax deductible, except where the loan is between a Qatar branch and its head office or a party related to the head office. Other limitations may apply.
Bad debts approved by the GTA in accordance with the criteria set out in the tax law are deductible.
Donations, gift aid, and subscriptions to charitable, humanitarian, scientific, cultural, or sporting activities paid in Qatar to government authorities or public bodies are deductible, provided the value does not exceed 3% of the net profit in the year in which the deduction is claimed.
Fines and penalties
Fines and penalties for breaching the laws of the State are not deductible for Qatar tax purposes.
Taxes and duties, other than the income tax, provided for in the law are deductible.
Other significant items
Other deductible expenditures include the following:
- Employee costs (including salaries, wages, gratuities, and other end of service benefits).
- Losses resulting from the sale of assets.
- Insurance premiums.
Net operating losses
Losses may be deducted from net income during the year. Under the New Tax Law, losses can be carried forward for five years after the year in which they were incurred. Losses cannot be carried back.
Allocations of overhead costs to branches
The branch's share of head office expenses (i.e. indirect or allocated overhead) is generally deductible only up to a certain limit. The deduction is capped at 3% (1% for banks and insurance companies) of the total revenue less certain other costs.