Economic Substance Requirements
On 17 October 2021, the Ministry of Finance in the State of Qatar issued Decision No. 20 of 2021 (concerning economic substance regulations in Qatar, “the Regulations/ESR”), requiring “qualifying entities” that carry on specified activities to demonstrate economic substance in Qatar from 4 November 2021 if they want to benefit from a preferential tax regime.
- Depending on the date of incorporation, qualifying entities would be required to comply on an immediate basis.
- Sanctions for non-compliance and filing requirements will be determined in due course.
- All entities in Qatar should perform an analysis to assess whether they fall into ESR scope and take immediate steps for compliance.
All Qatari entities will need to assess whether and which of their activities fall within the scope of the ESR, and how to ensure they meet the ESR requirements in respect of each Relevant Activity. This is both a qualitative and quantitative assessment that would involve consideration of operational, financial, tax / transfer pricing, legal and governance matters.
The Qatar Financial Centre (QFC)
The QFC was established in 2005 to attract companies in the financial services sector. The QFC has its own tax regulations and rules, and the State of Qatar tax laws do not apply to the licensed activities of entities established in the QFC.
The QFC is an onshore regime that operates within its own legal, tax, and regulatory framework, which is independent of, but runs parallel to, the existing framework in the State of Qatar. The QFC has its own Civil and Commercial Courts, as well as an independent Regulatory Tribunal. The legal framework is modelled closely after the English common law and existing major financial centres.
QFC-established entities can access the local market, be 100% foreign owned, are subject to no currency restrictions, and can repatriate 100% of their profit. Whilst entities can currently be based at any of the QFC’s designated premises in Qatar (which are not confined to a specific zone), the QFC has recently announced an initiative to move all existing and future QFC entities to Msheireb Downtown Doha, a special designated area.
Regulated activities include activities such as financial, banking, and investment business; insurance and reinsurance business; funds administration; fund advisory; fiduciary business; and other financial-related business.
Permitted non-regulated activities were originally limited to professional services in support of financial firms (e.g. services generally provided by accounting, audit, and legal firms). The QFC subsequently expanded the scope of permitted non-regulated activities to include services such as intellectual property (IP) management and treasury for all sectors and consultancy services in relation to information technology (IT), real estate, recruitment, and sports and event management. The above-mentioned services are not exhaustive, and the QFC authority continues to consider novel types of professional 'business-to-business (B2B) services' on a case-by-case basis, to the extent that the envisaged business is a strategic fit for the QFC. The opportunity now exists for a non-regulated business to incorporate a 100% foreign owned entity within the QFC. The QFC is also available to Qatari investors, and they can enjoy benefits similar to those awarded under the State Tax Law (i.e. exemption from CIT), provided the business is 90% Qatari owned.
The QFC also offers the possibility for investors to set up special purpose companies for the purpose of a transaction or a series of transactions. There is a streamlined and quicker process for setting up such vehicles, which are also not subject to the same corporate compliance obligations as the other QFC entities.
In addition, single-family offices can be incorporated in the QFC for the sole purpose of providing services to and carrying on activities in relation to a 'single family' (i.e. investment and financial activities or services, arranging or providing custodian of fiduciary services). The single family must have a minimum of investable or liquid assets of USD 5 million and must be under the management of a single family.
The key features of the QFC tax environment are as follows:
- Unregulated QFC LLCs with a minimum 90% Qatari ownership benefit from a 0% concessionary CIT rate.
- Low general CIT rate of 10% on locally sourced profits.
- Extensive tax exemptions for qualifying activities, dividends, and capital gains.
- No WHT on payments from Qatar.
- Access to Qatar’s DTT network with over 60 jurisdictions.
- VAT may be introduced in the future, but is currently not applicable.
- No PIT for expatriate employees.
- Online tax administration system.
- Advance ruling services providing QFC entities with a high degree of certainty.
- Statutory protection for investors, whereby QFC tax authority must review tax returns within 12 months of filing.
- Group loss relief available.
- No tax exemption for profits of Qatari partners in joint ventures where the Qatari ownership is less than 90%.
‘Local source’ income definition
If certain conditions are met, profits derived 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.
Foreign Account Tax Compliance Act (FATCA)
To implement FATCA in Qatar, Qatar and the US government concluded a Model 1B Inter-governmental Agreement (IGA) in 2015.
Financial institutions based in Qatar should not be subject to a 30% WHT on their US-source income, provided they meet the requirements established by the Agreement.
Qatar Central Bank (QCB) Regulated Financial Institutions are required to provide the information to the QCB FATCA Unit. The information should be further transferred to the US Internal Revenue Service (IRS) through the Ministry of Finance.
Common Reporting Standard (CRS)
On 10 November 2017, Qatar signed the CRS Multilateral Competent Authority Agreement (CRS MCAA) re-confirming its commitment to implement the automatic exchange of financial account information pursuant to the OECD / G20 CRS in time to commence the exchanges in 2018.
This instrument is an automatic exchange of information regime that obligates reporting financial institutions to report on certain account holders on an annual basis. In September 2020, the GTA amended the sanctions for non-compliance.