Qatar

Amendments to the Executive Regulations to the Tax Law

Following the issuance of the Law No. 11 of 2022 (‘amended Tax Law‘) on 2 February 2023, Qatar has now published amendments to the Executive Regulations to the Tax Law (‘amended ERs‘) in the official Gazette. The amended ERs are effective from 16 May 2023 (i.e. the date of their publication in the official Gazette).

The amended ERs have introduced several important changes to the Executive Regulations, and we have summarised some of the amendments below.

Significant changes to the permanent establishment (PE) criteria

Preparatory and auxiliary activities and registration requirements

The amended ERs introduce new exclusions for preparatory and auxiliary activities that do not constitute a PE. These exclusions are accompanied by anti-fragmentation and anti-avoidance provisions.

It is important to note that, in certain circumstances, entities engaged in preparatory and auxiliary activities (even in the absence of a PE) will be required to comply with registration and notification requirements. This is a significant change, as such entities will be required to register for tax purposes with the General Tax Authority (GTA) and obtain a Taxpayer Identification Number through Dhareeba.

Changes to Dependent Agency in connection with a PE

The regulations lay a strong emphasis on ’exclusivity‘ and ’semi-exclusivity‘ tests in determining the existence of a ‘Dependent Agent’ PE. Since there is no definition of ‘semi-exclusivity’, it can create considerable uncertainty in determining ‘dependency’ in certain circumstances.

Insurance activities

The amended ERs state that, except for reinsurance activities, certain foreign insurance companies collecting premiums from Qatar or insuring Qatari risks may now be considered to have a PE in Qatar. This change can have a significant impact on non-Qatari insurance companies.

Others

There are also certain changes to the fixed place PE concept. In addition to the list included in the existing ERs, the amended ERs expand the scope and now include ’sales outlet‘ and ’warehouse providing storage facilities’.

Deductibility of expenses for a PE / branch 

The amended ERs have revised the expense deductibility criteria for a Qatari PE / branch. Going forward, a PE / branch will be allowed to deduct expenses incurred for the purposes of the PE's / branch's business as long as the expenses are ’real expenses‘. In addition, the amended ERs also provide a list of items that are not deductible for a PE or branch if paid to its head office or any other related party.

Reporting of core activities in the annual income tax return 

The amended Tax Law introduced a new requirement to submit a report to the GTA as part of the annual income tax return in relation to the details regarding Core Income Generating Activities (CIGA) in Qatar. The amended ERs specify the criteria for this reporting based on revenue, assets, and operational management.

Substantial activity 

The amended ERs mandate that residents may not facilitate structures or arrangements aimed at making profits that do not reflect a substantial activity in Qatar. This provision appears to ‘discourage’ any ‘proxy’ type of arrangements or where ‘concealment’ of real economic activity may take place.

Double tax treaties (DTTs) with the Kingdom of Saudi Arabia (KSA) and United Arab Emirates (UAE)

On 30 May 2024, the State of Qatar signed DTTs with the Kingdom of Saudi Arabia and United Arab Emirates. However, the treaties will enter into force after the exchange of the ratification instruments.

Amendments to the Tax Law

On 2 February 2023, Qatar published Law No. 11 of 2022 amending several provisions of the Income Tax Law No. 24 of 2018 in the official Gazette. The amendments are effective from 2 February 2023 (i.e. the date of their publication in the official Gazette).

The amendments have introduced a number of important changes to the Tax Law. The details of some of these key changes are issued by the GTA as amendments to the Executive Regulations of the Tax Law.

We have summarised some of the amendments below.

Global minimum tax

Qatar has made further progress towards formalising the introduction of the global minimum tax. Following the amendments in February 2023, which underscored Qatar's commitment to this global initiative, the Council of Ministers has approved a draft law amending certain provisions of the Income Tax Law issued by Law No. 24 of 2018.

The amendments will affect entities, such as LLCs or branches, that are part of a regional or global group whose consolidated revenue at the group level is at least 750 million euros (EUR) or the equivalent in local currency.

The proposed amendments have been approved by the Shura Council on 23 December 2024. Following approval by the Shura Council, the amendments should be submitted to His Highness the Amir of the State of Qatar for final approval and enactment. Once endorsed, the law will be published in the Official Gazette, at which point it will become publicly accessible.

The effective date is expected to be set prospectively from 1 January 2025.

Expansion of the scope of income tax

The amendments specify various types of income generated outside Qatar that will now be subject to income tax in Qatar, including income generated from real estate, immovable property, dividends, royalties, interest, and technical service fees, as long as it is not attributable to a foreign PE of the Qatari Project. Additionally, there is an indication that income derived by a Qatari Project from a broad range of services provided outside Qatar will now be subject to income tax in Qatar.

Reporting of substantial / core activities

The amendments introduced a new requirement for entities to submit a report to the GTA regarding the minimum indicators of their core activities in Qatar. Non-compliance with the substance requirements will result in a penalty equal to 15% of net income.

Changes to the definition of PE

PE is now defined as ’having a fixed place of business‘ and ’the realisation of income or profit‘. This definition deviates from the Organisation for Economic Co-operation and Development’s (OECD’s) PE definition to a certain extent and significantly expands the scope of a PE, which needs to be carefully assessed.

Other amendments

Other key amendments include:

• changes to the residency criteria
• changes in the tax status of private charitable organisations, private associations and foundations, and private foundations of public interest (these are now within the scope of tax law as tax-exempt entities), and
• certain new definitions added (providing guidance on new provisions introduced in the amendments as well as clarifying some provisions of the Tax Law).

Social and Sports Contribution Fund for listed entities

Companies listed on the Qatar Stock Exchange are required to pay a 2.5% levy imposed under Law No. 13 of 2008 to support social and sport activities. This levy was previously administered by the Social and Sports Contribution Fund, established by way of Amiri Decree No. 44 of the year 2010.

On 2 November 2022, a circular was issued stating that starting from the financial year ended 31 December 2022, the GTA will be responsible for the collection of this 2.5% levy. The procedure and deadlines contained in the Law No. 24 of 2018 and its executive regulations are expected to be applicable.

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.

Note the following:

• 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.

Potential implementation of a value-added tax (VAT)

The 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. Oman implemented VAT in April 2021. The other GCC member states are also expected to issue their own VAT legislation. The Cabinet of Qatar had previously 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. While the GTA has not made any communication in this regard, given the recent resolution of the blockade on Qatar, there is an increase in the expectation in the market that the introduction of VAT in Qatar may occur in the near future.