Dhareeba Registration and implementation
The General Tax Authority (“GTA”) via Circular 5 has announced the formal closure of previous Tax Administration System (“previous TAS”). With effect from 1st November 2020, all tax returns are required be filed and other tax submissions (such as WHT, contract notifications ets) made using new Tax Administration System (i.e. Dhareeba). The GTA has emphasised that the taxpayers should make the required arrangements to ensure
submission of their tax obligations through Dhareeba are fully compliant with the procedures
described in the user guides available on the Dhareeba portal.
Previously all taxpayers, including those registered in the previous Tax Administration System, should re-register in Dhareeba within the extended deadline of 31 December 2020.
New Income Tax Law
Qatar has introduced a new Income Tax Law, which was signed on 13 December 2018 and published on 17 January 2019 (“New Tax Law”). The fundamental principles underlying the New Tax 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 Tax Law also introduces some rules aimed at providing administrative simplification. One of those rules relates to the tax assessment procedure. Under the previous law, income tax was assessed on the basis of the taxable income as determined in the tax return, if such return was accepted GTA. Under the New Tax Law, however, the income tax return is deemed a tax assessment on the same day of its submission (self-assessment).
The new Executive Regulations to the New Tax Law were published on 11 December 2019 (“Regulations”). The New Tax Law along with the Regulations have caused some significant changes in the tax landscape and especially to the taxation of non-residents carrying out business in the State of Qatar. Some of these key changes are summarised below:
- New provisions may impact a Qatari entity’s tax position with regards to profits attributable to its Qatari (and GCC) shareholding, as new requirements have been introduced which have narrowed the scope of such exemptions which were available under the previous tax law and therefore it is recommended that all Qatari entities review their tax positions in order to assess potential tax liabilities.
- In addition to the above, fully owned subsidiaries of listed entities are now taxable to the extent of non-exempt ownership (i.e. foreign or non-exempt Qatari/GCC ownership). Previously, there was a perception amongst taxpayers that such subsidiaries were tax exempt.
- New detailed transfer pricing requirements have also been introduced, which include four tier reporting obligations (see further details below).
Taxpayers are required to notify the GTA of contracts which they enter into with residents and non-resident (subject to certain monetary thresholds) within 30 days of signing such contract. The New Tax Law and Regulations have introduced a penalty of QAR 10,000 per contract which is not reported as per statutory requirements. With the introduction of Dhareeba, contract notifications are also required to be submitted in Dhareeba.
The application of WHT on “service” payments has been extended with the introduction of a “Benefits Test” or “Consumption Test” i.e. services shall be considered as having been performed in the State as long as they are used, consumed or benefited in the State even if they are carried out in whole or part outside the State.
New provisions have also been introduced whereby certain unpaid amounts are “deemed” as having been paid if they remain unpaid for a certain specified period. This is contrary to the previous practice where WHT was only due upon actual settlement.
Based on the above, it is anticipated that a much larger numbers of contracts / agreements / arrangements / transactions (including deemed arrangements) whether with third parties or related parties, could now come within the scope of WHT provisions and as such tax payers should review existing and new arrangements.
In case a relief from WHT is available under a Double Tax Treaty (DTT), Qatar has a pay and reclaim mechanism i.e. the payer is required to withhold and pay to the GTA. The payee will have to file a refund application to the GTA in order to avail the relief provided under the DTT.
Transfer Pricing requirements
Historically, transactions between related parties were expected to be undertaken on an arm’s length basis and in accordance with the Comparable Uncontrolled Price method or any other OECD acceptable pricing method. However, there was no specific requirement for filing TP documentation with the GTA. The Regulations outlines certain specific transfer pricing requirements:
- The Comparable Uncontrolled Price (CUP) methodology is stipulated as the primary methodology. In case the CUP method is not applicable, the taxpayer should lodge a request to the GTA for the application of a different transfer pricing methodology.
- A new requirement for performing a “Functional Analysis” describing a taxpayer’s position and economic role with related entities, identifying the functions performed, risks assumed, and the tangible and intangible assets owned and used.
- A new requirement to update the analysis supporting the arm’s length character of the intercompany transactions every three years.
- A new requirement of a transfer pricing declaration as part of the annual income tax return, of which the form and content should be specified by the GTA.
- Tax deductibility of interest on loans, paid to related parties shall be dependent on such loans being economically beneficial to taxpayers. On this basis, a “Commercial Purpose” test has been introduced. The loan amount and interest charge should also not exceed three (3) times the equity of the Qatar tax paying entity and should be documented in an intercompany agreement between the parties.
- A new requirement to prepare TP documentation (Local File and Master File) by the time of filing the tax return for the period during which the respective related party transaction(s) occurred or at any other date that the GTA may specify otherwise if the following conditions are met:
- The threshold (to be established by the GTA) on revenues or assets of the taxpayer is met;
- One of the related parties of the Qatari taxpayer is established outside of Qatar.
On February 2, 2021, the GTA verbally confirmed that a Transfer Pricing Form will be required for taxpayers with either total value of assets or total revenues in excess of 10 million QAR for the financial years beginning January 1, 2020 onwards. The Transfer Pricing Form should be submitted alongside a taxpayer’s income tax returns on the Qatar Online Tax Portal. The Transfer Pricing Form will require information on the details and nature of the taxpayer’s intra-group transactions, including the OECD method applied by the taxpayer to determine that the transactions were conducted on an arm’s-length basis. In addition to the above information, the Transfer Pricing Form will also require taxpayers to provide additional transfer pricing related information.
The Regulations have broadened the scope of Permanent Establishment (PE) as follows:.
- The definition of a dependent agent for PE purposes has been broadened to include (i) habitual conclusion of contracts; and (ii) keeping of goods and merchandise on routine basis and dealing with it for the benefit of a non-resident.
- Force of Attraction rule has now been introduced which can result in the taxation of any income from activities in Qatar that are not connected to a PE.
- Introduction of an anti-fragmentation rule.
- A provision that states that a complete business cycle or operation can result in a PE in Qatar.
Updates to Qatar Financial Centre Tax Regulations
- Exemption for Security and Defence Contracts
Qatar Financial Centre (QFC) has recently released a concessionary statement in which it was highlighted that, in parity with the State regime, tax exemption will be provided to contracts that are in relation to security and defence of the State of Qatar, subject to the fulfilment of certain conditions.
- Exemption for Listed Entities
Qatar Financial Centre (QFC) has updated its Tax Regulations in order to provide an option to Listed Entities whereby they can opt for an exempt status, subject to the fulfilment of certain conditions.
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 currently oversees two free zones: 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).
Potential 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. Oman has committed to implement 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.
Introduction of excise tax
The Excise Tax Law has been 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 are understood to include alcohol and pork items and Excise Tax is currently applied on them. 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. Qatar deposited its instrument of ratification in December 2019. The ratification of the MLI could potentially subject Qatari companies and foreign multinationals to an additional layer of complexity in managing their tax affairs and all existing and future engagements should be carefully reviewed.
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 16 June 2019, the GTA in Qatar, which is the ‘competent authority’ in matters related to CbCR, issued a notice with respect to CbCR obligations in Qatar, which will now be effective for financial years beginning on or after 1 January 2018.
The notice requires mandatory CbCR submission for Ultimate Parent Entities (UPEs) that are a tax resident in Qatar and reported consolidated revenues equal to or more than 3 billion Qatari riyal (QAR) in the preceding financial year. The CbCR submission will need to include all qualifying constituent entities. For the time being, no CbCR or notification obligations apply to a constituent entity that is tax resident in Qatar if the UPE is resident outside Qatar.
The GTA, in collaboration with the Qatar Financial Centre (QFC) Tax Department where applicable, will monitor the non-compliance with the CbCR obligations and apply penalties in accordance with the Income Tax Law.
The notice by the GTA on 16 June 2019 comes soon after the suspension and goes back to include mandatory CbCR submission for entities that fulfil the following requirements:
- Resident in Qatar.
- The UPE of a multinational enterprise (MNE) group.
- Reported consolidated revenues equal to or more than QAR 3 billion in the preceding financial year.
On 16 September 2019, the QFC issued a notice (‘QFC September Notice’) referring to the GTA June Notice and provided certain additional information with respect to the CbCR obligations for QFC entities, as well as potential penalties for non-compliance. QFC entities are subject to the CbCR obligations in Qatar and are required to submit the CbCR, subject to qualifying under the Qatari CbCR requirements.
The QFC September Notice outlines that non-compliance with the CbCR obligations and triggers the application of financial sanctions/penalties, as outlined below:
- A financial penalty of QAR 100 per day or per false or incomplete information would apply, as the case may be, in instances of a failure to submit on time the CbCR notification or submission of false or incomplete information in the CbCR notification.
- A financial penalty of QAR 500 per day of delay or per false or incomplete information, as the case may be, in instance of a failure to submit on time the CbC report or submission of false or incomplete information in the CbCR.
Common Reporting Standard (CRS)
On 10 November 2017, Qatar signed the CRS Multilateral Competent Authority Agreement (CRS MCAA). This instrument is an automatic exchange of information regime which 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.