Qatar issues new Executive Regulations to the Income Tax law
Main highlights and next steps
The State of Qatar announced the Ministerial Decision No. 39 of 2019 issuing the Executive Regulations (hereby referred to as “the Regulations”) to the Income Tax Law (Law No. 24 of 2018). The Regulations were published in the Official Gazette on December 11, 2019 with immediate effect and the previous Executive Regulations are now revoked.
The Regulations focus on reforming the local tax administration system to align with Qatar’s international taxation commitments towards greater transparency and also to foster growth of foreign direct investment in line with Qatar Vision 2030.
Main highlights and key changes:
Corporate Income Tax
- Additional guidelines on Permanent Establishments (PEs) including explicit reference to a 6 months (183 days) threshold for service PEs and project PEs.
- Taxability of subsidiaries of companies listed on the Qatar stock market to the extent of non-Qatari shareholding in listed parent company. Companies carrying out “Petroleum Operations” and operating in the Petrochemical industry will remain fully taxable, in case the company is wholly or partly owned by the State of Qatar, whether directly or indirectly.
- Tax losses can now be carried over for five years, as compared to three years in the previous regulations.
- New Tax depreciation rates are introduced prescribing a Straight Line method in contrast to the Written Down Value method as mentioned in the previous regulations.
- Changes to timeline for tax registration - 60 days instead of 30 days. Reference is also made to use of the new digital Tax Administration System.
- Defining the scope of field inspections and approach that the General Tax Authority will take while assessing tax returns.
Capital Gains Tax
- Clear guidance on application of Capital Gains Tax on the sale of shares in Qatari resident companies by a non-resident corporate body.
- Changes to the “wholly or partly” rule while testing performance to assess the applicability of Withholding Tax (WHT). Services that consumed in Qatar or performed for the benefit of Qatar are viewed as locally sourced, regardless of the place of performance and will be subject to WHT.
- Changes to the rule on when WHT payment will be due and who will be subject to registration requirement as WHT agent. Amounts subject to WHT will now be deemed as paid within a 12 months’ period from the payment due date (with the exception of Ministries and other Government agencies/public foundations).
- Inclusion of detailed guidelines on WHT refund claim based on application of double tax treaty.
- Transfer Pricing requirements for taxpayers have been introduced along with new reporting requirements applicable from the tax year ending December 31, 2019.
- The Transfer Pricing requirements include four tiers of compliance: (i) Transfer Pricing Form/Questionnaire to be provided with the Tax Return, (ii) Masterfile, (iii) Local file and (iv) Country by Country Reporting requirements (already introduced in 2018/2019).
- The Regulation refers to International Accounting Standards and the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines (for example on the definition of an Associated Enterprise).
- Further guidance will be issued in due course to clarify key areas and this will include an Advance Pricing Agreement program that will become available to taxpayers who are involved in complex/material transactions.
The above are among many changes that will reshape the current tax landscape of Qatar.
What remains unclear:
Certain areas of the Regulations still remain unclear. Amongst others, the key uncertain items are:
- Exemptions in certain scenarios applicable to legal entities partly owned by Qatari nationals.
- Practical challenges related to the calculation of share of profits attributable to non-Qatari shareholders in subsidiaries of listed entities.
The introduction of the four tier documentation approach in Qatar will increase the compliance burden on taxpayers operating in the region. Global Multinational Entities may draw some comfort from the fact that the OECD Transfer Pricing Guidelines are referenced in the Regulations. The introduction of Advanced Pricing Agreements will also help large Multinational Entities to achieve certainty going forward.