Qatar Tax Guidelines.
Qatar Tax Regimes:
There are two tax regimes in Qatar: the state of Qatar tax regime, operated by the General Tax Authority (GTA), which applies to the majority of businesses operating in Qatar; and the Qatar Financial Centre (QFC) tax regime, operated by the QFC Tax Authority within the QFC Authority.
Corporate Tax Filing Requirements
Under the state of Qatar tax regime, taxpayers are required to submit an annual income tax return and pay the tax that is due by the end of the fourth month after the company’s financial year-end. Entities wholly owned by Qataris and other GCC nationals are exempt from corporate income tax, but are required to file tax returns and audited financial statements with the tax authorities if their capital is at least QR2m ($549,000) or if their annual revenue is at least QR10m ($2.7m). The GTA has planned the introduction of a new online tax management system in 2020, called Dhareeba, with the aim of achieving complete automation of the tax payment and management process. Dhareeba enables online registration, filing of tax returns, payment of taxes due and progress tracking.
Penalties For Late Tax Filing:
Under the state of Qatar tax regime, failure to file a tax return by the deadline will result in a penalty of QR500 ($137) per day up to a maximum of QR180,000 ($49,400). Failure to pay tax due by the deadline will result in a penalty of 2% of the amount of tax due per month of delay or part thereof, up to the amount of tax due. All taxpayers must register with the GTA and obtain a tax card. Both the registration and tax card must be renewed annually and failure to do so may result in a penalty of QR20,000 ($5490). Failure to withhold tax where required is subject to a penalty of 100% of the tax. Delays in remitting tax withheld are subject to a penalty of 2% of the tax per month of delay subject to a maximum of 100% of the amount of tax due.
Accounting Standards in Qatar:
The both Qatar Tax Regimes follows International Financial Reporting Standards (IFRS) UK. Generally Accepted Accounting Principles (GAAP), US GAAP or any standards issued by the Accounting and Auditing Organization for Islamic Financial Institutions. For tax years beginning on or after January 1, 2020, financial statements must be prepared in Arabic.
Legal Structure of Companies in Qatar:
The most common legal entity structures registered with the Ministry of Commerce and Industry are the limited liability company, private shareholding company, public shareholding company and branch of a foreign company. Other forms of business include the limited partnership, joint liability company, limited share partnership and joint venture company. Within the QFC, the most common legal entity structures are the limited liability company, branch, general partnership, limited partnership and limited liability partnership. Other forms of business include the special purpose company, single family office and trust.
Taxpayer Registration in Qatar (Dhareeba Registration):
All companies in Qatar which are carrying out any business activity in Qatar must register as a taxpayer with General Tax Authority (GTA) and get the tax card within 60 days of either (i) the commencement of activities or (ii) the date of registration with the Commercial Register of the Ministry of Commerce and Industry. A penalty of QR20,000 ($5490) may be imposed for failure to register with the GTA or to maintain a valid tax card.
Taxable Entities in Qatar:
Tax is imposed on a taxpayer’s Qatari-source income. Entities wholly owned by Qataris and other GCC nationals are exempt from corporate income tax, but may be required to file tax returns.
Taxable Income in Qatar:
Under the state of Qatar tax regime, the main categories of taxable income include gross income derived from: activities carried out in Qatar; contracts wholly or partly performed in Qatar; real estate in Qatar; the exploration, extraction or exploitation of natural resources situated in Qatar; consideration for services paid to a head office, branch or related company; and interest on loans obtained in Qatar.
Income Exempt From Tax In Qatar:
Certain income is exempted from tax, including:
• Bank interest and returns due to natural persons who do not carry out a taxable activity in the state, whether or not resident in the state.
• Interest and returns from public debt securities, Islamic financial securities issued pursuant to the Financial System Law and public corporation bonds.
• Capital gains derived from the disposal of real estate or securities held by natural persons provided that the real estate or securities disposed of are not part of the assets of a taxable activity.
• Capital gains derived from revaluation of a company’s assets upon offering them as share in-kind for the purpose of contributing to the capital of a shareholding company that is resident in the state, provided that the proportion of the stocks against the share in-kind is nominal and not disposed of before five years have lapsed.
• Share profits and other income from shares if the dividend distributed during a taxable year were deducted from: (a) profits subjected to the tax under this law; (b) profits distributed by a company whose profits are exempt from tax under this law or other laws.
• Gross income from handicraft activities that do not use machines, whose gross income does not exceed QR200,000 ($54,900) per year, where the average number of employees does not exceed three during the taxable year and when the activity is carried out in a single establishment. The exemption conditions under this item may be amended by a decision from the Council of Ministers based on recommendation by the minister.
• Gross income from agricultural and fishing activities.
• Gross income of non-Qatari air and sea transport companies operating in the state, subject to reciprocity.
• Gross income of Qatari natural persons resident in the state.
• Gross income of legal persons resident in the state and wholly owned by Qataris.
• Gross income of legal persons that are resident in the state, to the extent of the shares of the following persons: (a) Qatari natural persons; (b) legal persons wholly owned by Qataris; (c) legal persons partly owned by Qataris to the extent of their shares of the profits thereof. The provisions of this paragraph shall not apply to the shares of profits of legal persons that are wholly or partly, directly or indirectly, owned by the state and that operate in the petroleum or petrochemical industries.
• Gross income derived from activities authorized for private entities that are registered in the state or in another state and licensed to operate in the state to the extent their activities are not for profit.
• Share of non-Qatari investors in the profits of companies whose shares are offered for trading in the stock market.
• Share of non-Qatari investors in the profits of investment funds whose units are offered for trading in the stock market.
• Share of non-Qatari investors in profits derived from trading all securities, including investment funds that are listed for trading in the stock market.
Tax Deductions in Qatar:
Allowable deductions are expenses and costs incurred by the taxpayer that satisfy the following requirements:
• They are necessary to derive the gross income;
• They are actually incurred and supported by documents;
• They do not increase the value of fixed assets used in the activity; and
• They are related to the taxable year. The taxpayer may deduct losses incurred during the taxable year from the net income of the following five years. The following expenses and costs may not be deducted:
• Expenses and costs incurred to derive tax-exempt income.
• Payments that are made in breach of the laws of the state.
• Fines and penalties imposed for the breach of the laws of the state.
• Expenditures or losses pertaining to compensation that is receivable or has been received if that compensation has not been included in the taxpayer’s gross income.
• The share of total expenditures that was spent on entertainment, hotel accommodation, restaurants, vacations, club fees and gifts to customers in accordance with the circumstances, conditions and limits provided for in the regulations.
• Salaries, wages and similar remuneration, including fringe benefits paid to the owner, his/her spouse and children, partners of a general or limited partnership, members of the board of directors, and the manager of a limited liability company who owns, directly or indirectly, the majority of the shares of the company.
• The share of the branch in the head office’s general and administrative expenses that exceeds the percentage determined in the regulations.
• Commissions of the agents of foreign companies that exceed the limits defined by the regulations.
• Any other disallowed deduction pursuant to the provisions of this law.
Deductible Expense Limits
The deductible expense limits are as follows:
• Entertainment, hotels, restaurants, vacations, club contributions and customer gifts: Old regulation: 2% of the net income or QR200,000 ($54,900), whichever is lower. New regulation: 2% of net income or QR500,000 ($137,000), whichever is higher.
• Gifts, donations, subsidies and contributions to charitable works: Old regulation: 5% of net income. New regulation: 3% of net income
Tax Depreciation under Qatar Income Tax Law:
The amount of fixed asset depreciation shall be deducted if the following conditions were available:
• The asset subject to depreciation was a fixed asset in accordance with the definition stated in the accounting standards applicable in the state.
• The asset must be totally used for the purposes of an activity subject to tax, and in the event of using it partially for the purposes of an activity subject to tax, the depreciation shall be deducted within the limits of this use only.
• The asset must be depreciable, whereas its value decreases due to use, passing of time or technological obsolescence.
• The asset shall be a property of the taxpayer under documents proving ownership, such as property certificates, contracts and otherwise.
• The depreciation is calculated from the actual date of use based upon cost total that was spent to obtain the asset and prepare it for use.
• The depreciation carried out by the taxpayer shall be deducted based upon rules controlled by the accounting standards applicable in the state, without exceeding the deductible fixed depreciation instalment calculated on the assets owned by the taxpayer, including the buildings constructed on third-party property with the outlined maximum percentages (see table).
The tax shall be assessed on the basis of the taxable income as stated in the return. The tax return shall be considered an assessment of tax and an obligation to pay it on the same day of the filing thereof. The authority may amend the assessment based on the information stated in the return and supporting documents thereof, in accordance with the provisions of this law and its regulations. The authority may also issue a deemed assessment based on any information that is available where the taxpayer fails to submit their tax return or fails to submit the information and the documents supporting the return.
The authority shall, in the two cases stipulated in the paragraph above, notify the taxpayer of the assessment components and the value thereof on the form designated for this purpose by means of registered post or any other method of notification. A liquidator is considered a taxpayer and the assessment procedures will be taken against him.
The new ERs have brought in detailed TP regulations, which require entities to:
• Determine the price of related party transactions in accordance with the arm’s length principle and to evaluate those at the time of the transaction, and in any case no later than the time of submitting the annual tax return;
• Perform a detailed functional analysis at the time of preparation of the tax returns. A search for comparable transactions/operations can be conducted once in three years; however, it is expected that the financial data of the comparable operations be updated annually; and
• Submit the TP declaration with the annual tax return, if the number of total revenue or assets meet or exceed the thresholds determined by the GTA. Master file and local file filing requirements have also been introduced. These requirements shall be effective for the tax year beginning on or after the date determined by the GTA. The master file and local file requirements shall be applicable to entities meeting or exceeding the total revenue or assets thresholds determined by the GTA for this purpose. The GTA may send a specific questionnaire to be filled out and request relevant information and supporting documentation for the purpose of conducting TP audits. The onus shall be on the taxpayer to prove that transactions with associated enterprises meet the arm’s length principle.
The above-mentioned requirements shall also apply to transactions between any entity residing in the state and another entity not associated if:
• One of the two entities benefits from a preferential tax system; or
• The other entity resides in one of the non-cooperating countries or territories. A state or territory is considered as non-cooperative if no agreement that permits the exchange of information for tax purposes has been signed with Qatar. The QFC regime has detailed TP rules that are broadly consistent with OECD recommendations.
While there are no formal master file and local file requirements, the tax authorities expect taxpayers to have such documentation available during a tax audit.
Qatar’s tax authority has activated the “contract reporting” notification provisions of the new tax administration portal (Dhareeba), and it is now mandatory to submit and report contracts concluded by taxpayers through Dhareeba. Under this mechanism, taxpayers are required to notify the tax authority regarding both purchase contracts (entered into with suppliers and vendors) and sale contracts (with customers) if certain threshold requirements are met. Penalties will apply for contracts reported 30 days after the contract is signed.