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Doing Business in Qatar ( QNB 2009 Report )

The Tax Structure

1. Introduction
2. Tax Administration
3. Tax Determination
4. Tax Rates
5. Accounting Principles
6. Withholding Tax
7. Deemed Profit Taxes
8. Tax Exemptions
9. Tax Treaties
10. Other Taxes


1. Introduction
Law No. (11) of 1993 was issued on 14 July 1993 to cover the income tax system and filing procedure in Qatar. In general, the law provides that any business activity carried out in Qatar will be subject to tax. An activity has been defined as any occupation, profession, service, trade or the execution of a contract or any other business for the purpose of making profit. Income tax is levied on partnerships and companies operating in Qatar whether they operate through branches or in partnership with foreign companies. A new income tax law will be issued shortly, wherein corporate tax rates are expected to be reduced.

Tax is not levied on Qatari owned business enterprises. Law No. (9) of 1989 provides that nationals of Gulf Co-operation Council States are, from 1 March 1989, to be treated as Qatari citizens for income tax purposes. Accordingly, foreign companies wholly owned by Gulf nationals are not subject to income tax in Qatar.

There are no personal taxes, social insurance or other statutory deductions from salaries and wages paid in Qatar.

Direct Taxes
Tax shall be levied on a taxpayer’s income arising from activities in the State of Qatar. The term activities includes:
• Profits realised on any project executed in Qatar;
• Profits realised from the sale of any of the company’s assets;
• Commission due to agencies or arising from representation agreements or commercial agency whether such commission is realised in or outside the State of Qatar;
• Fees paid for consultancy, arbitration or expertise and other related services;
• Rent from property;
• Amounts received from the sale, rent or the assignment of a concession and the use of a trade mark, design, know how or copyright;
• Amounts received from debts previously written-off;
• Profits realised on liquidation
In addition, interest and other bank income received outside the State of Qatar will be subject to tax in Qatar if this income relates to amounts arising from the taxpayer’s activities in Qatar.

2. Tax Administration
The Gregorian calendar is used for Qatar income tax purposes, but a taxpayer may apply to preparehis financial statements for a twelve month period ending on a day other than 31st December. The firstaccounting period may be more or less than twelve months, but it should not be less than six monthsor more than 18 months.

When the taxpayer’s activity is temporary or continues for less than a 6 month period, the taxpayer should submit a declaration when their activity is completed.A taxpayer should keep his accounting records in Qatari Riyals unless permission is obtained from thetax administration for them to be kept in a foreign currency.

Filing Requirements
Tax declarations should be filed within 4 months of the end of the financial period. The filing period can be extended at the discretion of the Department of Taxation at the Ministry of Economy and Commerce, but the extension period may not in any case exceed 8 months. Tax shown in the declaration becomes payable on the date the declaration becomes due for filing with the Department of Taxation. If the filing date is extended, the payment of taxes can be delayed to a maximum of 8 months if the taxpayer provides reasons acceptable to the tax administration. The tax administration may also agree that taxes will be paid by installments during the extended period.

Failure to submit a filing can result in the temporary withholding of payments due under contracts with Government ministries and Government owned companies. Under the terms of Decree Law No. (11) of 1993, the tax administration has the power to impound a taxpayer’s assets if taxes are not paid. The Law also empowers the tax administration to collect unpaid taxes from third parties, such as a taxpayer’s debtors, where the taxpayer fails to settle taxation liabilities.

Penalties for late filing or late payment of taxes will be levied at the rate of QR 10,000 per month or 2% of tax due whichever is greater. The penalty will be calculated on the number of days delayed but should not exceed 24% of the total tax liability.

Prompt filing of tax declarations and payment of a taxpayer’s liability, as well as general co-operation with the tax administration, are of great importance.

Accounting Records and Inspection
The tax administration has the right to inspect a taxpayer’s books and records which should be kept in Qatar. There is no legal requirement for books and records to be kept in Arabic. The accounting books and records must be maintained for at least 5 years from the date the annual tax declaration is registered with the tax administration. All entities with a capital or annual profit exceeding QR 100,000 should submit audited financial statements to support the tax declaration. The financial statements must be certified by an accountant in practice in Qatar who is registered with the Ministry of Economy and Commerce.

On submission of the final tax return and audited financial statements the filings of the taxpayer will be reviewed by the Department of Taxation. It is normal for the Department of Taxation to raise query letters on specific cost categories and reconciliation of revenues reported with the contract value in the case of principal contractor and subcontractor filings.

Provided sufficient reasons exist for the tax administration to conclude that the filing is not correct, they can issue an assessment on a deemed profits basis. If the taxpayer does not agree with the deemed assessment he should lodge an objection letter within 30 days from the date of assessment stating reasons to support his contentions. If the period expires without an objection, the assessment becomes final and cannot subsequently be appealed. However, if the taxpayer is still not satisfied with the administration’s decision after the objection letter is lodged, he can appeal to a Tax Appeal Committee within 30 days of the date he is notified of the administration’s final decision. Additionally, an appeal may also be presented to the Court by either the taxpayer or the tax administration.

3. Tax Determination
Tax liabilities are computed in a manner similar to general British and American practice, on the basis of profits disclosed by audited financial statements, adjustments for tax depreciation and any items disallowed by the Income Tax Department.

In general, capital gains arising from the sale of business assets and business interests are included as an ordinary income.

Income includes the aggregate of all gains and profits which are realised or have arisen from the carrying on of an activity in Qatar.

The tax payer is required to declare the full value of a supply and installation contract. The value of supply and other engineering services performed outside Qatar is normally allowed as a cost in the income statement provided it is supported with valid documentary evidence.

Deductions
Expenses incurred to earn the taxable income are deductible. These include:
• Interest expenses;
• Rent paid;
• Salaries and labour cost, end of service benefits and all related contents including charges allocated to end of service benefits, pension funds and other similar charges;
• Fees and taxes other than Income Tax;
• Debts written off that are approved by the tax administration and which are in accordance with standards established for this purpose

The following cost and expenses are not considered tax-allowable items:
• Personal and other expenses not related to taxable activities;
• Criminal and tax penalties paid in accordance with this law;
• Expenses or losses that may be recovered under an insurance policy, or a contract, or a compensation claim;
• Depreciation on land;
• Depreciation that exceeds cost;
• The branch share of Head Office expenses that exceed the rate determined by the tax administration as a proportion of the total branch income

However, the following matters should be considered:

Depreciation
A summary of the tax allowed depreciation rates is shown below. If rates used in the financial statements are greater, the excess is disallowed. If lower rates are used in the financial statements, an additional claim is not permitted.



Others
The allowable ceiling for head office charges on a project which has income streams arising in Qatar and overseas is set at 3.5% of total income after deducting subcontract costs, the supply value of imported machinery and equipment, revenues arising from work performed overseas, and other income which does not relate to activities in Qatar.

General provisions such as bad debts and stock obsolescence are disallowed. Specific bad debts written off will be deductible to the extent that they are in accordance with the conditions set by the tax administration.

Charges of a general or administrative nature raised by a head office on its Qatar branch are allowed as a deduction subject to a ceiling of 3% of turnover less sub-contract costs. In the case of banks, the limit is 1%.

The Law contains provisions, which allow trading losses to be carried forward and set-off against future profits. However, losses cannot be carried forward for a period exceeding 3 years from the end of the tax year in which the losses were incurred. Losses cannot be set off against prior year income.

A directive issued by the Director of Income Tax in January 1993 requires all ministries, Government departments, public and semi public establishments and other taxpayers to withhold final payments to subcontractors until such entities present a tax clearance certificate issued by the Income Tax Department. This directive also imposed annual disclosure and compliance requirements on the principal contractor. The principal contractor must submit a listing of subcontractors giving names, addresses and the value of each subcontract to the Income Tax Department. Variations in contract value are also to be advised to the Income Tax Department.

The tax clearance certificates furnished by subcontractors are to be submitted as a support for the final tax declaration of the principal contractor. The directive is silent on the ramifications for the taxpayer in respect of subcontractor costs, which are unsupported by a tax clearance certificate. It is however likely from the overall intent of recent directives from the Income Tax Department that any subcontractor costs which are unsupported by appropriate certificates may be disallowed in the determination of taxable profits.

4. Tax Rates
The tax rate is a flat 10% on all the foreigner’s share of profit.


5. Accounting Principles
Generally, accepted methods of commercial accounting must be applied and the accruals method must be followed. If a taxpayer wishes to use a different accounting method, prior approval of the tax administration must be obtained. Compliance with International Accounting Standards is recommended.

6. Withholding Tax
Subject to the provisions of tax agreements, payments made to non-residents with respect to activities not connected with a permanent establishment in the State shall be subject to a final withholding tax, as follows:

a- (5%) five percent of the gross amount of royalties and technical fees;

b- (7%) seven percent of the gross amount of interest, commissions, brokerage frees, director's fees, attendance fees and any payments for services carried out wholly or partly in the State.

7. Deemed Profit Taxes
The Law allows the tax administration to issue an assessment for tax on a deemed profits basis. This option may be exercised by the administration in the following instances:
• If they have reasons to believe that the declaration submitted by the taxpayer is not correct;
• If the taxpayer fails to submit a declaration;
• If the taxpayer does not maintain proper books and records;
• If the taxpayer does not provide the information requested by the tax authority

8. Tax Exemptions
The new Tax Law provides for a Committee to be formed to evaluate applications for tax exemption regarding projects executed by foreign or Qatari companies or individuals. The main attributes considered by the Committee when assessing projects for tax exemption are:
• That the projects contribute to the support of Industry, Agriculture, Trade, Oil, Mineral, Tourism, Communications, or land reform, or any other activities or contracts that the country needs and which are of benefit both economically and socially;
• That the project falls within the planned development and economic objectives of the State and has the approval of the concerned Government department;
• That the project contributes towards the national economy

The following points are considered:
• The commercial profitability of the project;
• The extent to which the project complements other projects;
• The extent to which the project utilises material produced locally;
• The effect of the project on the balance of payments;
• The extent to which the project uses modern technology;
• That the project creates employment opportunities for citizens

Any contractor who is involved in the execution of an exempt project can apply for exemption from income tax. However, taxpayers who obtain exemption from taxes are required to maintain proper accounting records and should submit financial statements to the tax authorities within 4 months from the end of the tax year.


9. Tax Treaties
Qatar has signed double tax treaties with France, India, Pakistan, Russia, Senegal and Tunisia. Several countries, including Japan, the United States and the United Kingdom, allow some unilateral relief against their own taxes for Qatar income tax paid.

10. Other taxes
Taxation of individuals
There is presently no personal taxation levied in Qatar.

Sales tax or value added tax
There is presently no sales tax or value added tax levied in Qatar.

Estate and gift tax
There are presently no estate or gift taxes levied in Qatar.

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