The new Executive Regulations (ER) to Law No. 24 of 2018 ( Issued on11 December 2019)
The new Executive Regulations (ER) to Law No. 24 of 2018 were issued by way of the Decision No. 39 of 2019 of the Council of Ministers and published in the Official Gazette on 11 December 2019. The new Executive Regulations repeal and replace the old Executive Regulations.
The new ER’s contain a number of substantive changes, with the determination of Taxable Income, withholding tax application, exemption of Qatar/GCC natural persons, subsidiary of listed entities and Transfer Pricing.
The effective date of the new Executive Regulations will be the day after the issuance of ER in the Official Gazette, i.e. 12 December 2019
Permanente Establishment (“PE”)
The new ER’s provides further clarity on the constitution of a PE as follows:
A building site, or a construction, installation or assembly project which lasts longer than six months, including the supervisory activities relating thereto (project PE)
A non-resident provides services (including consultancy services) in Qatar through employees or other personnel for a period or periods aggregating more than 183 days in a twelve months period (Service PE).
The new ER also brings in the risk of attribution of income or revenue earned in Qatar to an existing PE, where the activities are similar in nature. The definition of taxable income is now widened, especially for a non-resident. It is also noted that the general principles of OECD have been taken into consideration while determining the scope and definition of taxable income.
One of the major change that the new ER’s have brought in is the shift from the principle of “place of performance of services” to the principle of “usage, consumption or utilization” to test taxability of payments made to non-residents. The services are now subject to WHT if they are consumed, used, or utilized in Qatar even if they are rendered outside the State of Qatar.
The new ER stipulates that the amounts payable to non-residents (whether related parties or not) shall consider as effectively paid after the elapse of a maximum period of 12 months from the due date of the payments (with the exception of amounts owned by ministries, other government agencies and public foundations). The new ER further provides detailed guidelines on the WHT refund process.
Exemption to wholly-owned Qatari companies
The new ER has prescribed for the test of residency of Qatari nationals while determining the exempt status of wholly-owned Qatari Companies.
We understand this residency test could be relevant for wholly GCC Companies and such companies being potentially taxable when the GCC nationals/shareholders are not resident in Qatar. This could have a huge impact on many entities claiming exemption on the basis that these are wholly owned by GCC nationals.
Taxation on shareholding of listed companies
As per the new ER’s, subsidiaries and companies owned by listed companies shall now be taxable to the extent of non-Qatari shareholding in the listed entities. Please note that the listed company which is listed on Qatar stock exchange will continue to remain exempt.
The practical aspects of determining the said taxable shareholdings are to be tested.
The new ER has brought in detailed Transfer Pricing (TP) regulations. The regulations 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.
Entities to 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.
Submission of transfer pricing declaration with the annual tax return, if the number of total revenues 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 effective date determined by the GTA. The master file and local file requirements shall be applicable to entities meeting or exceeding the total revenues or assets thresholds determined by the GTA for this purpose.
The GTA may send out a specific questionnaire to be filled out and request for relevant information and supporting documentation for the purpose of conducting transfer pricing audits. It 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
The other entity resides in one of the non-cooperating countries or territories. The state or territory is considered as non-cooperative if no agreement that permits the exchange of information for tax purposes has been signed with the State of Qatar
Thin capitalization provision
The new Executive Regulations have introduced thin capitalization provisions whereby interest on the loans, to related parties, are restricted to the extent of amount loans that do not exceed three times the ownership rights. The ER also requires that the loan must be necessary for the purpose of taxpayer’s business.
Provisions for doubtful debts for Banks and financial institutions:
As per the new ER, the provision for doubtful debts for Banking and financial institutions shall be determined based on the limits and instruction issued by QCB only. The earlier cap of 10% of net income has been removed.
The new ER’s have abolished the written down value (WDV) method, and now depreciation is to be computed in the straight-line method (SLM) based on detailed new prescribed rates for the various asset. More clarification of the GTA will be required on transitioning from WDV method to SLM and determining the opening value of each asset based on previous tax returns.
Notification of change in the entity
Changes in the entity which lead to a reduction of tax liability will be effective from the date of notification and not the date of actual change. Thus delay in the notification will lead to delay in availing the benefit of change.
Income tax return and capital gains tax return shall be deemed to be self-assessed
The new ER specify the requirements of filing the tax return for capital gains
Process of audit and examination
Submission of details and document will have to be made within 20 days
The GTA will notify taxpayers at least 15 days prior to initiating a tax audit or examination. Further, the GTA will also notify the taxpayers of the results of the tax examination before issuing the assessments.
Tax Exemption - Interest and dividend
The new ER states that interest paid by the bank to non-resident natural persons and capital gains earned by non-resident natural persons is not covered under exemptions. However, the methodology to recover the tax and compliance requirements are not specified therein.
This alert provides a brief summary of the new Executive Regulations and has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out in the new law and executive regulations will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication.
How can we help you?
We can help you analyze the applicability of the new Executive Regulations and evaluate the potential impact of the same on your business in Qatar. If you have any questions or would like to discuss this directly, please contact us
Qatar enacts new income tax law ( Issued on 13 December 2018)
On 13 December 2018, His Highness Tamim Bin Hamad Al Thani, the Emir of Qatar, issued Law No. (24) of 2018 to promulgate a new income tax law. The new law replaces Law No. (21) of 2009 and is effective from 13 December 2018.
The new law retains most features and provisions of the previous law. Qatar will continue to apply a territorial tax system with a standard corporate income tax rate of 10%. The profits of companies that are wholly owned by the Gulf Cooperation Council (GCC) nationals, and the share of corporate profits attributable to GCC nationals who are resident in Qatar, will remain exempt from tax.
The main changes introduced in the new law are:
A flat tax rate of 35% will now also apply to agreements relating to petrochemical industries. Previously, the 35% rate applied only to petroleum operations.
Taxpayers may seek approval for an exemption or preferential tax rate for projects based on criteria related to the nature of a project or its location. The Ministry of Finance may grant exemptions for up to five years. The Council of Ministers may approve exemptions for longer periods, or approve a preferential tax rate.
The 7% withholding tax rate has been removed, and a single withholding tax rate of 5% will now apply to payments made to non-residents for royalties and services that are performed in Qatar without a permanent establishment.
Gains resulting from the revaluation of assets that are used as an in-kind contribution to the capital of another resident stockholding company will be exempt, provided the shares of that company are not sold for five years.
The exemption from tax for profits attributable to non-Qatari stockholders in companies and investment funds listed on the Qatar Stock Exchange, as well as gains arising from trading the shares or units of such companies or funds, has been moved from a special law into the Income Tax Law.
The penalties for non-compliance relating to filing the annual tax return, settling tax liabilities, reporting contracts, and registering as a taxpayer, have been increased significantly, and are as follows:
Late filing of tax return: QAR500 per day up to a maximum of QAR180,000
Late payment of tax or withholding tax: 2% per month, up to a maximum of 100% of the amount of tax due
Failure to register for tax: QAR20,000
Failure by the tax-exempt entity to file a tax return: QAR10,000
Failure to maintain proper records: QAR30,000
Failure to file audited financial statements: QAR30,000
Failure to report contractor information: QAR10,000
Failure to deduct withholding tax: 100% of the withholding tax
Failure to provide information related to the international exchange of information: QAR 500,000.
The Head of the General Tax Authority, established under Decree No. 77 of 2018, will have the authority to relieve taxpayers from penalties up to a maximum of QAR500,000. Previously the limit was QAR50,000.
Taxpayers enjoying tax exemptions will be required to submit their annual corporate tax return showing the amount of income that would have been taxable without the exemption, and the amount of tax-exempt.