Tax Planning & Compliance Qatar

An introduction to Tax Planning & Compliance Qatar

Our societies have always thrived on the shared purpose and persistent relations that had existed between the people and the respective elected rulers. The shared purpose of the societies was usually related to the shared challenges. These challenges were partly solved through the pooling of individual resources which has come to be known as taxes in more recent years. Tax(es) explains the compulsory charges imposed on individuals and organizations by the government to generate financing or funding to meet the needs of a society. It is considered a social responsibility and deemed right and lawful for members of a society to contribute their quota to the society through the payment of taxes. The finances or funds from the contributions are set to resolve challenges for the common good of all indigenes. Projects like schools, hospitals, roads and many others are some of the social amenities that are financed or funded by the taxes. It extends to (public) health insurance and other social security plans financed or funded with taxes.

A distinction between Direct and Indirect Taxes

Taxes are usually incurred directly or indirectly from several income sources.

Taxes incurred directly are usually garnered from direct income of individuals or organizations. A fixed rate is charged on the income. The amount is relinquished to the government as taxes. A taxpayer pays direct taxes to the government from income sources such as salary, rent, property, capital gain from an investment, appreciation and any other asset.

Indirect taxes are usually incurred by any part in the supply chain and paid to the government, but are passed on to the consumer as part of the purchase price of a product or service. In other words, the tax is paid by another person. Examples of indirect taxes are the excise duties on fuel and cigarettes, the admission fees to national park and the consumption taxes like value-added tax (VAT).

The most common Types of Taxes inside and outside of the State of Qatar

Taxes appear in many forms and usually depend on the source of income. The most common types of taxes inside and outside of the State of Qatar are outlined or summarized in the following paragraphs.

1. Personal Income Tax

This is a tax which is generated from the income of a person. A personal income tax is usually charged on sources of income like salaries and wages. Most governments use of credits, exemptions and deductions not to subject the entire income to taxes. Qatar is among the very few countries in the world that do not impose any taxes on the personal income of citizens and residents, who qualify for the exemption.

The applicable laws in the country deem (A) a person who has a home in the State of Qatar, (B) a person who has been in the country for more than 138 days (consecutive or separate) during a period of 12 months or (C) a person whose center of interest is in the State of Qatar qualified for an exemption of taxes charged on their personal income.

2. Corporate Income Tax

Contrary to the personal income tax, this type of tax is imposed on the earnings of an organization. The taxable income is usually the total revenue from operations minus direct and indirect or variable and fixed costs as well as depreciation, amortization and interest.

Generally, all current expenses are usually considered tax deductibles to reduce the taxable income of an organization. The applicable laws differ greatly from country to country. Some countries even have no or very low corporate income tax rates and as such have earned themselves the title as tax havens. The laws in the State of Qatar apply if (A) a legal entity incorporated in the State of Qatar (B) a legal entity’s head office is located in the State of Qatar or (C) a legal entity whose place of effective management is in the country.

At the moment, there is no corporate income tax levied on any organization fully or wholly owned by a national of the State of Qatar or the Gulf Cooperation Council (GCC), who is resident to the State of Qatar. In turn, any organization that is partially or wholly owned by a foreign person that derives income from operations in the State of Qatar is liable to corporate income tax. In an instance where there is a partnership between a national of the State of Qatar or the GCC and a foreign person, the corporate income tax is charged on the foreign partner’s share of the income.

3. Payroll Tax

This type of tax is very typical for businesses. Employers are required to deduct a percentage of the income of their employees to the government as part of programs such as social security and health insurance. Employees around the world usually pay keen attention to the contributions being made on their behalf. The State of Qatar does not employ any payroll taxes at the moment. However, employers are required to deduct 10% of any Qatari employee’s basic salary each month for social security contributions. Any employee who is a national of the State of Qatar and is eligible for a pension must make a 5% contribution of his or her basic salary each month.

4. Sales Tax

This type of tax falls under indirect taxes. Indirect taxes are usually incurred by any part in the supply chain and paid to the government, but are passed on to the consumer as part of the purchase price of a product or service. In other words, the tax is paid by another person.

Since 01/01/2019, Qatar has imposed excise taxes on goods that are both imported and produced locally. As a result, there is a tax of 100% applied on tobacco, energy drinks and other special purpose goods and 50% applied to carbonated drinks. A tax of 8% was introduced for tobacco products as of 01/01/2020.

As a member of the GCC Customs Union, Qatar charges a 5% tax rate on all goods’ cost insurance and freight (CIF). However, some goods are exempted from tariffs and other goods are charged at a higher rate. Exceptions to the rules may apply for temporary importation of goods, importation of goods for police and military, importation of goods for diplomatic bodies and others.

5. Property Tax

This is a tax which is levied on the value of land and other fixed assets owned by an individual or an organization. They are taxed by the local government based on the location of the asset and the owner of the property pays as charged. Some regions charge property tax on some tangible personal assets like cars, boats, jets and others too. The State of Qatar does not apply any property tax.

6. Estate Tax

This is a tax which is applied to the total value of a person’s estate at the time of his or her death. In a majority of the cases, the governments define a benchmark and when the total value of the estate exceeds the benchmark the rate is applied to it. The State of Qatar does not have any estate tax.

7. Withholding tax

This type of tax explains the rates levied on royalties, commission, technical fees, brokerage fees, dividends and other payments signed under a(n) agreement or contract. The State of Qatar does not have any withholding tax on dividends. However, a withholding tax of 5% is charged on all activities that are carried out either inside or outside the country provided it is used, utilized and benefited by the State of Qatar.

8. Capital Gains Tax

These are taxes that are charged on any value realized from an individual or organization’s investment when the investments are liquidated. Investments that are not liquidated are consequently not taxed. Any share that appreciates in value on the stock market but is not liquidated cannot be taxed. The State of Qatar does not apply any capital gains tax.

9. Wealth Tax

This is a tax imposed on an individual or organization’s assets as opposed to the income. The government can apply a rate on assets based on assessment. The State of Qatar does not apply a wealth tax.

10. Surtax

This is a tax that is charged on top of another tax. The State of Qatar does not have surtax.

The consequences of tax evasion in the State of Qatar

Tax evasion is an instance where an individual or organization deliberately fails to honor the tax duties as expected. The act is considered illegal in many countries and hence it is punishable by the law. In any instance where a party (individual or organization) breaches the applicable laws of the State of Qatar, he or she will have to face some penalties. The framework of measures includes (A) a penalty of QAR 500.00 per day up to a maximum of QAR 18,000.00 for the failure to file a tax return in accordance with the deadline, (B) a penalty of 2% of the amount of tax due per month for taxpayers who do not meet the deadline of the stipulated timings, (C) a penalty of QAR 20,000.00 against all parties who may fail to register with the General Tax Authority to obtain their tax card, (D) failure to pay the withholding tax where required is subject to a penalty of 100% of the tax and (E) any delays in remitting the withholding tax are subject to a penalty of 2% of the tax per month and at a maximum of 100% of the tax.

The Tax Regimes in the State of Qatar

Taxes are treated differently by countries and regions and authorities within countries and regions.

The State of Qatar operates four tax regimes at the moment. The tax regimes are outlined or summarized in the following paragraphs.

1. Mainland of the State of Qatar

The regime of the mainland of the State of Qatar has provisions which are applicable to a majority of organizations operating in the country.

2. Qatar Financial Center (QFC)

The QFC has an alternative tax regime which is based on best practices and lessons learned from major financial centers. Contrary to the other regimes, the QFC defines the rate independently and has a system to decide which sources of income are considered taxable. It is a regime under which financial and non-financial service providers operate.

3. Qatar Free Zones Authority (QFZA)

The QFZA has a tax regime which applies to organizations sets up within the confines of the jurisdiction. The authority was established in 2018 and is governing two free zones namely Umm Al Houl and Ras Bufontas in the country. The free zone provides investors a tax holiday of 20 years with no customs duties, corporate income taxes and personal income taxes. Organizations in the free zones will benefit from many incentives including one hundred percent foreign ownership.

4. Qatar Science and Technology Park (QSTP)

The QSTP offers many incentive to investors, either local or foreign, who involve in research, development and innovation or engage in the fields of science and technology. Organizations under the QSTP are exempted from custom duties.

The most recent developments in the Tax System of the State of Qatar

The State of Qatar has implemented a number of reforms to the tax system and the applicable laws. The most recent developments are outlined or summarized in the following paragraphs.

1. The Tax Administration System - Dhareeba

The General Tax Authority (GTA) announced a new development and a change in the Tax Administration System (TAS) to a new platform called Dhareeba. The new system came into full effect in November 2020. All taxpayers on the old TAS were instructed to re-register on the new portal by 21/12/2020. The tax returns will be filed on Dhareeba (including the ones for 2020).

2. The New Income Tax Law

This new income tax law was published in January 2019 and has been in effect since then. Unlike the old system where income tax was assessed based on the tax returns approved by the GTA, the new law deems the income tax return as a fulfilment of the tax assessment on the day of submission without any further approval by the GTA.

3. Laws on Contract Notification

In previous years, it has always been a rule that all taxpayers (resident or non-resident) who have signed a contract with any other party will have to notify the GTA of such happenings within 30 days of signing the contract for purposes of withholding tax. The reporting is required for service and supply contracts regardless of the value concluded with residents and non-residents that do not have a permanent establishment in the State of Qatar. It is required for contracts concluded with residents and non-residents with a permanent establishment, if the contract value is equal to or greater than QAR 200,000 for service contracts or QAR 500,000 for supply contracts.

4. Laws on Withholding Tax

The application of withholding tax has been extended with the introduction of a “Benefits Test” or “Consumption Test”. In other words, services shall be considered as performed in the State of Qatar as long as they are used, consumed or benefited in the country even if they are carried out in whole or part outside the country.

5. Value Added Tax (VAT)

The members of the Gulf Cooperation Council (GCC) have agreed on a framework for the VAT which forms the basis for the implementation of the VAT systems in the countries including the Kingdom of Bahrain, State of Kuwait, Sultanate of Oman, State of Qatar, Kingdom of Saudi Arabia and the United Arab Emirates. Whereas, 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 Cabinet of the government of the State of Qatar has approved a draft law on VAT. However, the laws have not been published yet.

6. Others

By signing the Multilateral Convention (MLI) to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (BEPS) on 04/12/2018, the State of Qatar joined the other tax treaty partners to become the 85th jurisdiction to adopt the Convention and become fully compliant with the Organization for Economic Co-operation and Development’s (OECD) BEPS initiative.

The steps to Tax Planning & Compliance Qatar

We maintain relations with subject matter experts and specialists in the private and public sector. Our recommendations depend on the requirements of a client or customer and the complexity of a business or project. In a majority of our cases, we propose or suggest taking it step-by-step and to assess your possibilities.

We recommend to consider directly and indirectly related activities such as budgeting and financial planning, resource planning as well as accounting and bookkeeping and the applicable laws in the State of Qatar as well as the best practices in the country.

It would be our pleasure to learn more about your business or project and to discuss the most suitable approach for you!

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