Qatar Announces New Executive Regulations Regarding the Income Tax Law

Key highlights and next steps

Qatar has made an announcement about the Ministerial Decision No. 39 of 2019 issuing the Executive Regulations to the Income Tax Law (Law No. 24 of 2018). These Regulations were issued in the Official Gazette on December 11, 2019 and will be applicable with immediate effect and the earlier Executive Regulations are now annulled. The Regulations aim on revolutionizing the local tax administration regime to be in alignment with Qatar’s global taxation commitments to bring greater transparency and also to encourage growth of foreign direct investment (FDI) in tandem with Qatar Vision 2030.

Main highlights and key changes:

Corporate Income Tax

• Supplementary guidelines on Permanent Establishments (PEs) comprising clear reference to a six-month (183 days) limit for service PEs and also project PEs.
• Taxability of various subsidiaries of companies that are listed on the Qatar stock market to the size of non-Qatari shareholding in the listed parent company. Companies conducting “Petroleum Operations” and working in the Petrochemical industry would stay fully taxable, if the company is fully or partially owned by the State of Qatar, be it directly or indirectly.
• Tax losses, if any, could be carried over for up to five years, in contrast to three years in the previous regulations.
• New Tax depreciation rates have been announced recommending a Straight Line method in place of the Written Down Value method which was mentioned in the earlier regulations.
• Amendments to the timeline for tax registration – 60 days now instead of 30 days. There is also a recommendation to use the new digital Tax Administration System.
• The scope of field inspections has been defined and also the approach that the General Tax Authority would adopt while assessing tax returns.

Capital Gains Tax

• Precise guidance on how to apply Capital Gains Tax on the sale of shares especially in Qatari resident companies by a non-resident corporate body.

Withholding Tax

• Amendments to the “wholly or partly” rule when testing performance to evaluate the applicability of Withholding Tax (WHT). The services that are used in Qatar or conducted for
  the advantage of Qatar are considered as locally-sourced, irrespective of the place of performance and as a rule, will be subject to WHT.
• Amendments to the rule on when a WHT payment would be due and who would be subject to registration obligation as WHT agent.Theamounts that are subject to WHT would now be considered as paid within a period of 12 months from the payment due date (only exception will be for Ministries and other Government agencies or public foundations).
• Addition of other detailed guidelines about WHT refund claim depending on application of double tax treaty.

Transfer Pricing

• The requirements for Transfer Pricing applicable for taxpayers have been announced along with new and updated reporting requirements that will be applicable from the tax year ending on December 31, 2019.
• The requirements for Transfer Pricing comprise four tiers of compliance: (i) Transfer Pricing Form or Questionnaire which is be submitted with the Tax Return, (ii) Masterfile, (iii) Local file
  and (iv) Country by Country requirements or reporting (this has been already introduced in 2018-2019).
• The Regulation takes a reference from International Accounting Standards and the Organisation for Economic Co-operation and Development (OECD) Transfer Pricing Guidelines (for instance, it takes a reference on the definition of an Associated Enterprise).
• Additional guidance are expected to be issued in due course to explain some key areas and this would include an Advance Pricing Agreement program that would be available to the taxpayers who are involved in some complex or material transactions.

The above-mentioned are among the many amendments that are going to reshape the current tax landscape of the State of Qatar.

Points which are still unclear

Some areas of the Regulations that are still not clear are:

• Exemptions in some specific scenarios that are applicable to legal entities which are partly owned by Qatari nationals.
• Some practical challenges that are related to the method of calculation of share of profits which are attributable to non-Qatari shareholders in the specific subsidiaries of the listed entities.

The way forward

The announcement of the four tier documentation approach in Qatar is expected to increase the compliance burden on all the taxpayers who are operating in this region. Global Multinational Entities might feel some comfort because the OECD Transfer Pricing Guidelines are referred to in the Regulations. The initiation of Advanced Pricing Agreements would also aid big Multinational Entities to gain certainty in times to come.