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
Current tax rates range from nil on profits up to QR 100,000 to
35% on profits exceeding QR 5,000,000. Tax is charged progressively
on bands of income. The following are the income tax rates:
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
There are no withholding taxes in Qatar.
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.
