New rules: Changes to the tax code have had a major impact

Article 11 of Qatar’s current tax law, Law No. 21 of 2009, which came into effect on January 1, 2010, has affected foreign corporate and individual taxpayers in Qatar in two major ways. First, Article 11 includes legislation that altered the income tax regime substantially, replacing a variable-rate system with a 10% flat rate for most corporate taxpayers. Second, Article 11 introduced a new withholding tax, which applies to income earned in Qatar by foreign firms without a permanent establishment in the country.

BACKGROUND: Under the old tax regime (Law No. 11 of 1993), tax rates were linked to taxable income on a progressive scale. A company with a taxable income of less than QR100,000 ($27,460) was exempt from income tax. A firm with a taxable income of between QR100,001 ($27,460.27) and QR500,000 ($137,300) was required to pay income tax at a rate of 10%; between QR500,001 ($137,300.27) and QR1m ($274,600) at a rate of 15%; between QR1m ($274,600) and QR1.5m ($411,900) at a rate of 20%; between QR1.5m ($411,900) and QR2.5m ($686,500) at a rate of 25%; between QR2.5m ($686,500) and QR5m ($1.37m) at a rate of 30%; and amounts that are over QR5m ($1.37m) at a rate of 35%.

CORPORATE INCOME TAX: Much has remained the same under the new system. Corporate income tax is still levied on all corporations other than those that are wholly owned by Qatari or other GCC nationals. Taxable income continues to be defined as all profits earned in Qatar, including those that are the result of asset sales, but excluding any income attributable to either Qatari nationals or nationals of any other GCC state. Under the rules changes however, the variable tax rate system was replaced by a single tax of 10% levied on all taxable income.

The new tax regime effectively extends the 10% tax rate that previously applied to companies established under the aegis of the Qatar Financial Centre (QFC), a free trade zone in Doha created in March 2005. The 10% rate is not applicable to firms that are active in the oil and gas sector and firms that are listed on the Qatar Exchange. Taxes on oil and gas companies are levied at no less than 35%, as specified in their development agreements. Companies that are listed on the Qatar Exchange are exempt from corporate income tax, but are required to pay a 2.5% social tax, which goes towards projects carried out in the public interest. The new flat rate has reduced the tax burden considerably for mid-sized and large foreign corporations with significant interests in Qatar. The state does not levy any general personal income taxes.

NEW WITHHOLDING TAX: Prior to January 1, 2010, when the new tax code came into effect, corporations that earned income in Qatar but did not have a permanent presence in the country were effectively tax-exempt. Under Article 11 of the new law, now these businesses (including all Qatari companies other than those established under QFC legislation) are required to pay a withholding tax of either “5% of the gross amount of royalties and technical fees” or “7% of the gross amount of interest, commissions, brokerage fees, director’s fees, attendance fees and any other payments for services carried out wholly or partly” in Qatar. On June 9, 2011 the Ministry of Economy and Finance published a series of finalised executive regulations for Law No. 21, which were drawn up to clarify the government’s position in regard to certain indistinct language present in the original version of the legislation. In particular, the executive regulations confirmed that, in most cases, no withholding tax would be levied on interest.

Other changes introduced to Law No. 21 that have affected foreign companies doing business in Qatar include new anti-avoidance provisions that allow the Public Revenues and Taxes Department to evaluate and alter pricing in an effort to enforce fair market values on certain transactions. This will help with making them taxable. New tax cards will also be issued to taxpayers that reside in Qatar or non-residents that have a fixed place of business in Qatar (see overview).