Navigating Corporate Tax Obligations For New Businesses In Qatar

As Qatar continues to emerge as a hub for business and investments in the Middle East region, an increasing number of entrepreneurs and businesses are considering establishing their presence in the country.

Navigating the intricacies of corporate tax obligations is therefore essential for ensuring compliance and avoiding tax penalties. In this article, we will delve into the corporate tax landscape in Qatar for businesses to consider.

The tax system in Qatar features a territorial taxation system, where the key aspects to consider are:

1. Corporate tax (CT) at 10% - Normally companies established in Qatar (other than in free zones) are subject to corporate tax at a flat rate of 10% corporation tax on taxable profits derived from sources within the country. The tax rate is likely to go up to 15% in future for large entities, once General Tax Authority (‘GTA’) implements measures to adopt Global Minimum Tax (‘GMT’) under Base Erosion and Profit Shifting (BEPS) Pillar Two project.

1. When establishing an entity with a Qatari partner, foreign investors must understand the impact on tax calculations. Foreign investors can own up to 49% of a Qatari private entity, with profits potentially allocated based on agreement. The profits attributable to Qatari and other GCC shareholders are normally tax-exempt. The tax system is based on shareholder’s nationality and residency, potentially becoming complex if the percentage of foreign shareholders’ changes during the financial year.

1. Capital Gains (‘CG’) - Profit generated from the disposal of real estate located in Qatar, or the disposal of shares, property rights and any tangible or intangible assets associated with an activity conducted in Qatar, is subject to CG tax at 10%, except where there gains relate to petroleum activities for which CG tax is 35%.
2. Withholding tax (‘WHT’) - Payments to non-residents towards royalty, interest, commission and fee for services rendered in whole or in part in Qatar, for activities unrelated to a permanent establishment (‘PE’) in Qatar, are subject to WHT of 5% of the total amount. Where Qatar has bilateral agreements with other countries to avoid double taxation, the same need to be considered when making such payments.
3. Foreign tax relief – Qatar has entered in double tax avoidance agreements (DTAA) with multiple countries to eliminate double taxation for taxpayers. Foreign taxes borne by a Qatar resident entity overseas could be reduced from its tax liability in Qatar, or alternatively, such income could be exempt from tax in Qatar. This depends on the nature of income and applicable tax treaty.
4. Incentives - Qatar offers incentives to stimulate entrepreneurship and business growth. New entities could enjoy some tax holiday if operating in sectors like agriculture, fishing, health, education, tourism, and some others. Entities may request for an approval for tax -exemption or preferential tax rate for projects based on criteria related to the nature of a project or its location. Entities operating in free zones like Qatar Financial Centre (QFC) or Qatar Science & Technology Park (QSTP) may benefit from (i) some tax holiday, (ii) 100% foreign ownership, (iii) preferential tax treatment and so on.
5. Tax Returns Compliance - Entities in Qatar must file tax returns within 4 months after the end of the reporting period. The deadline may be extended at the discretion of the GTA, but the extension period may not exceed 4 months. An extension application may be filed up to 30 days before the initial deadline.
6. Entities fully owned by residents of Qatar are exempt from CT but must file CT returns and audited financial statements with GTA if their capital is QAR 2 million or more and if their annual income is QAR 10 million or more.
7. Entities in QFC must file their tax return and pay tax within the 6 months after the end of the entity’s financial year. There is an online system for filing CT returns exclusively for entities incorporated in QFC. The deadline pertaining to CT return filing is 4 months from the end of entity’s accounting period (generally 1 January to 31 December period).
8. Maintenance of books and records – Entities should maintain their books and records in Qatar, which need not be maintained in Arabic language. However, the GTA requires all the communication be done in Arabic language including submission of financials in Arabic language in accordance with Arabic Language Protection Law. The accounting books, records, registers and documents must be maintained for 10 years following the year to which they relate.
9. Accounting and Audit - The accounting records should be in accordance with International Financial Reporting Accounting Standards (‘IFRS’). Some taxpayers may be exempt from this requirement such as small business, natural persons, certain non-profit organisations, entities in specific sector, sole proprietorships with low revenue. Statutory audit is mandatory for entities with Share Capital less than 1 million and turnover less than QAR 10 million.
10. Contract Reporting – Entities in Qatar (other than in Free Zones) including permanent establishment of foreign entities in Qatar shall notify the tax authority of the contracts, agreements and deals they enter into if the contract value exceeds QAR 200,000 for services contracts, or QAR 500,000 for supply contracts. Such reporting should be undertaken within 30 days of execution/effective date of contract.
11. General Anti Avoidance Rules (GAAR) - The tax law in Qatar contains anti-avoidance provisions empowered to nullify or alter the tax consequences of any transaction that is considered to avoid or reduce a tax liability.
12. Transfer Pricing (TP) - All related-party transactions should normally be undertaken on the arm’s-length standard using the method recognized by OECD and approved by GTA. Entities should submit TP declaration if its total assets or total revenue exceeds QAR 10 million in a tax year. Also, entities should maintain and submit local file and master file if one of the group entities is outside Qatar and total assets or total revenue of the group exceeds QAR 50 million in a tax year. Also, if the Qatar entity is an ultimate parent company and if the Group turnover is atleast QAR 3 billion, then the entity would need to undertake Country by Country (CBC) reporting

In conclusion, understanding and navigating corporate tax obligations in Qatar is vital for new entities looking to establish themselves in the country's thriving business environment. By grasping the nuances of tax regulations, exemptions, and incentives, businesses can ensure compliance, optimize tax liabilities, and avoid financial penalties.

With the anticipated introduction of VAT and the importance of partnerships with Qatari entities, it's imperative for foreign investors to be well-versed in tax calculations and considerations. Additionally, awareness of financial penalties under tax law is essential to maintain compliance and foster trust between taxpayers and authorities. Overall, staying informed and seeking professional guidance will enable entities to effectively navigate Qatar's tax landscape, contributing to their success and the country's economic growth.