Qatar – Key tax compliance issues for new inbound investors

Foreign investors who are thinking about investing Qatar should carefully consider the compliance requirements imposed by Qatar Tax Law No. 21 of the year 2009. Below we highlight some of the key tax compliance issues.

Tax registration
Every taxpayer carrying on an activity in Qatar is required to submit a tax card application to the Public Revenues & Taxes Department (PRTD) within thirty days from the commencement of activity.

Tax declaration
All entities that are resident in Qatar (i.e., have a tax registration card) or have a permanent establishment there must file a corporate tax return together with Qatar based audited financial statements (unless exempt, e.g., wholly GCC-owned companies). On the return, they must report their gross income derived from “activity” carried on in Qatar and gross income derived from contracts “wholly” or “partly” performed in Qatar.

Retention system
The Qatar retention system is designed to encourage foreign entities to meet their Qatar tax filing obligations. Under this system, a payer making a payment to a foreign entity must retain a portion of the payment until the foreign entity provides a Tax Clearance Certificate to prove it has settled its corporate tax account with the PRTD for the relevant year. Circular No. 2 of 2011 further provides:

• Payments made to the following are not subject to retention (on producing a valid tax registration card):
   • Companies incorporated in Qatar such as limited liability companies and 
      Qatari shareholding companies
   • Qatar/GCC natural persons resident in Qatar.
   • Registered permanent branches (i.e., branches not registered for a specific
     contract/project or period, such as engineering consultant firms, law firms and
     audit firms).
• Payments made to branches registered for a particular project or period (temporary branch) are subject to retention at the rate of 3% of the contract value or the final payment, whichever is higher.

Complying with Qatar’s withholding tax
One of the most significant changes to Qatar’s tax framework is the introduction of a withholding tax (WHT) system. Tax-registered entities making payments to its suppliers, vendors, etc., must now self assess and deduct WHT (where applicable), and then submit the amount withheld to the PRTD.

The WHT regime applies to amounts paid to non-residents (i.e. generally entities without a Qatar tax registration card) where the activity is not related to a PE in Qatar and where the services are carried on “wholly” or “partly” in Qatar. WHT generally applies as follows:

• 5% on technical fees and royalties
• 7% on interest, commissions, intermediary fees, board remunerations and other services “wholly” or “partly” performed in the State of Qatar.

WHT is considered a final tax. Tax relief may be available under Qatar’s tax treaties, subject to PRTD approval.