The Qatar Update - Supplement - Tax Law No. (21) of 2009 - Key Provisions

Summary

Effective from 1 January 2010, Law No.(21) of 2009 (the Tax Law) introduces some major changes to the tax regime in Qatar and replaces Law No.(11) of 1993. Most significant are the introduction of a flat rate of income tax for foreign-owned resident businesses and a new withholding tax regime, as well as anti-avoidance measures, reporting regimes and new penalties.

At first glance, the reduction in the tax rate appears to be an incentive to foreign business. However the withholding tax regime, which imposes a significant onus on all businesses to collect tax from businesses that do not have a permanent establishment in Qatar, and the taxing of total contracts that are only partially executed in Qatar, amongst other provisions, have widened the tax base. The end result is likely to be the generation of a higher tax revenue from foreign business whether resident in Qatar or not.

The business community is experiencing a degree of uncertainty and lack of clarity over the intention and interpretation of many of the new provisions. The Ministry of Economy and Finance will issue executive regulations to provide further guidance on specific terms of the Tax Law, although these are not expected to be available for some months. In the meantime, businesses will have to monitor how the tax department is enforcing the new provisions as a guide to interpretation and practice.

Key provisions

Income tax

The previous sliding scale of tax rates applicable to resident foreign business (up to 35 per cent) is abolished and a new flat rate of 10 per cent has been introduced on the taxable income of eligible tax payers.

Tax payers include:

companies registered in Qatar; foreign entities with a permanent establishment in Qatar; and foreign individuals resident in Qatar (excluding employees). Taxable income includes:

total income from activity carried out in Qatar; " interest on loans acquired in Qatar;

interest earned outside Qatar from amounts generated by activity carried out in Qatar; total income from the partial or total implementation of contracts within Qatar; profits from selling shares of listed or unlisted companies whose assets are based in Qatar; and some dividend income and capital gains earned on real estate. The Tax Law does not apply to profits of wholly-owned Qatari entities or natural persons, interest or bank returns of natural persons, interest on public treasury bonds, development bonds and public corporation bonds, or salaries and...