new horizons tax seminar 2014 - qatar - deloitte · pdf filean entity carrying out a long term...

New horizons

December 10, 2014

Tax seminar 2014 - Qatar

Contents

Time Topic

9:00 – 10:15 Refresher on State of Qatar’s tax law

10:15 – 10:45 International tax highlights

10:45 – 11:15 Coffee break

11:15 – 12:15 Panel discussion

12:15 – 12:45 Introduction to the Tax Administration System (TAS)

12:45 – 13:15 Recent development in the Qatar Financial Centre

13:15 – 14:00 Break for snacks and Q&A

New horizons | Tax seminar 2014 - Qatar © 2014 Deloitte & Touche (M.E.) 2

Overview | Tax regime

Overview Sources of knowledge and information

• Primary source of the law

• Issued in November 2009

• Effective from January 1, 2010

Law no. 21 of 2009

Executive regulations

Circular 2 of 2011

• Issued in and effective from July 2011

• Guidance to the application of the law

• Withholding tax

• Retention of final payment and its release


Circular 3 of 2011

Circular 4 of 2011

OECD model convention

Double taxation treaties

Overview Sources of knowledge and information (Cont’d)

• Prohibiting Qatari taking up tax burden of foreign suppliers.

• Reporting requirements related to supplier agreements

• Requiring wholly Qatari/GCC owned and exempt entities to file the tax return.

• Used as a reference/ guide when there is no clarity in the law. Not legally binding in Qatar

• Used for clarity on transactions with entities residing in treaty network


• Qatar tax regime is a territorial tax regime. Taxes are levied only on income generated wholly or partially in the sea and soil of Qatar.

• Income generated wholly outside Qatar is not subject to tax.

Two streams of taxes in Qatar | Corporate tax and Withholding tax

Overview A territorial tax regime

Area Tax overview

Corporate tax rates • The general tax rate is a flat 10% • 35% rate applies to oil and gas operations

Withholding tax rates

• 5% on royalties • 5% on technical services • 7% on commissions, interest, brokerage fees directors’ fees,

attendance fees, and for other services performed in whole or in part in Qatar


Overview Resident

Theoretical implications Practical implications

• A Natural person who meets any of the following conditions: Permanent home in Qatar More than183 days during any 12

month period in Qatar Center of vital interests in Qatar

• A Body Corporate that meets any of the following conditions: Incorporated under Qatari laws Headquarters is in Qatar Place of effective management is in

Qatar

• Individuals having permanent residency (Qatari ID Card)

• Companies registered in Qatar such as Limited Liability Companies Single Person Companies Qatari Shareholding Companies Family owned establishments Partnerships

• Companies registered overseas but effectively managed and controlled from Qatar will be considered as a Qatari resident


Overview Permanent establishment of a non-resident (“PE”)

Theoretical implications Practical implications

• A fixed place of business through which the business of a taxpayer is wholly or partially carried on. A PE also includes activity performed by the tax payer through a person acting on his behalf other than an independent agent. Branch of a foreign entity Office Building site factory Workshop Mine / Place of exploration Assembly project

• An entity carrying out a long term project i.e. a project with project life more than 1 year

• Use of an agent in Qatar – if the agent in Qatar is dependent on its principle

• Where an overseas entity sends employees to Qatar for more than 6 months in a calendar year to work on a project

• Executing a contract to service a resident company through a fixed place of work such as an office space, work station, work shop or a site


Overview | Corporate tax

Corporate tax Sources of taxable income

Sources of taxable income

• Any activity executed in the State of Qatar

• Contracts executed wholly or partly in the State of Qatar

• Income from real estate in Qatar

• Income from securities and shares in companies residing in Qatar

• Interest income on loans and other financial facilities

• Gross income generated from discoveries, use and extraction of natural resources in the State of Qatar

• Consideration for services paid to head offices, branches or related companies

• Gross income subject to tax in the State under a double taxation agreement.


Corporate tax Sources of exempt income

Sources of exempt income

• Interest earned by natural persons

• Interest/returns from public treasury or public and institutional bonds

• Capital gains from real estate/securities earned by natural persons

• Dividends if the amounts received are derived from:

Profit that is subject to tax under this Law

Dividend distributed by a company which is tax exempted under this Law

• Income generated from non-Qatari companies involved in aviation or shipping in State of Qatar

• Income of natural Qatari/GCC person provided they reside in Qatar

• Profits from Qatari resident Companies wholly owned by GCC nationals

• Income from handcrafts, agricultural & fishing


Corporate tax Tax deductible expense

Tax deductibility for business

expenses

• Salaries, wages and other employee cost deductible pursuant to an employment contract

• Depreciation expense in excess of book depreciation v/s tax depreciation is disallowed

• No deductions for general provision including bad debts, air ticket with exception to employee’s end of service benefits and leave

• Donations allowed upto 5% and Entertainment is capped at 2% of the taxable income - before such expenses

• Branches of non-resident companies are allowed for a deduction for allocation of head office overheads up to a maximum limit

• No deduction for branch on interest paid on related party loan


Corporate tax Administration

Area Tax overview Area Tax overview

Registration Tax card within 30 days on incorporation Renewal within 30 days of expiry

Filing requirement

Annual return to be file within 4 months from fiscal year end. Extension allowed

Accounting and auditing requirement

IFRS framework. Audit is mandatory.

Delay penalties Late filing – QR100 per day maximum up to QR36,000

Delay interest 1.5% of unpaid tax per month up to a maximum of principal amount of tax.

Additional tax and interest

1.5% of additional taxes assesed

Exemption

Available if criteria met and Minister’s approval required for 3 to maximum 6 years of exemption

Retaining books and records

10 years inside Qatar.

Other areas to consider

Transfer pricing General anti avoidance rules Exit tax


Corporate tax Corporate tax calendar (Key dates)

Action When?

Registration | Tax card • First Application within 30 days on incorporation • Renewal within 30 days of expiry

Annual return and payment of tax

• 4 months from the fiscal year end

Extension in filing deadline • 1 month before the filing deadline

Objection • Within 30 days of notice of assessment / penalty

Appeal • Within 30 days of refusal of the department or

completion of 60 days from date of objection and no response

Change in accounting period • 90 days before the expiry of the deadline for filing the return

Reporting supplier contracts • 30 days from the signing of the contracts New horizons | Tax seminar 2014 - Qatar © 2014 Deloitte & Touche (M.E.) 13

Overview | Withholding tax

15 Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text)

• Applicable on all services rendered on or after 1 January 2010 • Applies to payments made to non-residents with respect to activities not connected with a

permanent establishment in Qatar - 5% - gross amount of royalties and technical fees - 7% - 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

Withholding tax Introduction | Applicability


Withholding tax Technical fees – 5%


Advisory services in the areas of behavior and management provided

by specialized consultants.

Consulting and professional services in the legal and accounting fields

Computer services including software

development, network services and

maintenance services

Design services provided by architects and design consultants.

Maintenance of industrial equipment

and repairs performed by specialized technicians.

Engineering services in various fields

including mechanical, electrical and civil

Payments of any kind made

as consideration for managerial,

technical or consultancy

services

Withholding tax Royalties – 5%

Payments of any kind made as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, films or discs used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience.

Leasing of equipment

Leasing of vessel

Payments made to a artist or an author to publish his

book in Qatar


Withholding tax Recap

Supplier/Contractor

Tax card No tax card

No Withholding

tax / Retention rules may

apply

Service wholly

provided outside Qatar

Service partially or

wholly provided inside Qatar

Double taxation agreement available

No double taxation

agreement

Check agreement

Apply withholding tax

5% on technical

services and royalties

7% on commission, brokerage fees, board of directors fees and

any other service


No Withholding

tax – No Retention

FAQ | Types of tax-payers

Customer

Qatar Co WLL

Foreign Co – Qatar Branch (Temporary)

Foreign Co – Qatar Branch (Permanent)

Foreign Co

Resident

Resident

Non-resident PE

Non-resident PE

Non-resident No PE

Types of tax-payers


FAQ | Offshore/ Onshore

• A clear split between service to be rendered inside and outside Qatar is visible in the contract.

• Split should be clear in terms of scope, value and the location

• Should be independent from the scope rendered inside Qatar

Onshore/Offshore split (Cont’d)


Work carried out wholly or partly

in Qatar

Work carried completely

outside Qatar Supply of goods

FAQ | Personnel cost

Personnel cost

Employer

Employee under local employment contract

Hired manpower

Seconded / International assignment

Recruitment agent


FAQ | Finance cost


Finance cost

Qatar CO

Bank / Financial institution

Resident

Neither bank nor financial institution


Resident Non Resident

Resident Non Resident

• No WHT on interest paid by a Branch to head office

• Interest paid by a Branch to head office and related party of the head office is not deductible for tax purposes; with exceptions to banks and FI

Interest paid by branch


Finance Cost (Cont’d)

FAQ | Exit tax

Capital gains / Exit Tax

Topic Theoretical implication Practical implication

Capital gains / Exit

Tax

• Sale of shares in a Qatari LLC are taxable. Exemption available to natural persons

• Capital gains also apply on alienation of assets which are depreciated on straight line basis

• A tax return needs to be filed for gain arising on sale of shares. The gain is computed as difference between cost and a value higher of cash paid or market value

• Assets may include, Rigs Drilling Equipment Boats and Vessels Aeroplanes and Helicopter Trade Name / Intangible Asset

transfers


FAQ | Related party transactions

Related Party Transactions

- Bona fide commercial substance – not to avoid / reduce tax

- Supporting Documents – Agreements, invoices, receipts

Transfer Pricing

General Anti Avoidance Rules


- Priced at arm’s length

- TP Study using CUP method – any other method prescribed by OECD allowed subject to prior approval

FAQ | GCC exemption rule


GCC exemption

GCC nationals


Who are exempted from tax?

Resident anywhere +

Company is a resident of Qatar (WLL, SPC, Establishment) etc.)

and 100% owned by Qatari or GCC Nationals

Who are subject to tax?

Not a resident of Qatar (taxable on their share of profits in an LLC where there is effective

non-GCC shareholding). Branches of GCC Companies

are also taxed

FAQ | Treaty application

Although in theory, DTA supersedes the domestic law, in Qatar, the process to claim a treaty relief is as follows.

Application of an effective double tax treaty

WHT deducted by the customer and filed in line with Qatar’s law Form 2-1

Customer to Provide certificate to the supplier and proof of payment. Copy of form 2-1 Form 2-2

Supplier to Apply for a refund providing reference to treaty and evidence of residence Form 2-3


Recent development | Tax Administration System

• TAS is a modern Information system which will automate the tax payment and management process within the State of Qatar

• It is built in line with the objectives of Qatar National Vision 2030 to maintain fiscal stability and more efficient allocation of available financial resources

• It will transform the government services offered to enterprises • Allow an electronic filing of tax returns with the Public Revenues and Taxes Department

(PRTD)

Introduction of new Tax Administration System (TAS) What is TAS?


• Provide taxpayers efficient and quality services • Reduce the time of processing • Increase taxpayers satisfaction • Enhance the communication between Ministry of Finance /PRTD and taxpayers • Improve transparency and certainty

Benefits and objectives Why do we need TAS ?


• Information about the PRTD • Ministry of Finance / PRTD rules governing the Corporate Income Tax and Withholding

Tax • Access to reference material • Access to double taxation treaties • Quick access links to other Government departments • Easy access to online facilities • Monitor account status, obligation status, requests status etc…

Features available in TAS


• Application for new tax card and renewal of tax card • Filing annual tax declarations along with the schedules and exhibits in PDF format • Monthly withholding tax filing • Approval to change shareholders in Qatar Limited Liability Companies • Objection to a tax assessment • Appeal against an assessment to the Tax Appeals Committee • Application for the tax exemption • Request for extension of tax filing • Application for change in accounting period • Application for withholding tax refund, etc…

The online facilities


Registration and online filing


• Complete the application form by uploading soft copies CR, trade license, names of the owners etc. in the system.

• Hard copies are also required to be filed. • After the PRTD evaluates the information, 2 emails will be sent to the email id’s provided:

Email for credentials (Password and User name) Email for system generated ‘Draft tax card.’

Final tax card can be collected in person at the PRTD.

Registration process (Cont’d) New tax-payer

Existing tax-payer

• Existing Tax-payers will have their details and documents already migrated to the TAS.


Registration process

TAS portal taxpayer registration

E-registration web page form

Taxpayer is created on system

Draft tax card created and TIN

generated

Data set checked for completeness

Registration is rejected

Validation is incomplete

Attach supporting documents in PDF format

Validation is complete

To follow up with PRTD for registration process Email 1

Confirmation to tax-payer /

Agent

Email 2 new credentials

confirmation for username and

password New horizons | Tax seminar 2014 - Qatar © 2014 Deloitte & Touche (M.E.) 48

Registration process (Cont’d)


Online tax payers registration application


Tax card


• Tax declaration and WHT will be filed online using an e-filing platform • The WHT input form will be consistent with the current WHT Form 2-1 • The tax return input form for income statement and balance sheet will be consistent with

the current Form No. 3 – Annual Income Tax Return • Schedules and exhibits along with the audited financial statement to be uploaded in PDF

format • Hard copies will also be required to be filed during the initial migration period (expected in

2014 and 2015)

E-filing process E-filing


E-filing Process (Cont’d)


E-filing process (Cont’d)


Online payment process

Login to the system

Generate 14 digit payment identification number

Based on the payment

identification number, bank initiates the transfer

Payment

confirmation is

available in the system

Select the purpose of payment

Settlement of financial penalties/ obligation

Income tax

payment

WHT payment

Print payment order

Confirmation will be

submitted along with the return


• Tax assessment as and when released will be notified on the home page of the tax payer and will be available to view upon login

• Objection to a tax assessment can be raised through the TAS portal by uploading the relevant objection letter stating the reason for objection

• Appeal against an assessment to the Tax Appeals Committee can be raised through the TAS portal by uploading the relevant appeal letter stating the reason for appeal

Tax assessment


• Monitor tax compliance and clearance status

• Highlights non filing of withholding tax and income tax return

• Show outstanding queries or issues on tax files

• Access to current and historic taxpayer information

Dashboard overview


Dashboard Overview (Cont’d)


• PRTD has instructed to submit the tax declarations from October 1, 2014 using the e-filing facility in TAS.

• Each taxpayer will identify an authorized agent. • The approved tax advisor (e.g. Deloitte) will need to submit a new tax representation letter

on behalf of the taxpayer. • The PRTD has mentioned in its recent instructions that tax payers who submit the tax

declarations through e-filing on time will be given additional time of 60 days for filing the hard copy tax declaration and audited financial statement during the years 2014 and 2015.

• Financial penalties will not be applied during the extension period as long as the e-filing matches with the hard copies submitted.

Key takeaway points


Reforms | Qatar Financial Centre


• In Qatar there are two tax systems: State of Qatar QFC

• The QFC tax regime was developed to be attractive to international financial services companies, delivering a high degree of certainty with clear regulations and a transparent administrative process.

Qatar Financial Centre (QFC) Purpose


• The QFC has its own: Regulatory body Company registrar Tax authority Immigration department – to fast-track visas and RPs Independent judiciary

a) Regulatory tribunal b) Civil and commercial court

QFC (Cont’d) Set up


QFC (Cont’d) Activities within the QFC

Permitted activities

Regulated activities

Non-regulated activities


• Regulated activities: Conventional banking Islamic banking Insurance, reinsurance and captive insurance Money, asset management and investment fund business Project finance, corporate finance and investment advice

QFC (Cont’d) Activities within the QFC (Cont’d)


• Non-regulated activities: Professional services incl. audit, accounting, tax, consulting and legal services Ship broking and shipping agents Provision of classification and investment grading services Business activities of company headquarters, management offices and treasury

operations Business activities of holding companies Provision, formation, operation and administration of trusts and/or companies

QFC (Cont’d) Activities within the QFC (Cont’d)

This will be big in the future!


• Special characteristics: Territoriality principle – only local source profits taxed in Qatar 10% tax (no withholding tax) 100% foreign ownership possible Tax return filing 6 months after year end Any building or area in Qatar may be designated as part of QFC May use the Double Tax Treaty network of the State of Qatar Transfer pricing manual (first jurisdiction in the GCC to issue) Thin cap regulations safe-harbour debt/equity ratio. 4:1 Financial

Institutions, 2:1 Non-financial institutions. Advance ruling facility Participation exemption for capital gains tax derived from

qualifying shareholdings

QFC (Cont’d) QFC tax regime

Remember: The QFC is

not a tax haven!


• General aims: Make it attractive for Qatari-owned companies to use QFC as a holding platform Make it easier for companies to set up as non-regulated entities Fast-track licensing Fast-track visa Improved online presence – Qatar double tax treaties to be made available on the

QFC website

QFC (Cont’d) New rules - Apply from 18 June 2014

Big surprise coming!


• Zero tax concessionary rate for: QFC captive insurance company Reinsurer Unregulated ≥ 90% Qatari-owned LLC

− Individual must hold a Qatari passport (no residency requirement) − Election in writing to tax department within 6 months of the end of the first

accounting period to which election is to apply • In order to get concessionary rate must pay a charge of:

QR10,000 if issued share capital ≤ QR1,500,000 QR20,000 if issued share capital > QR1,500,000

QFC (Cont’d) New rules - Apply from 18 June 2014 (Cont’d)

New


• Tax exempted entities: Special Investment funds:

− Property investments − Investing on behalf of a single family (Single family office)

Special funding company: − Special purpose company (SPC) − Holding company


New

New


• Tax credit for losses: For first 2 accounting periods of setting up in the QFC Loss making LLC with ≥ 3 employees Not elected for special exempt status or concessionary zero rate On list of entitled QFC businesses (to be announced) Expenses incurred in State of Qatar Must be a going concern and not an artificial arrangement Claim in writing to tax department (within 6 months of reimbursable AP to which the

reimbursable tax loss relates) Maximum pay-out is lower of: 8% of the tax loss or QR200,000


An LLC can receive cash for having losses! Unique in the tax world!


• Beneficial structure charts drawn up for: Holding companies Regional treasury operations Intellectual Property (IP) holding company Special purpose company – Asset financing Risk management and captive insurance companies (regulated) Insurance and reinsurance (regulated) Islamic Finance Collective investment fund for asset management Onshore or offshore private equity Onshore or offshore hedge fund

QFC (Cont’d) The future


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About Deloitte & Touche (M.E.)

Deloitte & Touche (M.E.) is a member firm of Deloitte Touche Tohmatsu Limited (DTTL) and is the first Arab professional services firm established in the Middle East region with uninterrupted presence since 1926.

Deloitte is among the region’s leading professional services firms, providing audit, tax, consulting, and financial advisory services through 26 offices in 15 countries with more than 3,000 partners, directors and staff. It is a Tier 1 Tax advisor in the GCC region since 2010 (according to the International Tax Review World Tax Rankings). It has received numerous awards in the last few years which include Best Employer in the Middle East, best consulting firm, and the Middle East Training & Development Excellence Award by the Institute of Chartered Accountants in England and Wales (ICAEW).

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