Q & A - Business RegistrationBusiness Policy in Qatar

The Tax Structure

Law No. 11 of 1993 was issued on 14 July 1993 to cover the income tax system and filing procedure in Qatar. In general, the Law provides that any business activity carried out in Qatar will be subject to tax. An "activity" has been defined as any occupation, profession, service, trade or the execution of a contract or any other business for the purpose of making profit. Income tax is levied on partnerships and companies operating in Qatar whether they operate through branches or in partnership with foreign companies.

There are no personal taxes, social insurance or other statutory deductions from salaries and wages paid in Qatar.

Direct Taxes

Taxes are levied on a taxpayer's income arising from activities in the State of Qatar. The term activities include:

• Profits realized on any project executed in Qatar;
• Profits realize from the sale of any of the company's assets;
• Commission due to agencies or arising from representation agreements or commercial agency whether such commission is realized in or outside the State of Qatar;
  
• Fees paid for consultancy, arbitration or expertise and other related services;
• Rent from property
• Amounts received from the sale, rent or the assignment of a concession and the use of a trade mark, design, know how or copyright;
• Amounts received from debts previously written-off;
• Profits realized on liquidation.

In addition, interest and other bank income received outside the State of Qatar will be subject to tax in Qatar if this income relates to amounts arising from the taxpayer's activities in Qatar.

Tax Administration

The Gregorian calendar is used for Qatar income tax purposes, but a taxpayer may apply to prepare his financial statements for a twelve-month period ending on a day other than 31 December. The first accounting period may be more or less than twelve months, but it should not be less than six months or more than 18 months. A taxpayer should keep his accounting records in Qatari Riyals unless permission is obtained from the tax administration for them to be kept in a foreign currency.

Filing requirements

Tax declarations should be filed with the Income Tax Department (ITD) at the Ministry of Finance within 4 months of the end of the financial period. Failure to submit a filing can result in the temporary withholding of payments due under contracts. The Tax Law also empowers the ITD to collect unpaid taxes from third parties, such as a Taxpayer's debtors, where the taxpayer fails to settle taxation liabilities. Penalties for late filing or late payment of taxes may be levied at the rate of QR 10,000 per month or 2% of tax due whichever is greater.

All entities with a capital or annual profit exceeding QR 100,000 should submit audited financial statements to support the tax declaration. An accountant in practice in Qatar who is registered with the Ministry of Finance, Economy and Commerce must certify the financial statements.

Accounting Records and Inspection

On submission of the final tax return and audited financial statements the filings of the taxpayer will be reviewed by the ITD. Generally accepted methods of commercial accounting must be applied and the accruals method must be followed. The ITD has the right to inspect a taxpayer's books and records which should be kept in Qatar. The accounting books and records must be maintained for at least 5 years from the date the annual tax declaration is registered with the ITD.

Tax Determination

Tax liabilities are computed in a manner similar to general international practices on the basis of profits disclosed by audited financial statements, adjusted for tax depreciation and any items disallowed by the ITD. If the ITD concludes that the filing is not correct, the ITD can issue an assessment of the payable taxes on a deemed profits basis. Such assessments by the ITD may be appealed. This option may be exercised by the ITD in the following instances:

• If there are reasons to believe that the declaration submitted by the taxpayer is not correct;
• If the taxpayer fails to submit a declaration;
• If the taxpayer does not maintain proper books and records;
• If the taxpayer does not provide the information requested by the ITD.

Deductions

Expenses incurred to earn the taxable income are deductible. These include:

• Interest expenses;
• Rent paid;
• Salaries and labour cost, end of service benefits and all related contents including charges allocated to end of service benefits,
• Pension funds and other similar charges;
• Fees and taxes other than income tax;
• Debts written off that are approved by the ITD and which are in accordance with standards established for this purpose.

The following cost and expenses are not considered deductible items:

• Personal and other expenses not related to taxable activities;
• Criminal and tax penalties paid in accordance with this law;
• Expenses or losses that may be recovered under an insurance policy, or a contract, or a compensation claim;
• Depreciation that exceeds cost;
• The branch share of Head Office expenses that exceed the rate determined by the ITD as a proportion of the total branch income.

The Law contains provisions, which allow trading losses to be carried forward and set-off against future profits. However, losses cannot be carried forward for a period exceeding 3 years from the end of the tax year in which the losses were incurred. Losses cannot be set off against prior year income.

Withholding Requirements

A directive issued by the Director of Income Tax in January 1993 requires all ministries, Government departments, public and semi-public establishments and other taxpayers to withhold final payments to subcontractors until such entities present a tax clearance certificate issued by the ITD. This directive also imposed annual disclosure and compliance requirements on the principal contractor.

Tax Rates

The following are the income tax rates:

Qatari Riyals

Tax Rate

0 - 100,000	Nil
100,001 - 500,000	10%
500,001 - 1,000,000	15%
1,000,001 - 1,500,000	20%
1,500,001 - 2,500,000	25%
2,500,001 - 5,000,000	30%
5,000,001 and above	35%

Tax Exemptions

The new Tax Law provides for a Committee to be formed to evaluate applications for tax exemption regarding projects executed by foreign companies. Any contractor who is involved in the execution of an exempt project can apply for exemption from income tax. However, taxpayers who obtain exemption from taxes are required to maintain proper accounting records and should submit financial statements to the tax authorities within 4 months from the end of the tax year.

Exchange Control

No foreign exchange restrictions exist and equity capital, loan capital, and all income streams arising in Qatar are freely remittable.