The State of Qatar has circulated Executive Regulations to the Income Tax Law No 24 of 201 in the Official Gazette and repealed previous regulations. The new Executive Regulations have not only provided clarifications on the application of the Income Tax Law in some areas but have also specified new transfer pricing requirements. In this Insight, we provide clarification on the application of withholding tax (WHT) regulations in the State of Qatar.
Withholding Tax Regulations
A WHT, or a retention tax, is an income tax to be paid to the government by the payer of the income rather than by the recipient of the income and withheld or deducted from the income due to the recipient. Many jurisdictions require WHT on payments of royalties, technical fees, non-technical fees, interest or dividends.
WHT is a final tax liability on account of payment made to the recipient. It may be refunded if it is determined, when a tax return is filed, that the recipient’s tax liability to the government which received the WHT is less than the tax withheld, or additional tax may be due if it is determined that the recipient’s tax liability is more than the WHT. In some cases, the WHT is treated as discharging the recipient’s tax liability, and no tax return or additional tax is required. Such withholding is known as “final” withholding. Qatar WHT is treated as final WHT on payment to nonresidents.
The Income Tax Law imposes a final WHT on payments made to nonresidents with no permanent establishment (PE) in Qatar. Under Article 21 of the Executive Regulations, “consideration for services, as provided for in Article (9/2) of the Law, shall be subject to withholding tax deducted at source at (5%) of the total amount, without deducting any costs, where such services are rendered wholly or partially in the State.” A service shall be deemed rendered “wholly or partially” in the State where any work necessary for its completion is done in the State, including in particular all data, site inspection and service completion, even if done by a person other than the taxpayer, but delivery of the service shall not be deemed as work necessary for completion.
“Services shall be deemed to be completed in the State to the extent that they are used, consumed or exploited in the State, even if rendered wholly or partially outside the State”: the new Executive Regulations widen the scope of applicability of WHT in Qatar. It not only covers services provided wholly or partially in Qatar, but also services provided remotely.
Consequently, businesses need to evaluate the applicability of WHTs on all services procured by Qatari companies and foreign PEs in Qatar from nonresidents.
Analysis of Payments Covered under Withholding Tax Regulations
Royalties: Final WHT at the rate of 5% of the gross amount. The definition of the term “royalties” as used in the Tax Law is similar to the definition used in model tax conventions, which includes payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for information (know-how) concerning industrial, commercial or scientific experience. The definition of royalties includes payments for the use of, or the right to use, industrial, commercial or scientific equipment.
Technical and non-technical fees: technical and service fees are subject to a final WHT at the rate of 5% of the gross amount. They include payments as consideration for managerial, technical, consultancy or other services.
Brokerage or commission: commissions due under agency, brokerage or commercial representation agreements accrued outside Qatar are taxable if they result in activities carried on therein or remotely at 5%.
Director’s fees: subject to WHT of 5%.
Interest: subject to 5% WHT. However, the interest payments listed below are not subject to WHT:
- interest on deposits at banks in the State;
- interest on bills and bonds and securities issued by the State, public corporations, institutions and companies wholly or partially owned by the State;
- interest on transactions, facilities and loans with banks and financial institutions;
- interest paid by a PE in the State to its main office or an entity related to the main office outside the State.
Dividends: not subject to WHT.
Historically, Qatar had imposed WHT on payment to nonresidents only if the services were performed wholly or partially in the State of Qatar. WHT applicability was based on the “performance test” (where the services were performed). However, new Executive Regulations broaden the scope for WHT applicability to include a “Consumption Test,” i.e. services shall be considered as having been performed in the State of Qatar as long as they are used, consumed or utilized in the State even if they are carried out in whole or part outside the State. The new Executive Regulations have widened the scope of WHTs, and services provided remotely, i.e. outside of Qatar, are also subject to WHTs.
Refund of Withholding Tax
The new Executive Regulations contain detailed guidelines on the WHT refund process. With respect to WHT refund requests, the requester (nonresident service provider) shall enclose with its application all supporting documents evidencing its entitlement to such refund, and in particular the following:
- tax residency certificate in the country of residence;
- Letter of Authorization or power of attorney evidencing appointment of a tax agent or representative to complete the refund procedures, if the refund application is filed by a non-beneficiary of the refund;
- withholding certificates issued by the withholding party;
- contract or agreement concluded with the withholding party;
- list of the shareholders of the company requesting such refund and the real beneficiary of the amounts paid by the withholding party;
- bank certificate indicating the refund applicant’s bank account and ID;
- terms of the agreement whereby undue withholding took place.
The tax authority shall consider the refund application and notify the taxpayer of its decision within 60 days from the filing date of such application. Failure by the authority to respond to such application within the prescribed time limit shall be deemed as rejection. In this case, the requester shall be entitled to appeal against the authority’s decision on the refund request before the Tax Appeal Committee within 30 days from the date of rejection of application. Nonresident service providers can evaluate the process of claiming refund by filing an application with the General Tax Authority in Qatar.
Planning Points for Business
The new Executive Regulations are a welcome step which provides clarification on various WHT deductions. This removes uncertainty or ambiguity on deciding whether payment to a nonresident is subject to deduction of WHT or not. Businesses should check existing contracts regarding WHT deduction from payments for services provided from December 12, 2019 onward.
If required, businesses should amend existing contracts to include a WHT deduction clause in the agreement. Nonresident service providers may evaluate the process of claiming credit of WHT deducted in Qatar in their home jurisdiction.
Rajeev Agarwal is Head of Global Tax with Qatar Navigation QPSC based out of Doha, Qatar.
He may be contacted at: email@example.com
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