New horizons. Tax seminar Qatar. December 10, 2014

Transcription

1 New horizons Tax seminar Qatar December 10, 2014

2 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 2

3 Overview Tax regime

4 Overview Sources of knowledge and information Law no. 21 of 2009 Primary source of the law Issued in November 2009 Effective from January 1, 2010 Executive regulations Issued in and effective from July 2011 Guidance to the application of the law Withholding tax Circular 2 of 2011 Retention of final payment and its release 4

5 Overview Sources of knowledge and information (Cont d) Circular 3 of 2011 Prohibiting Qatari taking up tax burden of foreign suppliers. Reporting requirements related to supplier agreements Circular 4 of 2011 Requiring wholly Qatari/GCC owned and exempt entities to file the tax return. OECD model convention Used as a reference/ guide when there is no clarity in the law. Not legally binding in Qatar Double taxation treaties Used for clarity on transactions with entities residing in treaty network 5

6 Overview A territorial tax regime 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 Area Corporate tax rates Tax overview The general tax rate is a flat 10% 35% rate applies to oil and gas operations Withholding tax rates 6 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

7 Overview Resident Theoretical 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 Practical implications 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 20

8 Overview Permanent establishment of a non-resident ( PE ) Theoretical 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 Practical implications 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 21

9 Overview Corporate tax

10 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. 10

11 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 11

12 Corporate tax Tax deductible expense 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 Tax deductibility for business expenses 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 12

13 Corporate tax Administration Area Tax overview Area Tax overview Registration Filing requirement Accounting and auditing requirement Tax card within 30 days on incorporation Renewal within 30 days of expiry Annual return to be file within 4 months from fiscal year end. Extension allowed IFRS framework. Audit is mandatory. Additional tax and interest Exemption Retaining books and records 1.5% of additional taxes assesed Available if criteria met and Minister s approval required for 3 to maximum 6 years of exemption 10 years inside Qatar. Delay penalties Delay interest Late filing QR100 per day maximum up to QR36, % of unpaid tax per month up to a maximum of principal amount of tax. Other areas to consider Transfer pricing General anti avoidance rules Exit tax 9

14 Corporate tax Corporate tax calendar (Key dates) Action Registration Tax card Annual return and payment of tax When? First Application within 30 days on incorporation Renewal within 30 days of expiry 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 Change in accounting period Within 30 days of refusal of the department or completion of 60 days from date of objection and no response 90 days before the expiry of the deadline for filing the return Reporting supplier contracts 30 days from the signing of the contracts 13

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

16 Withholding tax Introduction Applicability 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 15

17 Withholding tax Technical fees 5% Computer services including software development, network services and maintenance services Consulting and professional services in the legal and accounting fields Advisory services in the areas of behavior and management provided by specialized consultants. Payments of any kind made as consideration for managerial, technical or consultancy services Engineering services in various fields including mechanical, electrical and civil 16 Design services provided by architects and design consultants. Maintenance of industrial equipment and repairs performed by specialized technicians.

18 Withholding tax Royalties 5% Leasing of vessel Leasing of equipment Payments made to a artist or an author to publish his book in Qatar 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. 17

19 Withholding tax Recap Supplier/Contractor Tax card No tax card Service wholly provided outside Qatar Service partially or wholly provided inside Qatar No Withholding tax / Retention rules may apply No Withholding tax No Retention Double taxation agreement available Check agreement 5% on technical services and royalties No double taxation agreement Apply withholding tax 7% on commission, brokerage fees, board of directors fees and any other service 18

20 FAQ Types of tax-payers

21 Types of tax-payers Qatar Co WLL Resident Customer Foreign Co Qatar Branch (Temporary) Resident Non-resident PE Foreign Co Qatar Branch (Permanent) Non-resident PE 22 Foreign Co Non-resident No PE

22 FAQ Offshore/ Onshore

23 Onshore/Offshore split (Cont d) 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 Supply of goods Work carried out wholly or partly in Qatar Work carried completely outside Qatar 23

24 FAQ Personnel cost

25 Personnel cost Employer Seconded / International assignment Recruitment agent Hired manpower Employee under local employment contract 25

26 FAQ Finance cost Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 26

27 Finance cost Bank / Financial institution Resident Non Resident Qatar CO Resident Neither bank nor financial institution Resident Non Resident 27

28 Finance Cost (Cont d) Interest paid by branch 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 28

29 FAQ Exit tax

30 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 41

31 FAQ Related party transactions

32 Related Party Transactions General Anti Avoidance Rules - Bona fide commercial substance not to avoid / reduce tax - Supporting Documents Agreements, invoices, receipts - Priced at arm s length Transfer Pricing - TP Study using CUP method any other method prescribed by OECD allowed subject to prior approval 17

33 FAQ GCC exemption rule Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 33

34 GCC exemption 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 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 GCC nationals 24

35 FAQ Treaty application

36 Application of an effective double tax treaty Although in theory, DTA supersedes the domestic law, in Qatar, the process to claim a treaty relief is as follows. 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

37 Recent development Tax Administration System

38 Introduction of new Tax Administration System (TAS) What is TAS? 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) 38

39 Benefits and objectives Why do we need 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 44

40 Features available in 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 45

41 The online facilities 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 46

42 Registration and online filing Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 42

43 Registration process (Cont d) New tax-payer 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 s will be sent to the id s provided: for credentials (Password and User name) for system generated Draft tax card. Final tax card can be collected in person at the PRTD. Existing tax-payer Existing Tax-payers will have their details and documents already migrated to the TAS. 49

44 Registration process TAS portal taxpayer registration E-registration web page form Registration is rejected Validation is incomplete Attach supporting documents in PDF format Data set checked for completeness Taxpayer is created on system Validation is complete 48 To follow up with PRTD for registration process 1 Draft tax card created and TIN Confirmation generated to tax-payer / Agent 2 new credentials confirmation for username and password

45 Registration process (Cont d) 50

46 Online tax payers registration application 51

47 Tax card 52

48 E-filing process E-filing 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) 53

49 E-filing Process (Cont d) 50

50 E-filing process (Cont d) 54

51 Online payment process Login to the system Select the purpose of payment Income tax payment WHT payment Settlement of financial penalties/ obligation Print payment order Generate 14 digit payment identification number Based on the payment identification number, bank initiates the transfer Payment confirmatio n is available in the system Confirmation will be submitted along with the return 55

52 Tax assessment 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 56

53 Dashboard overview 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 57

54 Dashboard Overview (Cont d) 50

55 Dashboard Overview (Cont d) 58

56 Key takeaway points 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 Financial penalties will not be applied during the extension period as long as the e-filing matches with the hard copies submitted. 59

57 Reforms Qatar Financial Centre Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 57

58 Qatar Financial Centre (QFC) Purpose 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. 62

59 QFC (Cont d) Set up 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 59

60 QFC (Cont d) Activities within the QFC Permitted activities Regulated activities Non-regulated activities 64

61 QFC (Cont d) Activities within the QFC (Cont d) 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 65

62 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 This will be big in the future! 66

63 QFC (Cont d) QFC tax regime 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 Remember: The QFC is not a tax haven! 67

64 QFC (Cont d) New rules - Apply from 18 June 2014 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 Big surprise coming! 68

65 QFC (Cont d) New rules - Apply from 18 June 2014 (Cont d) 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 New 69

66 QFC (Cont d) New rules - Apply from 18 June 2014 (Cont d) 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 70

67 QFC (Cont d) New rules - Apply from 18 June 2014 (Cont d) 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! 71

68 QFC (Cont d) The future 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 72

69 Questions and answers For information, contact Deloitte Touche Tohmatsu Limited. 69

70 This communication contains general information only, and none of Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the Deloitte network ) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte s more than 200,000 professionals are committed to becoming the standard of excellence. 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 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).. All rights reserved. 70