Qatar publishes Law No. 11 of 2022 amending several provisions of the Income Tax Law No. 24 of 2018

Qatar publishes Law No. 11 of 2022 amending several provisions of the Income Tax Law No. 24 of 2018 - PwC Qatar has recently introduced some significant changes to its income tax law, which affect the taxation of income generated inside and outside Qatar, the introduction of global minimum tax, the relief for foreign taxes, and the reporting of substantial/core activities.

On 2 February 2023, Qatar published Law No.11 of 2022 (“the amendments”) amending several provisions of the Income Tax Law No. 24 of 2018 (“the Tax Law”) in the official Gazette. The amendments are effective from 2 February 2023 (i.e., the date of their publication in the official Gazette).

The amendments have introduced a number of important changes to the Tax Law. The details of some of these key changes are expected to be issued by the General Tax Authority (“GTA”) as amendments to the Executive Regulations of the Tax Law in the near future.

We have summarized some of the amendments below.

Global Minimum Tax

The amendments highlight Qatar’s commitment to introducing Global Minimum Tax. Although details in relation to the application of Global Minimum Tax will be covered in the changes to the Executive Regulations of the Tax Law, the amendments imply that measures will be introduced to achieve minimum effective tax rate of 15% for in-scope entities.

Global Minimum Tax is a new international tax framework that aims to ensure that multinational enterprises pay a fair share of tax wherever they operate and earn profits. Global Minimum Tax was agreed by 136 countries and jurisdictions under the Organisation for Economic Co-operation and Development (OECD) / G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS) in October 2021.

Under Global Minimum Tax, countries will apply a minimum tax rate of at least 15% on the profits of foreign subsidiaries or branches of their resident companies, regardless of where they are located or taxed. If a foreign subsidiary or branch is subject to an effective tax rate below 15% in its jurisdiction, the parent company will have to top up the difference in its home country.

Global Minimum Tax is expected to be implemented by most countries from 2023 onwards. Qatar, as a member of the Inclusive Framework on BEPS, has committed to implement Global Minimum Tax in line with the OECD / G20 agreement.

Expansion of the scope of income tax

The amendments have preserved the overarching principle of taxing income arising from sources in Qatar. However, the amendments specify various types of income generated outside Qatar that will now be subject to income tax in Qatar. This includes income generated from real estate, immovable property, dividends, royalties, interest, and technical service fees as long as such categories of income are not attributable to a foreign permanent establishment (“PE”) of the Qatari Project.

There is also an indication that income derived by a Qatari Project from a broad range of services provided outside Qatar (such as marketing services, procurement and financial intermediation services, fees paid to obtain guarantees or similar financial support, communication services, broadcasting services, etc.) will now be subject to income tax in Qatar.

The expansion in the scope of income tax is expected to bring various categories of foreign income within the tax net of Qatar, which can contribute to raising the overall effective tax rate of entities within the scope of Global Minimum Tax. The inclusion of these new categories of income could also result in raising the tax liability of Qatari entities that may currently be outside the scope of Global Minimum Tax.

Relief for foreign taxes As the amendments bring various categories of income generated outside Qatar into the tax net of Qatar, the amendments also provide relief for income taxes paid outside Qatar on foreign income (subject to certain conditions). The amendments further clarify that the relief will be limited to the extent of the tax liability in Qatar.

This means that if a Qatari entity earns foreign income that is subject to income tax in both Qatar and another country, it can claim a credit for the foreign taxes paid against its Qatari tax liability, up to the amount of Qatari tax due on that income. This is intended to avoid double taxation and encourage cross-border trade and investment.

However, if a Qatari entity earns foreign income that is subject to an effective tax rate below 15% in another country, it may not be able to claim full relief for the foreign taxes paid against its Qatari tax liability, as it will have to pay additional tax in Qatar to meet the global minimum tax requirement.

Reporting of substantial / core activities

The amendments introduce a new requirement for entities to submit a report to the GTA regarding the minimum indicators of their core activities in Qatar. The report should include information such as:

• The number and qualifications of employees engaged in core activities;
• The amount and nature of assets used for core activities;
• The amount and source of income derived from core activities;
• The amount and type of expenses incurred for core activities;
• The contracts and agreements concluded for core activities; and
• Any other information required by the GTA.

The purpose of this report is to demonstrate that the Qatari entity has sufficient substance and economic presence in Qatar and is not engaged in artificial or abusive arrangements that aim to avoid or reduce its tax liability.

The GTA will issue further guidance on how and when to submit this report and what are the minimum indicators required for different types of core activities.

Conclusion

The amendments introduced by Law No.11 of 2022 reflect Qatar’s efforts to align its income tax law with international standards and best practices, especially with regard to global minimum tax. The amendments also aim to expand the scope of income tax, provide relief for foreign taxes, and enhance transparency and accountability.

Qatari entities should assess how these amendments affect their current and future operations and transactions and take appropriate actions to comply with their new obligations and optimize their tax position.

Disclaimer: This article provides general information and should not be construed as legal advice. Please consult with a qualified and experienced Lawyer for personalized guidance regarding your specific situation.