29 May 2018 Qatar and Ukraine sign income tax treaty Qatar and Ukraine have signed an Income Tax Treaty (2018) (the Treaty).1 Once ratified, the Treaty will be the first between the two countries. The Protocol of the Treaty (the Protocol) clarifies the taxes to which the Treaty applies. In the case of Qatar, it includes the income tax imposed under the Income Tax Law and corporation tax imposed under the Tax Regulations of the Qatar Financial Centre. This Alert summarizes the key features of the Treaty. Although tax residency is defined with reference to domestic law, the tie-breaker rule in relation to companies will be the place of effective management, which is aligned with both the old Organisation for Economic Co-operation and Development and United Nations (UN) Model Double Taxation Conventions. Current tax treaties resort to mutual agreement between two Contracting States. The permanent establishment (PE) provisions align closely to the UN Model Double Taxation Convention (UN Model). For example: - The construction paragraph reduces the timing threshold from 12 months to the aggregate of 6 months in any 12 month period.
- The furnishing of services (including consultancy services) gives rise to a PE if the activities for the same or a connected project exceed in the aggregate 6 months in any 12 month period.
- The provision of the UN Model dealing with insurers and PEs is also contained in the Treaty.
Dividends | - 10% withholding tax rate, generally
- 5% rate if the beneficial owner is a company, other than a partnership, which holds directly at least 10% of the capital of the paying company
- 0% rate applies if the beneficial owner is:
- The Government of Qatar or Ukraine
- A political subdivision or local authority of Qatar or Ukraine
- The Central Bank of Qatar or Ukraine
- A pension fund
- An Investment Authority including in the case of Qatar: Qatar Holding and Qatar Development Bank
- Any other institution or fund, which is recognized as an integral part of Qatar or Ukraine, political subdivision or local authority, as agreed by the competent authorities of Qatar and Ukraine
| Interest | - 10% withholding tax rate, generally
- 5% rate if the interest is paid on any loan of whatever kind granted by a bank or in connection with the sale on credit of any industrial, commercial or scientific equipment
- Interest is exempt from tax in the source state if the beneficial owner is the Government of Qatar or Ukraine, a political subdivision, a local authority, a statutory body or the Central Bank thereof, including, in Qatar:
- Qatar Investment Authority
- Qatar Holding
- Qatar Retirement Fund
- Qatar Development Bank
- Any financial institution owned or controlled by the Government of Qatar, which may be agreed upon between the competent authorities of Qatar and Ukraine
- In Ukraine:
- The State Savings Bank of Ukraine (Oschad Bank)
- The State Export Import Bank of Ukraine (Ukreximbank)
- Any financial institution owned or controlled by the Government of Ukraine, as agreed by the competent authorities of Qatar and Ukraine
| Royalties | - 10% withholding tax rate, generally
- 5% withholding tax rate in the case of payment of royalties in respect of any copyright of scientific work, any patent, trade mark, secret formula, process or information concerning industrial, commercial or scientific experience
- The term "royalties" covers payments of any kind received as consideration for the use of, or the right to use, any:
- Copyright of literary, artistic or scientific work (including computer software, other records on information-carrying mediums, cinematograph films and films, tapes or discs for radio or television broadcasting)
- Any patent, trade mark, design or model, plan, secret formula or process
- Industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience
| Capital Gains | - Gains from the sale of shares, which derive more than 50% of their value directly or indirectly, from immovable property situated in Qatar or Ukraine may be taxed in the country where the property is located.
- The Protocol provides that for the purpose of calculating the 50% threshold mentioned above, immovable properties that are part of fixed assets of an enterprise and are used in carrying on its activities should not be taken into account.
- Gains from the sale of other portfolio investments are exempt from tax in the source state.
| Independent personal services The Treaty contains an article on independent personal services along the lines of the UN Model. The Treaty provides for the use of the credit method to avoid double taxation. The Treaty clarifies that the non-taxation of Qatari nationals shall not be regarded as non-discrimination. Qatar and Ukraine must notify each other, in writing, through diplomatic channels, of the completion of the procedures required under domestic law for the Treaty entering into force. The Treaty shall enter into force on the date of receipt of the later of these notifications. Insofar as source taxes are concerned, for instance withholding tax on dividends, the Treaty will apply in respect of amounts paid or credited on or after the first day of January following the date upon which the Treaty enters into force. Insofar as other taxes are concerned (for instance income tax), the Treaty will apply in respect of taxable years beginning on or after the first day of January following the date upon which the Treaty enters into force. It is yet to be seen whether the Treaty will thus apply from 1 January 2019. 1 The Treaty was signed on 20 March 2018. For additional information with respect to this Alert, please contact the following: Ernst & Young (Qatar), Doha - Marcel Kerkvliet
marcel.kerkvliet@qa.ey.com - Brian Nolan
brian.nolan@qa.ey.com - Atif Al Mobarak
syed.almobarak@qa.ey.com
Ernst & Young LLP, Middle East Tax Desk, Houston - Gareth Lewis
gareth.lewis1@ey.com
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ATTACHMENT PDF version of this Tax Alert Document ID: 2018-5701 |
