Executive summary

On 14 October 2018, the Qatar Tax Department (QTD) issued Circular No. 3 of 2018, reiterating its expectations on withholding tax (WHT) compliance in Qatar. There has also been a noticeable increase recently in WHT inquiries and assessments.

The penalty for WHT non-compliance is 100% of the WHT due. Businesses should ensure they have retained support for their historic WHT filing positions, and review their current practices to ensure they comply with WHT requirements.

Detailed discussion

Background

Qatar introduced WHT when the current Income Tax Law was enacted in 2009. Under the Law, payments to nonresidents that are not connected with a permanent establishment in Qatar, or that are relieved from tax under a tax treaty, are subject to:

• Final WHT of 5% for royalties and technical fees
• Final WHT of 7% for interest, commissions, brokerage fees, director’s fees, attendance fees and other payments for services carried out wholly or partly in Qatar

The Executive Regulations and Circulars No. 2 and No. 3 of 2011 elaborate on these rules.

• The Executive Regulations further define the scope of the WHT rules, and introduce a pay-and-refund mechanism for relief under a tax treaty.
• Circular No. 2 of 2011 introduces a presumption that a nonresident does not have a permanent establishment (and should be subject to WHT) if the nonresident does not have a commercial registration, or has a commercial registration, but only on the basis of activities with a duration of less than one year.
• Circular No. 3 of 2011 requires WHT to be applied to nonresidents who do not hold a valid tax card.

The nonresident may seek a refund of WHT from the QTD if it is entitled to relief under a treaty, or can satisfy the QTD that it has a permanent establishment and the WHT applied exceeds its Qatar tax liability.

Circular No. 3 of 2018

The Qatari Ministry of Finance has issued a Circular to reiterate to businesses in Qatar that they should:

• Follow the rules in Circulars No. 2 and No. 3 of 2011 when determining WHT obligations.
• File a WHT Form 2-1 by the 16th day of the following month of withholding, along with evidence that the WHT has been remitted to the QTD.

QTD assessments

Before 2018, there was no apparent evidence that the QTD was reviewing WHT compliance. Recently, the QTD has started issuing assessments. The current focus appears to be on the question of whether the appropriate WHT should be 5% or 7%. However, it is possible the QTD’s focus could extend to broader WHT compliance matters in the future.

Implications

Given the increased attention that the QTD is paying to WHT, businesses in Qatar should review their historic findings to ensure they have adequate support for their WHT filing positions, and should review their WHT policies to confirm the policies comply with Qatar WHT requirements.

For additional information with respect to this Alert, please contact the following:

Ernst & Young (Qatar), Doha

• Finbarr Sexton, Qatar Regulatory Leader | finbarr.sexton@qa.ey.com
• Fareed Patel | fareed.patel@qa.ey.com
• Saman Fernando | saman.fernando@qa.ey.com
• Sherif Ismail | sherif.ismail@qa.ey.com
• Marcel Kerkvliet | marcel.kerkvliet@qa.ey.com
• Jennifer OSullivan | jennifer.osullivan@qa.ey.com

Ernst & Young, Al Aiban, Al Osaimi & Partners, Safat

• Ahmed F. Eldessouky | ahmed.eldessouky@kw.ey.com

Ernst & Young LLP, Middle East Tax Desk, Houston

• Gareth Lewis | gareth.lewis1@ey.com 

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