Insights Into Certain Aspects of the Qatar Financial Centre Tax Regime
January 29, 2023
Ribal Fattal, Senior Associate
Fairoze Hoque, Paralegal
The Qatar Financial Centre (‘QFC’) is an economic and commercial zone with its own set of regulations and rules governing those entities that are licensed to operate and conduct business in or from the QFC. The QFC Tax Regulations issued on 21 December 2020 apply to all QFC entities and to the directors, officers, employees, trustees and representatives of those entities.
Generally, the laws, rules and regulations of the State of Qatar in relation to taxation do not apply to QFC entities which are subject to the QFC Tax Regulations.
Subject to the provisions of the QFC Tax Regulations, corporate income tax must be charged for each accounting period at the standard rate for the full amount of local source taxable profit. The standard rate of corporate income tax is 10%, and taxable profits are considered locally sourced if they arise in, or are derived from, the State of Qatar.
The payments of dividends, interest, royalties and management fees out of Qatar by QFC entities are free from withholding tax, enabling tax-free repatriation of funds and shareholders’ profits.
The QFC Tax Regulations provide for, under certain conditions, numerous forms of relief, such as loss relief, group relief, double taxation relief, etc. For instance, under the provision of loss relief, tax losses are calculated on the same basis as chargeable profits. Losses can be carried forward but not rolled back, and can be relieved against the profits of QFC entities in the same group. The carry forward of losses may be restricted in the event of a change in ownership.
Any tax loss carried forward to a succeeding accounting period must be set off in full against the chargeable profits of that succeeding period before any of the loss can be carried forward to a second succeeding accounting period.
Further, where in any accounting period a QFC entity that is a company or a Limited Liability Partnership (“LLP”) (i.e., surrendering entity) has incurred a tax loss, the amount of the loss may be set off for the purposes of corporation tax against the chargeable profits of a second QFC entity that is a company or an LLP (i.e., claimant entity) for its corresponding accounting period by way of relief from corporate income tax named “Group Relief”. Group Relief is available where the surrendering entity and the claimant entity are both members of the same ‘Group’.
Under the QFC Tax Regulations, QFC entities are deemed to be members of the same Group if one QFC entity is a 75% subsidiary of the other or both are 75% subsidiaries of a third company or an LLP. The QFC Tax Regulations also regulate transfer pricing. The QFC authority has also issued a Transfer Pricing Manual that deals with the tax treatment of transactions between associated entities.
Furthermore, the QFC tax department may, on an application in writing by a QFC entity, give a written ruling setting out the tax department’s position regarding the application of the QFC Tax Regulations with respect to an arrangement proposed or entered into by a QFC entity.
However, it is not obliged to give a ruling where it is of the opinion that the main object, or one of the main objects of the arrangement proposed or entered into, is the avoidance of tax, the application is frivolous or vexatious, or the application does not involve genuine points of doubt or difficulty.
Nevertheless, an advance ruling given by the QFC tax department in respect of a proposed arrangement is not binding on it if the proposed arrangement has not been entered into within 12 months of the date of the ruling.