For investors looking for growth opportunities in the Middle East, Qatar offers attractive prospects. With low corporate taxes, no personal taxes, and no restrictions on foreign exchange or outflows of profits and cash, the country has created a welcoming environment to do business. And with Qatar’s rich gas reserves, urgent infrastructure needs and commitment to create a knowledge-based economy, business opportunities abound.
Craig Richardson, Head of Tax and Corporate Services for KPMG in Qatar, explains why Qatar is an investment destination well worth considering.
Why does Qatar stand out as a location for doing business?
Qatar’s appeal for businesses is founded on its economic strength. One of the Gulf’s most politically and financially stable countries, Qatar has the highest GDP and the fastest growing economy in the world. Qatar has the third largest gas reserves and the largest hydrocarbon reserves per capita, and it has been one of the largest exporters of liquefied natural gas for almost a decade.
While the oil and gas sector has dominated Qatar’s economy, growth drivers are shifting to other sectors. Huge investments are being made in infrastructure – from ports and railways to luxury retail malls. New constructions and refurbished facilities are being readied for the FIFA 2022 World Cup, and more construction and transport projects are in the works under the Qatar’s 2030 National Vision investment plans.
What other features of the 2030 National Vision will impact Qatar’s economy?
Qatar’s long-term strategy aims to promote an advanced society capable of sustaining its development and providing a high standard of living for its people. It’s a sweeping development agenda, and a key aspect of the plan is to gradually reduce Qatar’s reliance on hydrocarbons. The plan would see Qatar diversify its economy, increase the role of the private sector and improve competitiveness.
To these ends, the government has set its sights on building a knowledge-based economy marked by innovation, entrepreneurship, excellence in education, world-class infrastructure, and transparent and accountable government. As a result, we can expect opportunities to multiply in digital, research and innovation-based projects and enterprises.
Qatar’s legal framework is already investor-friendly. What are some of the key advantages currently in place for foreign investors?
Qatar allows foreign participation in business activities in all sectors, except banking and insurance (unless authorized), commercial agency and trading. Non-Qatari individuals and entities can invest through a Qatari-incorporated company that is not less than 51-percent owned by 100-percent Qatari persons or entities. Non-Qataris can increase their ownership of a Qatari entity to 100 percent if they operate in 15 or so specific sectors (such as energy, mining and information technology) and in other fields where the project is in line with the goals of National Vision 2030.
To qualify for the specific participation increase in shareholding, the foreign entity will need to obtain approval from the specific Ministry in which the entity will operate and from the Department of Economy and Trade. In our experience, however, such approvals are difficult to obtain.
The Qatar Financial Center (QFC), introduced in 2005, offers a robust regulatory regime and business-friendly administration. Companies registered with the QFC are allowed to have 100-percent foreign participation and are not barred from carrying out any activities, subject to necessary approvals. The QFC also has its own immigration department, which can fast-track visa and immigration approvals.
Another of Qatar’s advantages is the absence of any foreign exchange controls or limitations on the remittance of funds outside of Qatar. Foreign investors in Qatar are free to remit profits, capital and case without restriction (although strict sanctions are in place to prevent money laundering). Strong investment protection measures are also in place.
What advantages do foreign businesses in Qatar enjoy from a tax viewpoint?
Companies registered in the State are subject to a flat corporate tax rate of 10 percent if they are not wholly owned by Qataris or citizens of other Gulf Cooperation Council countries. Only income derived from sources in Qatar is taxable. Salaries, wages and allowances are tax-exempt, and business income of non-residents is taxed the same as company income at 10 percent. Qatar does not impose personal income tax, wealth, estate or gift tax or value-added tax, or stamp duty, and customs duty is levied at a general rate of 5 percent ad valorem. No controlled foreign company rules are applied. However, anti-avoidance rules do allow the tax authorities to impose ‘market value’ on related-party transactions that are deemed not to have occurred at arm’s length.
Companies in the oil and gas sector are generally taxed under agreements signed by those companies. Under Qatari law, profits from the exploitation of natural wealth and resources are taxed at rates of not less than 35 percent.
Companies registered in the QFC gain additional tax benefits, including a participation exemption for dividends and capital gains on qualifying shares and elimination of withholding taxes. The QFC has provisions to provide unilateral tax relief, and QFC entities belonging to the same group can opt for group relief by which profits from one group company can be offset losses in another.
In 2014, the QFC Tax Department published a new transfer pricing manual, which covers transfer pricing rules and regulations, along with detailed explanations of certain financial transactions, thin capitalization and transfer pricing methodologies.
Among several other tax-related benefits of the QFC is the ability to apply for advance tax rulings to gain certainty on the tax treatment of proposed transactions. These rulings are binding on the tax authority, but not the taxpayer.
On the administration side, how is Qatar working to make it easier for businesses to comply with their tax obligations?
Qatar’s Ministry of Finance and Public Revenue and Taxes Department (PRTD) launched a new Tax Administration System (TAS) in line with the National Vision 2030 goal to completely automate and improve services to taxpayers through greater data integration, heightened efficiency and reduced manual operation. The online system automates processes for tax filings, tax payments and file management processes. The TAS also gives taxpayers and their advisers a platform to access current and historic return data, submissions, forms and correspondence.
The new system is still undergoing some growing pains, but it is ultimately expected to improve the ease and efficiency for businesses in their dealings with the tax authority. When dealing with the Qatari tax authorities, it’s important to enlist local tax professionals to help with compliance matters and negotiations.
There are fears that the recent plunge in oil prices could have negative effects on the Qatar economy. Are these concerns well founded?
While the price of oil has some impact on gas prices, the current price volatility is unlikely to have lasting effects for Qatar. The country has ample wealth reserves to keep its finances stable over the long term, and its plans to diversify into knowledge-intensive industries will continue to drive ongoing growth. Given its current favorable regulatory and tax environment and its ambitions for the future, I fully expect Qatar to remain an exceptional location not only for setting up partnerships and special purpose ventures for business projects in the country but also for holding investments in opportunities across the GCC region.