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Qatar – Introduction of Excise Tax and the new Income Tax Law

KPMG in Qatar provides an overview of the introduction of Excise Tax effective from 01 January 2019 in line with the GCC Unified Excise Tax Treaty and the new Income Tax Law No. 24 of 2018, which replaces the old income tax law No. 21 of 2009.

Excise Tax

Qatar has announced the introduction of excise tax (“the excise tax”) effective from 01 January 2019 in line with the GCC Unified Excise Tax Treaty. The excise tax is imposed on certain goods, which are deemed to be damaging to consumer’s health.

Businesses engaging in importing, manufacturing and storing tobacco and its products, carbonated drinks, energy drinks and special purpose goods* (“the excisable goods”) will be affected by Qatar’s introduction of the excise tax. These businesses should assess their excise tax obligations carefully to ensure they are fully compliant and manage their tax in the most efficient way possible.

General principles of excise tax

In general, excise tax is a consumption tax that is imposed on a limited range of goods and in rare circumstances services. Unlike value added tax, it’s a single-phased tax imposed at production or on import of excisable goods. Businesses trading excisable goods are obligated to register, collect excise tax, submit periodical returns and pay excise tax to the local authority.

Excise tax in Qatar

Excise tax is imposed on tobacco and its products, carbonated drinks, energy drinks and special purpose goods on the excise tax value at the following rates:

  • tobacco and its products –100%
  • energy drinks –100% 
  • carbonated drinks –50%
  • special purpose goods –100%

The excise tax value of goods shall be the higher of:

  • the standard price as listed in a Ministerial Decision, or a minimum value as listed in a schedule issued by General Tax Authority (GTA) on its website; or
  • the retail sales price declared by the producer or importer or warehouse keeper of such excisable goods after deducting any excise tax amount included in that price.

The excise tax also includes additional provisions in respect of:

  • calculation and collection of excise tax;
  • financial penalties on the violation of provisions; and
  • exemption and refunds, in relation to the export of excisable goods as well as sale of products to certain parties such as diplomatic and consular missions.

*Special purpose goods for excise tax purposes include goods that are consumed underspecific conditions and authorizations (e.g. alcoholic beverages and pork products).

Transitional Excise Tax Return

Businesses holding excisable goods for re-sale as of 01 January 2019 should submit a one-time transitional excise tax return by 31 January 2019 along with an audit certificate from an accredited Qatari auditor confirming the validity of inventory in respect of excisable goods exceeding QAR 50,000.

Registration

In addition to the transitional period requirements, only importers, producers and warehouse keepers will be required to register, file and pay excise tax starting from 01 January 2019.

Businesses engaging in or having the intention to be involved in excisable goods should submit an application for registration to the General Tax Authority in Qatar at the earlier of the following:

  • within 90 days of the effective date of Excise Law; or
  • within 30 days prior to the intention or actual involvement in any of the excisable goods.

Next steps

The introduction of excise tax will significantly affect customer prices on excisable goods. Businesses dealing with these goods should carefully review their pricing strategies, determine the full impact of the excise tax and ensure they understand what needs to be done to be fully compliant.

Businesses should consider the impact of excise tax on the following areas: 

  • supply chain
  • accounting and finance
  • tax and compliance
  • IT systems
  • contracts
  • sales and marketing
  • legal structure

KPMG in Qatar can assist you with registration, inventory counting, submission of transitional excise tax return as well as evaluating the potential impact of the excise tax on your business in Qatar.

New Income Tax Law

On 17 January 2019, the Qatari government published a new income tax law No. 24 of 2018 (“the new income tax law”), which replaces the old income tax law No. 21 of 2009. The law was effective from 13 December 2018 and it’s expected that the Ministry of Finance will issue the Executive Regulations of the new income tax law in due course.
While the new income tax law contains only few substantive changes, the penalties for non-compliance have been increased quite dramatically. In addition, the tax law has been streamlined by moving some detailed regulations and procedures to the executive regulations. The following changes have been introduced by the new income tax law.

Tax rates

  • Payments made to non-residents without a permanent establishment in Qatar for royalties, interest, commissions and any other services performed wholly or partly in Qatar will now be subject to a uniformed withholding tax rate of 5 percent. The withholding tax rate of 7 percent has been removed.
  • The minimum income tax rate of 35 percent applicable on oil and gas operations has been extended to petrochemical operations.

Tax compliance

  • Taxpayers are required to submit a tax return stating the taxable income and the tax due, irrespective of whether they benefit from a tax exemption or not. This suggests that even exempt entities are required to reflect the taxable income in their tax returns, which is different from the current practice. However, there is some ambiguity on the application of this provision and we expect this to be clarified in the executive regulations. 
  • Private bodies (registered or authorized to operate in Qatar) carrying out not-for-profit activities are exempt from tax under the new law, but will have new tax filing obligations.

Tax assessment

The new law empowers Qatar’s tax authority to conduct best judgment assessments based on any available data (such as industry comparisons, etc.) where taxpayers fail to submit the tax return or the related documents. It will allow the tax authorities to deal with non-compliant taxpayers more efficiently.

Income 

  • A new exemption from income tax has been introduced on capital gains, resulting from the revaluation of a company’s assets being used as share in kind contribution to a Qatari joint stock company under certain conditions.
  • The exemption of profit shares and capital gains of non-Qatari investors in the listed companies or investment funds, which applied in the past under a separate law, has now been included in new income tax law.

Expenses

Commission paid to agents of foreign companies will only be deductible as per the limits provided in the executive regulations. Previously there were no specific restrictions on such commissions.

Penalties

Description Penalty under old law Penalty under new law
Late filing of tax return

QAR100 per day, up to a

maximum of QAR36,000

QAR500 per day, up to a

maximum of QAR180,000

Failure to pay income

tax within the set period

1.5% per month, up to a

maximum of 100% of the unpaid tax 

2% per month up to a

maximum of 100% of the unpaid tax 

Delay in applying for

tax registration

QAR5,000 QAR20,000

Late payment of

withholding tax within the set period 

None 2% per month up to 100% of the unpaid tax

Failure to notify the

tax authority about the contracts,

agreements, and transaction executed

pursuant to the provisions of the law

None QAR10,000

Failure to comply with the r

egulations issued by the Minister of

Finance to enforce obligations of

international agreements

(such as CRS, FATCA, CbCR, etc.)

None Up to a maximum of QAR500,000

 

  • The President or his delegate has the power to waive off the penalties of the taxpayers up to QAR 500,000 under new law, compared to QAR 50,000 under the old law.

Exceptions

  • The new law introduces the possibility of a general tax exemption or preferential tax rate for taxpayers operating in specific projects, sectors or regions, which can be granted by the Council of Ministers, upon recommendation of the Minister of Finance.
  • Client-specific tax exemptions operating in key development areas, can now be granted up to 5 years (3 years under the old law) by the Minister. Exemptions for more than 5 years can be granted by Council of Ministers upon recommendation of the Minister, whereas the new law does not specify any maximum period.

The executive regulations are yet to be issued. They should provide detailed guidance on the procedures as well as transitional provisions, which will detail how the new penalties will be applied. This alert provides a brief summary of the current update and has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out in the new law and executive regulations will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication.

KPMG in Qatar can help you analyze the applicability of the new tax law and evaluate the potential impact of the new law on your business in Qatar.

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