Hong Kong Tax Alert: 24 May 2013
Tax benefits available to Hong Kong residents under the CDTA
- Active business profits of a Hong Kong resident enterprise will not be liable to tax in Qatar unless they are attributable to a permanent establishment (PE) maintained by the Hong Kong enterprise in Qatar. Where a Hong Kong enterprise has maintained a PE in Qatar, only profits attributable to the PE will be liable to tax in Qatar.
In addition to the general definitions of the term PE, a Hong Kong resident enterprise will be specifically considered as maintaining a PE in Qatar under the CDTA in the following situations:
- Having a building site, a construction, assembly or installation project or any supervisory activity in connection therewith, but only where such site, project or activity continues for a period or periods aggregating more than 183 days within any 12-month period
- The furnishing of services (including consultancy services) by a Hong Kong resident enterprise directly or through employees or other personnel, but only if the activities of that nature continue (for the same or a connected project) in Qatar for a period or periods aggregating more than 183 days within any 12-month period
- A Hong Kong resident enterprise will not be liable to tax in Qatar if it simply maintains a buying office in Qatar which only makes purchases for the Hong Kong resident enterprise.
- Hong Kong resident airliners and ship owners will not be subject to tax in Qatar in respect of profits derived from international traffic. However, income of a Hong Kong resident airliner so exempt from taxation in Qatar under the CDTA will be charged to tax in Hong Kong under the relevant provisions of the Hong Kong tax code.
- Where a Hong Kong resident enterprise transacts business with an associated Qatar resident enterprise in such a way that the profits that accrue to the Qatar resident enterprise are less than would accrue on an arm’s length basis, the Qatar tax authorities can make a primary adjustment to increase the profits of the Qatar resident enterprise to an arm’s length result. In such a case and where the primary adjustment made to the profits of the Qatari resident enterprise is considered justified both in principle and in amount, the Hong Kong tax authorities would under Article 9 (Associated Enterprises) of the CDTA, make an appropriate corresponding adjustment to the profits of the Hong Kong resident enterprise so as to avoid double taxation.
Independent personal services
Income derived by a Hong Kong resident individual from the provision of professional services or other independent activities of a similar character may be liable to tax in Qatar if:
- He has a fixed base regularly available to him in Qatar for the purpose of performing his activities, but only to the extent of the income attributable to that fixed base
- He stays in Qatar for a period or periods amounting to or exceeding in the aggregate of 183 days in any 12-month period commencing or ending in the taxable period concerned, but only to the extent of the income derived from his activities performed in Qatar.
For this purpose, the term “professional services” includes especially, independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants.
Exemption of withholding taxes on income derived from an active business or independent personal services
Under the domestic law of Qatar, withholding taxes are levied on the following payments made to non-resident enterprises for activities not connected with a PE in Qatar:
- Technical fees, for services wholly or partly rendered in Qatar (at 5%)
- Attendance fees, brokerage, commissions and other payments with respect to contracts for services conducted wholly or partially in Qatar (all at 7%)
As explained under the sections of “Business profits” and “Independent personal services” above, active business profits or professional service income of a Hong Kong resident enterprise or individual will not be liable to tax in Qatar unless attributable to a PE, or a fixed base maintained by the Hong Kong enterprise or individual in Qatar (or otherwise exceed a certain threshold as regards the extent of the services performed in Qatar).
As a result, a Hong Kong resident enterprise or individual carrying out any of the above activities in Qatar would be exempt from the withholding taxes provided that they meet the exemption conditions explained above as specified in the “Business Profits” or “Independent Personal Services” Articles of the CDTA.
It should however be noted that notwithstanding relief under the CDTA, Qatar generally operates an “apply and reclaim” system. Therefore, Qatar residents making payments in respect of such activities are required to withhold the relevant taxes first. Recipients who consider that they are eligible for relief under the CDTA must then request a refund of the taxes withheld from the Qatar tax authority.
Exemption or reduction of tax on dividends, interest, royalties and capital gains on disposal of shares
Subject to specific anti-avoidance provisions applicable to dividends, interest and royalties, the below table summarizes the applicable withholding rates for the captioned income flows received from Qatar by a Hong Kong resident as beneficial owner.
|Passive income||Dividends||Interest||Royalties||Capital gains on disposal of shares|
|Normal withholding rate||0%||7%1||5%||10%|
|Reduced rate under the CDTA||0%||0%||5%||0%2|
- Under the domestic law of Qatar, certain relief from the withholding tax is available. The relief is primarily related to interest paid on bonds issued by the Government of Qatar or companies wholly or partly owned by the Government and interest paid on transactions with banks and financial institutions.
- Under the CDTA, capital gains on the disposal of shares in a Qatari entity derived by a Hong Kong resident investor will generally be exempt from tax in Qatar. The major exception to this is when the shares being disposed of are in respect of a company holding substantial immovable property located in Qatar. This exception will not apply however if certain conditions are met.