Global Tax Alert | 11 March 2014

Qatar Tax Authorities clarify income tax filing requirements for Qatar Science and Technology Park entities

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Executive summary

Qatar Science and Technology Park (QSTP) licensed entities have long been confronted with the issue of whether they need to file an annual income tax declaration, particularly under the 1993 Income Tax Law, notwithstanding their income tax exemption. This issue recently resurfaced, due to the recent position taken by the Qatar tax authority, the Public Revenues and Taxes Department (PRTD) in this respect.

This Tax Alert summarizes the legal and statutory basis of any tax filing requirement.

Detailed discussion

Background

The QSTP is a scientific center established in 2005 by the Qatar Foundation. It operates as a free zone and is administered and managed by a Board of Governors who license authorized activities within the zone.

Under Law No. 36 of 2005 (the QSTP Law), licensed projects and activities in the free zone enjoy certain privileges and guarantees, including an income tax exemption in respect of activities carried out within the free zone.

The QSTP Law also provides specifically that the supervision and regulation of activities conducted by a QSTP licensed entity shall fall outside the jurisdiction of the other institutions of the State of Qatar, including the Ministry of Economy and Commerce. To the extent that the entity is licensed in accordance with the QSTP Law, it shall require no other license, consent permit, membership or registration in the State of Qatar in order to carry on the licensed activity in the free zone.

Decree Law No. 11 of 1993: the 1993 Income Tax Law

The 1993 Income Tax Law requires any natural or juridical person engaged in a taxable activity to file a tax declaration. What constitutes a taxable activity is not defined, but is understood to mean a trade, business or service undertaken to realize profit that is subject to income tax under the 1993 Income Tax Law (ITL).

There is no similar requirement imposed for those who are not so engaged (in a taxable activity). Accordingly, those that enjoy income tax exemption either by application granted by the Tax Exemption Committee (TEC), or through special laws such as the QSTP Law are not required to file a tax declaration. The 1993 ITL, however, provides that those exempted by the TEC are required to submit, among others, a profit and loss statement within four months from the end of the accounting period, otherwise their tax exemption may be revoked.

As QSTP entities enjoy income tax exemption under the QSTP Law, they are not required to have a tax registration or file a tax declaration, nor are they required to submit a profit and loss statement.

Of course, where QSTP entities conduct activities outside their license, they would be considered as engaged in a taxable activity, and should therefore comply with the income tax filing obligations under the 1993 ITL, regardless of whether profit was actually generated from such activities or not.

Law No. 21 of 2009: the 2010 Income Tax Law

By contrast, the 2010 ITL specifically requires entities that carry on an activity that is exempt from tax under Qatar laws to submit a tax declaration, together with audited financial statements. This specific provision, enacted subsequent to the QSTP Law, has in effect granted some regulatory authority over QSTP entities to the Ministry of Economy and Finance and the PRTD. This was an intended change, primarily directed to ensure even income tax exempt entities comply with withholding tax obligations — a new requirement imposed by the 2010 ITL.

QSTP entities are therefore required to file a tax declaration and audited financial statements, notwithstanding their income tax exemption.

Current PRTD position

The interpretation of the income tax filing obligations under the 1993 and the 2010 ITLs outlined in the preceding sections is consistent with the verbal guidance obtained from the PRTD.

However, the PRTD has indicated that it reserves the right to request QSTP entities to submit tax declarations under the 1993 ITL. The request will be made on a case-by-case basis, perhaps when the PRTD becomes aware that QSTP entities are engaged in taxable activities, i.e., activities outside of their license. The filing of a tax declaration following such a request from the PRTD should not carry with it penalties associated with late filing, unless activities were deemed to be taxable activities or a previous request to file a tax declaration has in the meantime been made, and which was not complied with by QSTP entities.

Implications

QSTP entities are not required to file a tax declaration under the 1993 ITL, unless:

  • They engaged in activities not authorized by their QSTP license; or
  • They have been requested by the PRTD to submit a tax declaration (The PRTD has the right to request the submission of a tax declaration within a period of five years from knowledge of any taxable activities of the QSTP licensed entities).

On the other hand, QSTP entities should file a tax declaration under the 2010 ITL, regardless of their income tax exemption, with potential penalties for late filings.

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

Ernst & Young (Qatar), Doha
  • Finbarr Sexton
    +974 4457 4200
    finbarr.sexton@qa.ey.com
  • Marcel Kerkvliet
    +974 4457 4201
    marcel.kerkvliet@qa.ey.com
  • Paul Karamanoukian
    +974 4457 4211
    paul.karamanoukian@qa.ey.com
  • Garrett Grennan
    +974 4457 4210
    garrett.grennan@qa.ey.com
  • Fareed Patel
    +974 4457 4220
    fareed.patel@qa.ey.com
  • Sherif Ismail
    +974 4457 4293
    sherif.ismail@qa.ey.com
  • Kevin McManus
    +974 4457 4264
    kevin.mcmanus@qa.ey.com
  • Saman Fernando
    +974 4457 4230
    saman.fernando@qa.ey.com
  • Haytham Hefny
    +974 4457 4292
    haytham.hefny@qa.ey.com
  • Gareth Lewis
    +974 4457 4159
    gareth.lewis@qa.ey.com
  • Jennifer OSullivan
    +974 4457 4116
    jennifer.osullivan@qa.ey.com
  • Cheryll Montealegre
    +974 4457 4111
    cheryll.montealegre@qa.ey.com
  • Maria Bathan
    +974 4457 4111
    maria.bathan@qa.ey.com x
  • Maryjean Balmes
    +974 4457 4330
    maryjean.balmes@qa.ey.com
  • Raphael Bellen
    +974 4457 4351
    raphael.bellen@qa.ey.com

EYG no. CM4246