With the openness of the world economy, the development of commercial exchange between countries and the increase of the volume of cross-border transactions, the State of Qatar has been seeking to enable the persons and companies carrying on activities in Qatar to deal with the tax burden resulting form imposing tax on the investor’s income in double way in the State where he lives ( the State of residence ) and the State where he carries on his activity (the State of source) by way of concluding agreements for the avoidance of double taxation with other countries.
Hence, the number of such agreements that become effective reached (33) agreements in 2009.
These agreements aim basically at setting rules between the State of source and the State of residence to govern their respective rights to impose tax on the different elements of income (or capital) derived (or owned) by a resident of one of the States from sources situated in the other State. In order to avoid double taxation as much as possible whether through exempting the income (or capital) from tax in the State of residence (partly or fully) or granting a credit for the tax paid in the State of source.
The State of Qatar, through the Tax Agreement Committee set in the Public Revenues and Taxes Department in the Ministry of Economy and Finance, adopted during negotiations of agreements a model that combines between the model of the Organization for Economic Cooperation and Development (OECD), which expresses the view of developed countries, as it seeks to support the right of the State of residence to impose tax at the expense of the State of source, and the UN model which seeks to give the State of source the right to impose tax in an attempt to support the position of developing countries. The Qatari model also contains other provisions introduced by the Committee to take into account the requirements and peculiarities of the economic activity in Qatar.
The State of Qatar managed to hold more than (17) rounds of negotiations during 2007, (7) rounds during 2008, and (14) other rounds during the current year (2009). Also it managed to sign (6) agreements during 2007, (12) agreements during 2008 and (10) during the current year 2009.
Besides, the Committee intensified its activity through a better coordination with the Ministry of Foreign Affairs, the Ministry of Justice and the competent departments in the Council of Ministers during preparation phases of the agreement. These include negotiations, initialing, then the final signing. After that, the phase of ratification, then the exchange of ratification instruments and the issuing of the Amiri Decree which allows the entry into force of the agreement. This effort lead to an increase in the number of effective agreements from (8) in 2006 to (20) agreements at the end of 2007 to reach (33) agreements this year (2009).
Amongst countries with which Qatar has agreements to avoid double taxation there are France, Tunisia, Senegal, India, Pakistan, Russia, Romania, Syria, Sri Lanka, Italy (reciprocal exemption from port fees), Seychelles, Venezuela, Singapore, Indonesia, Belarus, Yemen, Armenia, Turkey, Azerbaijan, Macedonia, China, Korea, Jordan, Cuba, Cyprus, Switzerland (Air Transport Exemption Agreement), Malaysia, Croatia, Morocco, Nepal and Lebanon.
In addition, Qatar keeps trying to increase the number of these agreements, and keeps revising the Qatari model agreement for the avoidance of double taxation in order to be in line with the legislative and economic developments in the State. It should be noted also that a delegation from Qatar participated actively in the work of a UN Committee working on the modification of the UN Model Convention to avoid double taxation. This Committee endorsed the recommendations made by the Qatari delegation especially with respect to Islamic Financial Instruments. The suggested amendments of the Qatari delegation were included in the commentary of the UN Model.
Agreements for the avoidance of double taxation provide Qatar with several advantages, such as: not imposing tax on companies resident in Qatar (whether Qataris or non Qataris) which carry on their activities in the Contacting States except in the case where they have a permanent establishment in these countries. Companies and enterprises carrying out contacting, building and installation projects in these countries, the duration of which does not exceed (generally) six months, do not have a permanent establishment, under the agreements, and are not subject to tax in these countries.
The advantages also include not imposing tax in the Contacting States on air and shipping companies resident in Qatar, which entitles Qatar Airways to a full exemption in these countries. Note also that Qatar concluded agreements to avoid double taxation specifically with respect to international air traffic (e.g. with the Netherlands and Switzerland), and in the case where such agreements do not exist, the Ministry of Economy and Finance issued certificates to exempt air transport companies of a number of countries in Qatar in order to exempt Qatar Airways from tax in these countries.
Agreements for the avoidance of double taxation also allow the non taxation or a taxation at a reduced rate of dividends distributed to shareholders that are resident in Qatar by companies that are resident in other countries.
Advantages also include the non taxation or taxation at a reduced rate of interest and similar payments made to residents of Qatar with the exemption of interest paid to the State or its local authorities or bodies such as Qatar Investment Authority.
Agreements also allow companies resident in Qatar to avoid payment of tax in a double way through the deduction of overseas tax from the tax due in the State of residence. It should be noted, however, that the Qatari domestic law does not impose tax on foreign – sourced income.
In addition, double taxation agreements preserve tax incentives granted to members of diplomatic missions and consular posts abroad in accordance with international law or special agreements.
Agreements also provide for a mechanism that allows Qatari companies to settle in an easy way their disputes with tax departments in the Contracting States through the mutual agreement procedures.
It is worth mentioning, finally, that the Tax Agreement Committee endeavors to enable Qatari persons and bodies to avoid (double) taxation even for taxes that are not covered by double taxation agreements. Hence, an agreement was concluded with Italy for reciprocal exemption from port and anchorage fees in addition to a number of agreements and exchanges of letters with certain countries to exempt embassies and diplomatic missions from VAT and similar taxes.