Foreign companies in Qatar are confused over “inconsistencies” in the application of taxation law and sought a review on the reclaim process of retention payments, according to PricewaterhouseCoopers (PwC) survey.
Qatar is often perceived to be a low-tax, or even a ‘no-tax’ area; however, a recent survey of the region’s tax and finance leaders shows that managing tax in the region can be complex and challenging, PwC said.
“Removing uncertainty and considering new models of compliance could provide increased clarity and consistency for taxpayers whilst maintaining resources efficiency for tax administration,” Neil O’Brien, head of tax at PwC Qatar, said.
Finding that a key theme that emerged from the survey is the lack of clarity in the application of tax law and to some extent what laws are in place, PwC said in Qatar, foreign investment law does not recognise a permanent establishment of a foreign company that is not registered with the Ministry of Economy and Commerce as a temporary branch, but the tax law has a much broader definition of permanent establishments.
“This inconsistency can lead to confusion on whether foreign companies should pay corporation tax and suffer retention payments or be subject to withholding tax”, it said.
As Qatar’s economy grows, tax administrators are required to manage an increasing number of taxpayers in a timely and efficient manner, O’Brien said.
The reclaim process on retention payments is another area that the survey identifies as a segment for review.
Currently, when a foreign contractor performs its services through a temporary branch, the employing company is required to retain 3% of the value of the contract or the final payment, whichever is greater. The foreign contractor can only get these funds released once the contract is complete, all taxes have been assessed and paid and a No objection certificate is issued by Qatar tax authority.
“For long-term contracts, this can result in a considerable delay in receiving the retention payments,” PwC said.
In the next few years, there’s the possibility that Qatar could introduce VAT (value added tax) in line with other GCC nations. The survey states that to do this effectively, it will probably require more skilled resources and more comprehensive systems.
“The introduction of VAT, in particular, would put even greater demands on these tax departments, given the huge number of transactions that would be covered, and the volume of data that would be generated; it will be almost impossible to manage this without effective systems,” according to Jeanine Daou, partner and Middle East leader for indirect taxes and fiscal policy.
Furthermore, as technology and digital age continue to play a vital role in daily lives, the survey indicates that the processes and systems will be one of the biggest challenges in tax reforms that authorities are planning, ranging from managing the additional workload, to collecting and analysing the data, to internal reporting and external compliance.
“Tax regimes in the region can be complex and challenging to manage and their implementation can give rise to uncertainty and confusion, which in turn creates risk,” according to Dean Kern, PwC Middle East tax and legal services leader.