Qatar issues Economic Substance Regulations

In detail

Who is subject to the Regulations?

The Regulations apply to entities that perform certain specified activities which are broadly defined as either a Covered Service Activity or an Intellectual Property Activity (“Relevant Activities”) and benefiting from a “Preferential Tax Regime” in Qatar. Preferential Tax Regime is defined as any regime that offers a tax preference compared to the general principles of taxation in the State of Qatar, regardless of the form or amount of the preference. We expect the Regulations to have a broad impact on entities in Qatar that benefit from preferential tax regimes.

The following are considered to be relevant activities under the Regulations:

• Headquartered Businesses 
• Distribution and service centers
• Financing and leasing 
• Fund management 
• Banking activities 
• Insurance activities
• Shipping
• Holding company
• Technical consulting
• Technical training 
• Intellectual property activities 

What are the Economic Substance Regulations (ESR)?

To satisfy the ESR requirements in relation to covered services activity, a qualifying entity must:

• Conduct the relevant “core income generating activities” in Qatar

• With reference to the level of activities performed in Qatar:

  • Have an adequate number of qualified full-time employees with the necessary qualifications in Qatar

  • Incur an adequate amount of operating expenditure in Qatar

  • Fulfill any other requirements that would be specified by the applicable licensing authority

To satisfy the ESR requirements in relation to intellectual property activity, a qualifying entity must:

• Conduct the research and development activities in Qatar. The following criteria is required to be met for an activity to be research and development:

  • It has to be new.

  • It has to be creative.

  • The results are uncertain.

  • It has to be methodical.

  • It must be transferable and reproducible.

Where a qualifying entity does more than one relevant activity, the economic substance requirements may potentially be required to be met for each of the relevant activities.

Outsourcing research and development activities

The Regulations allow a qualifying entity to outsource its research and development activities; however, where the outsource providers are related parties, they must in their own right have an adequate presence in Qatar. 

What are the reporting requirements?

A qualifying entity performing covered services activities should provide the following information:

• The entity's identity, headquarters and administration
• The type of activity of the entity, with a description of the core income generating activities and their location, and details on outsourcing if any
• The annual investment volume in fixed assets
• The number of qualified full-time employees associated with the core activities, and the amount of their monthly basic salary
• The entity's revenue and operating expenses related to its core activities and profits
• Information related to other requirements determined by the licensed bodies, in cooperation with the competent authority, in accordance with the provisions of Article (6) of the ESR

A qualifying entity performing intellectual property activities is expected to provide the following information:

• The entity's intellectual property assets
• The annual revenue of the entity
• Operating expenses incurred by the entity
• Details of outsourcing, if any
• The annual profits of the entity
• The type and total amount of intellectual property activity income

The administrative requirements pertaining to reporting and sanctions for non-compliance are to be determined by the applicable licensing authority in consultation with the General Tax Authority.

Transitional provisions

Qualifying entities that were established under preferential regimes prior to 1 November 2020, have until 31 December 2023 to comply with ESR in respect of activities that were undertaken before 1 November 2020. 

Qualifying entities established under preferential regimes after 1 November 2020 may need to comply with ESR immediately. Qualifying entities established prior to 1 November 2020 also need to comply with these requirements immediately in respect of any new activities commenced after 1 November 2020.