Qatar Tax Law No. 21 of late 2009 brought into force, amongst other things, a withholding tax regime in Qatar. Of particular interest and concern to many who first examined the law was a withholding tax of 7 per cent on interest payments to entities outside the State of Qatar.
Following the subsequent effective suspension of withholding tax on interest payments on 4 January 2010, many in the Qatar legal and business community have been awaiting the publication of the Executive Regulations to the tax law for some further comfort on withholding tax on interest payments.
On 1 June 2011 the final Executive Regulations were published in the Official Gazette, to be effective from 1 July 2011.
One of the most important and interesting facets of the Executive Regulations was the treatment of withholding tax on interest payments. Following the imposition of the tax and its subsequent suspension, the Executive Regulations provided that the withholding tax would be payable on interest, but stipulated a number of important exemptions to the payment:
- Interest on deposits in banks in the State of Qatar
- Interest on bonds and securities issued by the State of Qatar and public authorities, establishments and corporations owned wholly or partly by the State of Qatar
- Interest on transactions, facilities and loans with banks and financial institutions
- Interest paid by a permanent establishment of an organisation in the State of Qatar to its head office
Obviously, these exemptions, and in particular that at 3., offer some respite from the withholding tax position. However, until further guidance is issued, it would appear that there are still a number of transactions that might incur withholding tax on interest, such as finance leases through an orphan SPC lessor and bonds issued by non-State of Qatar owned companies.
The protocol to the UK’s double tax treaty with the State of Qatar, which came into force on 27 July 2011, clarifies that exemption from withholding tax on interest extends to payments from either the UK or Qatar.