Qatar, 13 April 2016 -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 Middle East recently launched its latest tax survey Managing tax which discusses tax and business challenges that companies in the region face, the way their tax functions are organised, and the impact of international and domestic tax reforms.
"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. As a result companies need to manage their tax affairs with the same care and attention to detail that applies everywhere else in the world." says Dean Kern, PwC Middle East Tax and Legal services Leader.
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. For example 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.
The reclaim process on retention payments is another area that the survey identifies as an area 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.
Commenting on this, Neil O'Brien, Head of Tax at PwC Qatar, said "As the Qatar economy grows, Tax administrations are required to manage an increasing number of taxpayers in a timely and efficient manner. Removing uncertainty and considering new models of compliance could provide increased clarity and consistency for taxpayers whilst maintaining resources efficiency for tax administration."
In the next few years, there's the possibility that Qatar could introduce VAT 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.
Furthermore, as technology and digital continue to play a vital role in our lives, the survey indicates that 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.
Commenting on this Jeanine Daou, Partner and Middle East Leader for Indirect Taxes and Fiscal Policy said, "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. It's instructive in this context to look at what happened in Malaysia, when the government introduced a goods and services tax in 2015. Many companies under-estimated the time and resources required to implement the new regime properly, and how much it would cost. Using digital technology can save both time and money, and improve accuracy and efficiency."
The survey also discusses the issues of managing business travellers and Base Erosion Profit Sharing (BEPS) which could significantly change the way international business operates.
For more information please visit the following page www.pwc.com/me/managingtax
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