Amended source rule – guidance December 2017

AGENDA Introduction The current source rule Issue Options Amendment of the source rule Article 10.1(A) Effective date Conclusion Presentation title in footer

introduction International tax landscape following the GFC Two evils

introduction Two remedies To tackle tax evasion: Work of the Global Forum Peer Review Process Automatic Exchange of Information CRS FATCA

introduction To tackle tax avoidance: The Inclusive Framework

introduction How can this impact QFC? Attractiveness of the tax regime Reforms should take into consideration BEPS recommendations Blacklisting initiatives Impact on reputation of Qatar and QFC

The Current QFC Source Rule Qatar Rest of the World Only locally sourced income is taxable “locally sourced”: “arising in” or “derived from” Qatar The operations test What? Where? QFC Entity User Work done in Qatar User Local Source Taxable

The Current QFC Source Rule Qatar Rest of the World Only locally sourced income is taxable “locally sourced”: “arising in” or “derived from” Qatar The operations test What? Where? QFC Entity User Work done outside Qatar User Non Local Source Not Taxable

issue Income from services performed in Qatar but used outside Qatar: Taxable Not attractive for businesses wishing to expand regionally and internationally Need to address this While being in compliance with international standards (the BEPS project). Date of Presentation

options Provide for explicit exemptions Amend the source rule

Amendment of source rule Article 10.1(A) Article 10(1A) :“Notwithstanding any other provisions in these Regulations, profits arising in or derived from Qatar by a QFC Entity that is not an Authorised Firm from the provision of services for use outside Qatar are deemed not to be Local Source Taxable Profits to the extent that the conditions set out in Rule 1A are met.” Article 10(1A) introduces a deeming provision that: Excludes from local source definition profits that are derived in or from Qatar from the provision of services for use outside Qatar. If certain requirements are met

Deeming provision Not a specific exemption Does not need a process (application, approval, etc.) Self-assessment: Taxpayer to declare that all or parts of his profit fall under Article 10(1A)

Eligible profits …in or from Qatar Provision applies only if the relevant services have been provided by a QFC entity in or from Qatar. Services: all the permitted activities that a QFC entity, other than an Authorised Firm, can undertake under the scope of its specific QFC license. Policy objectives: Increase the level of economic activity in Qatar; and Ensure that Article 10 (1A) is not misused by ‘shell’ or conduit entities in the QFC.

Eligible profits (cont’d) …For use outside Qatar The services must be for the use, consumption, or benefit outside Qatar. Concept of “use outside Qatar”: largely be a question of fact, dependent on the type and purpose of the services. How to apply it? Two fold presumption

Eligible profits (cont’d) Two fold presumption Where the ultimate or end user of the services is a non-resident, Article 10 (1A) would, prima facie, be applicable (subject to the conditions being met), unless the services have been provided for use in Qatar. This presumption would not apply if the non-resident is operating through a PE, a subsidiary or an affiliate in Qatar; and Where the ultimate or end user is a resident in Qatar, Article 10 (1A) would, prima facie, not be applicable, unless the services have been provided for use outside Qatar. Who is a resident?

Qualifies for the concession (non-local source) Qatar Rest of the World Services QFC Entity Work done in Qatar End User Income Qualifies for the concession (non-local source) The presumption is rebuttable

Qatar Rest of the World Services Income QFC Entity End User Income Branch/Affiliate of End User End User’s project/asset Does not qualify for the concession (local source)

Does not qualify for the concession (local source) Qatar Rest of the World QFC Entity Services Income End User The presumption is rebuttable Does not qualify for the concession (local source)

Qualifies for the concession (non-local source) Qatar Rest of the World QFC Entity Services End User’s project/asset Income End User End User Qualifies for the concession (non-local source)

requirements QFC entity’s accounts to be audited and reported on by an external auditor. QFC entity is required to have at least three full time employees resident in Qatar “Employee” – Sponsored by the QFC entity and on payroll. “Full time” – 100% of time working for the QFC entity. “Resident” - a natural person who has a permanent home in Qatar, has been in Qatar for more than 183 consecutive or separate days during any 12 month period or has his or her centre of vital interests in Qatar.

requirements At least 30% of the profits generated by a QFC entity should be attributable to the activities of the QFC entity in Qatar. Example: Total profits attributable to activities in Qatar = 80% ($70k + $10k / $100K) Article 10.1.(A) may apply. Eligible profits: $ 70,000 Local Source taxable profits = $10,000 The services have not been provided under an arrangement whereby the sole or main purpose is the avoidance of tax under the QFC Tax Regulations. Profit/ income ($) 10,000 20,000 70,000 Location of services & use Services provided from Qatar, for use in Qatar Services provided outside Qatar, for use in or outside Qatar Services provided from Qatar, for use outside Qatar

EFFECTIVE DATE Article 10 (1A) and Rule 1A were enacted into the QFC Tax Regulations and QFC Tax Rules respectively on 12 June 2017. Both will be applicable to Accounting Periods starting on or after 12 June 2017. No apportionment will apply to Accounting Periods Example: Firm licensed and commences to trade on the same date – 5th Feb 2017. Chosen year end is 30 June. Firms often choose long first AP to reduce compliance burden. Long AP = 17 months 5th Feb 2017 – 30th June 2018. Tax Return due 31st December 2018 Short AP – 5th Feb 2017 – 30th June 2017. Tax Return Due 31st December 2017

EFFECTIVE DATE 5th Feb 2017 17 month AP 30th June 2018 12th June 2017

conclusion Article 10.1(A) & Rule 1A Deeming provision Two fold presumption Must meet all conditions 3 Full time employees Audited financials 30% of profit from activities in Qatar Not for tax avoidance. Not available to authorised firms

UPCOMING TAX SEMINARS FROM QFC CRS Update VAT Update

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