1. Amended source rule – guidance
December 2017

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

3. introduction
International tax landscape following the GFC
Two evils

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

5. introduction
To tackle tax avoidance:
The Inclusive Framework

6. 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

7. 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

8. 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

9. 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

10. options
Provide for explicit exemptions
Amend the source rule

11. 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

12. 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)

13. 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.

14. 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

15. 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?

16. 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

17. 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)

18. 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)

19. 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)

20. 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.

21. 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

22. 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
No apportionment will apply to Accounting Periods
Example:
Firm licensed and commences to trade on the same date – 5th Feb 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 Tax Return due 31st December 2018
Short AP – 5th Feb 2017 – 30th June Tax Return Due 31st December 2017

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

24. 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

25. UPCOMING TAX SEMINARS FROM QFC
CRS Update
VAT Update

26. Questions?

27. Thank you