Posted on December 15, 2015

Qatar continues to provide one of the most favorable company tax environments in the world according to World Bank Group and PwC’s report, Paying Taxes 2016. The report, now in its 10th year, finds that on average, the model company in Qatar has a Total Tax Rate (as defined under the Doing Business methodology) of  11.3 percent of commercial profits making it the lowest tax rate in the world; it makes 4.0 tax payments per year and takes an average of 41 hours to comply.

In the Middle East the case study company outlined in the report has an average Total Tax Rate of 24.2 percent; it makes an average of 17.0 payments per year and it takes the company an average of 160 hours to comply with its tax affairs which is below the world average of 261 hours and the lowest across all global regions. Overall, Paying Taxes 2016, incorporating data on tax systems in 189 economies round the world, finds that on average, the model company has a Total Tax Rate of 40.8 percent of commercial profits, down by just 0.1 percentage point from last year. It makes 25.6 tax payments per year and takes 261 hours to comply with its tax requirements, a drop of 2 hours compared to last year.

According to the study, there was a small increase in the Total Tax Rate of 0.2 percentage points in the region from last year. The time to comply and the number of payments sub-indicators remained unchanged for the same period. In 2014, only two of the 13 Middle Eastern economies have a Total Tax Rate higher than the world average – Syria and Iran, with six of the economies having a Total Tax Rate higher than the regional average including Iraq, Jordan, Lebanon and Yemen.

Paying Taxes also finds that on average for companies around the world, labour taxes are a similar cost to profit taxes – with both labour taxes and profit taxes averaging 16.2% each of commercial profits worldwide, and four fifths of the taxes paid directly by businesses. Labour taxes and mandatory contributions paid by employers account for 59% of the average Total Tax Rate for the Middle East region and is the most significant contributor to the Total Tax Rate in most economies. Profit taxes account for 39% while other taxes account for just 2% of the region’s average Total Tax Rate.

Over a 10 year period covered by the study, the global average time to comply has declined by 61 hours and the number of payments sub-indicator by 8.2 payments, due in large to the introduction and improvement in electronic filing and payment systems. Electronic filing continues to have a significant impact in easing the burden of tax administration. Globally, the most common feature of tax reform in the past year was the introduction or enhancement of electronic systems for filing and paying taxes.

Economies, including Qatar’s, which have invested in online filing and payment infrastructure are reaping a digital dividend from these systems. Low income economies, however, which often have a substantial compliance burden, have shown the least reduction in the time to comply and the number of payments sub-indicators. This suggests that there are other challenges to be overcome in these economies, such as the availability of modern communications infrastructure, before the tax system can be substantially reformed. The study also discusses the benefits that good tax compliance systems can have in helping to reduce the size of the informal economy.

Dean Kern, Partner, PwC’s Middle East Markets, Tax and Legal Services Leader commenting on the Paying Taxes 2016 report said “There is still considerable scope for reform of tax systems in terms of simplification and supporting compliance. This year’s report demonstrates in particular the acute challenge in developing countries of the availability of IT infrastructure including broadband, needed to design and run a modern tax system to raise the revenues to sustain growth.”

Neil O’Brien, Head of Tax at PwC Qatar added “As far as Qatar is concerned there is an attractive tax regime here for business and individuals with a 10% Corporate Income Tax Rate, withholding taxes of 5 or 7%, no personal income taxes and no sales tax or VAT.” “Like many other buoyant economies, Qatar has invested in electronic filing as a way of improving its compliance process and it continues to look at new ways and incentives to attract Qatari entrepreneurs and foreign direct investments as a way of diversifying its economy.”

Commenting on the report Jeanine Daou, Partner and Middle East Leader for Indirect Taxes and Fiscal Policy said: “The Paying Taxes report helps inform the discussion around tax reform, a topic that is currently extremely relevant in the GCC. Governments will now need to make decisions concerning key elements in the system, including simplification of the compliance requirements through notably electronic filing and payment to ensure a smooth implementation.”

She added that, “A certain level of harmonization of the VAT systems across the GCC will be needed notably to avoid cases of double taxation of intra-GCC transactions and simplify compliance requirements for GCC companies.” 

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