Double Tax Avoidance Agreements (DTAA) in Qatar: How They Work ?
Double Tax Avoidance Agreements (DTAAs) are bilateral agreements signed between two nations to avoid taxing the same income in two different countries. These agreements are crucial instruments in developing international relations. It helps promote international trade and investment.
DTAAs provide certainty to the residents that their global income will not be taxed twice and clarity on tax liabilities for cross-border transactions, which will ultimately reduce opportunities for tax evasion. DTAAs generally apply to taxes on income levied by either country, including taxes on total income, capital gains, income from salaries, etc. It helps foster international trade and investment and promotes exchange of information. Qatar has also signed several DTAAs with various countries, including India.
How do DTAAs Work in Qatar?
Like many countries, Qatar has also signed DTAAs with several countries, clearly mentioning how to tax income from salaries, business profits, dividends, interest, royalties, and capital gains.
The working mechanism involves:
- Allocating Taxing Rights: DTAAs specifically mention which country entitled to tax specific types of income. For example, it is mentioned that the employment income will be taxed in the country where the employment is exercised.
- Relief Methods: DTAAs provide relief through two main methods, i.e. the exemption method, wherein one country exempts the income from tax when it is taxed in the other country, and the credit method, wherein the resident country allows a tax credit against its own tax liability.
- Withholding Tax Rates: It is an important element of DTAAs to prescribe reduced withholding tax rates on cross border payments at the source country level. It includes income from dividends, interest, and royalties.
- Obtaining a Tax Residency Certificate: Both individuals and businesses need to obtain a TRC from Qatar to enjoy the DTAA benefits. They also need to maintain supporting documents to claim benefits.
- Claiming benefits: To claim DTAA benefit, individuals and businesses must identify the applicable provision and apply the correct withholding tax rate. They can also use the “pay and reclaim” method by filing a refund in their annual return.
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Recently, the Government of India has notified the revised Double Taxation Avoidance Agreement with the Government of the State of Qatar to align with international standards such as the Base Erosion and Profit Shifting (BEPS) project and introduce anti-abuse provisions. The key changes are hybrid entities, the tie-breaker rule for non-individuals, service Permanent Establishment, deduction of hypothetical payments by a PE, dividends paid to sovereign entities, the definition of interest including Islamic Finance, states eligible for interest exemption, capital gains from indirect transfer of immovable property, and students’ and apprentices’ benefits and entitlement to benefits.
Qatar’s DTAAs are comprehensive agreements to ensure various aspects of double taxation and fiscal evasion are properly addressed. These agreements facilitate smoother economic relations between two countries that encourage cross-border trade and investment.