Written by: TaxDAO
1. Introduction
The State of Qatar (English: The State of Qatar), referred to as Qatar, is located on the Qatar Peninsula on the southwest coast of the Persian Gulf. It is one of the richest countries in the world and has rich oil and natural gas resources. Qatar's financial industry is developing rapidly and is famous for its low tax rates and favorable investment environment. It is becoming another financial center in the Gulf region besides Dubai. At the same time, Qatar's financial industry is strictly regulated, and its legal system is relatively complete to maintain the order of the financial market and protect the interests of investors. The Qatar Financial Center (QFC) has issued a comprehensive digital asset supervision and creation framework, which covers the tokenization process, legal recognition of property rights of tokens and related assets, custody arrangements, transfers and transactions, and provides legal recognition for smart contracts. This article will analyze Qatar's crypto asset-related system from the aspects of Qatar's qualitative characterization of cryptocurrencies, tax policies, regulatory frameworks, etc., and predict its future development trends.
2. Qatar’s characterization of crypto assets
Qatar believes that digital assets, also known as tokens, are digital representations of property rights. When an underlying object is represented by a token, the underlying object is said to be tokenized. QFC believes that crypto assets are substitutes for legal tender or representative currencies, are not issued by any government agency, are digital representations of real or movable property rights (including contractual rights), and can be issued, transferred or stored using distributed ledger technology or other similar technologies. Tokens can be used as a means of payment, but do not represent rights to any property (except the token itself). It also stipulates that stablecoins in crypto assets can be regarded as substitutes for currencies used as a means of payment, and prohibits the tokenization of certain underlying securities (power to prohibit tokenisation of certain underlyings).
3. Qatar’s basic tax policy
3.1 Overview of Qatar’s tax policy
Qatar’s tax system is unique in the global tax system. The country has and implements a dual-system tax management strategy, namely the Qatar National Tax System and the Qatar Financial Center System. Each system operates based on its own exclusive legal and regulatory framework.
The core of Qatar’s national tax system lies in its Income Tax Law, which lays the foundation for tax rules for companies established in Qatar but not registered in the Qatar Financial Center. These companies must follow the supervision and guidance of the Qatar General Tax Authority to ensure tax compliance and timeliness. Qatar’s national tax system, with its stability and universality, provides solid tax support for Qatar’s economic activities.
The legal system of the Qatar Financial Centre is guided by the (Qatar Financial Centre Tax Regulations) and the (Qatar Financial Centre Authority Tax Operation Guidelines), which tailor tax preferential policies and management processes for financial enterprises registered in the Qatar Financial Centre and certain types of non-financial enterprises (covering accounting services, legal services, group financial management and holding companies, etc.). As a professional regulatory agency in this field, the Qatar Financial Centre Tax Administration is responsible for ensuring the accurate implementation and efficient management of tax policies. It is worth noting that enterprises in the Qatar Financial Centre are exempted from the Qatar Income Tax Law and its related regulations, which undoubtedly injects strong impetus into the development of the financial center.
Although there are two tax systems, Qatar’s tax system is generally simple and adopts the territorial principle. The main taxes levied include income tax, withholding tax, customs duties, consumption tax, value-added tax, etc. There is no separate law on personal income tax, but it is included in the (Income Tax Law). The (Income Tax Law) and its related regulations do not apply to the Qatar Financial Center and Qatar Science and Technology Park.
In addition, since the Qatari government has just changed its policy attitude towards crypto assets, Qatar’s supporting system for crypto assets is not perfect, especially in terms of taxation. There are no special crypto asset tax laws and regulations, nor guidance or official explanations on the application of existing tax systems in the field of crypto assets. Therefore, at present, Qatar’s crypto assets are still under the jurisdiction of Qatar’s general tax system, and the relevant tax obligations in the field of crypto assets need to be determined according to the general tax system.
3.2 Income Tax
Whether it is a resident enterprise or a non-resident enterprise, as long as it conducts business activities in Qatar, it shall pay a 10% corporate income tax on the income it generates. Capital gains are incorporated into the corporate taxable income and taxed at a rate of 10%. Among them, a Qatar resident enterprise refers to a legal entity established in accordance with Qatari law, or its headquarters is located in Qatar, or its actual management body is located in Qatar. A non-resident enterprise refers to a legal entity that is not established in Qatar and whose actual management body is not located in Qatar. The tax obligations of non-resident enterprises that have established permanent establishments are the same as those of resident enterprises. Non-resident enterprises that have not established permanent establishments are required to pay a 10% withholding income tax in accordance with regulations. If projects related to the operation of oil and gas and petrochemical operations are carried out in Qatar, the income obtained therefrom shall be subject to a 35% tax rate.
Qatar has not enacted a separate law on personal income tax. All tax regulations on personal income are implemented under the framework of the (Income Tax Law) and its implementing rules. According to Income Tax Law No. 21 of 2009, resident taxpayers generally meet any of the following conditions: individuals who have a permanent residence in Qatar; individuals who reside in Qatar for more than 183 days continuously or non-continuously in any 12-month period; individuals whose main benefits are derived from Qatar. There are no relevant regulations for non-resident taxpayers. Individuals other than Qatari citizens or citizens of the GCC countries who carry out business activities in Qatar will be taxed in accordance with the relevant corporate income tax laws. If they are regarded as non-residents, withholding tax will be withheld at 5% or 7% of Qatar's total income. It is worth noting that Qatar does not levy personal income tax on wages and salaries, but levies personal income tax on business or professional activities, royalties, income from movable and immovable property in Qatar, and capital gains from business operations, that is, business income and family income from sources in Qatar are subject to a 10% personal income tax. Individuals operating a self-employed profession may choose to determine their deductible expenses and costs at 30% of their gross income. Qatari citizens and GCC citizens residing in Qatar are exempt from tax on their income in Qatar.
Regarding the withholding tax regulations in Qatar, if a non-resident enterprise obtains income from Qatar, the Qatar resident enterprise that pays the non-resident enterprise shall withhold withholding tax. If the business activities of the non-resident enterprise in Qatar constitute a permanent establishment, it shall be treated as a resident enterprise and taxed at a rate of 10%. If the business activities of the non-resident enterprise in Qatar do not constitute a permanent establishment, a uniform withholding tax rate of 5% shall apply.
As far as income from crypto assets is concerned, capital gains generated by buying low and selling high for crypto assets, whether individuals or companies, will be subject to a 10% capital gains tax. At the same time, for activities such as mining, if they are identified as commercial activities or professional business activities, mining income is also subject to income tax. However, Qatar does not impose taxes on bequests, so crypto assets received as bequests do not need to be taxed.
3.3 Consumption Tax
Qatar's excise tax system is consistent with the common excise tax system agreed upon by the member states of the Gulf Cooperation Council. It imposes a 100% excise tax on tobacco and tobacco derivatives, a 50% excise tax on carbonated beverages, a 100% excise tax on functional beverages, and a 100% excise tax on other special-purpose goods such as alcohol and pork. Excise tax registration is also required for the import, export and tax warehouse operations involving these goods. In November 2022, the Qatar Ministry of Finance issued regulations on the refund of excise taxes on taxable goods that were not consumed in Qatar under certain circumstances.
In terms of consumption tax, since the tax items of consumption tax are specific and whether crypto assets are commodities has yet to be clarified by the Qatari government, it cannot be considered that crypto assets are subject to consumption tax in Qatar at present.
3.4 Value Added Tax
Qatar did not impose VAT or business tax for a long time, but at the Arab Fiscal Forum (AFF) in February 2016, the Gulf countries reached an agreement on the introduction of VAT at a rate of 5%. In 2017, the Qatari Cabinet approved the draft VAT law and its implementing regulations, and VAT was levied in 2019. At present, Qatar's VAT system is mainly consistent with the GCC Value-Added Tax Framework Agreement. In terms of the scope of taxation, Qatar imposes VAT on the sale of goods and the provision of services, and the place of taxation is generally the place where the sales take place. It should be noted that if the taxpayer's annual taxable income exceeds or is expected to exceed 364,000 riyals (approximately US$100,000), the taxpayer should register for VAT with the Qatar Tax Authority in accordance with the law.
For Qatar, imposing VAT on crypto assets will help ensure tax fairness, curb over-speculative crypto asset transactions, and objectively bring considerable tax revenue to the Qatari government. However, how to obtain and track crypto asset transactions in a timely manner will be a challenge that the Qatari government needs to solve urgently.
4. Qatar’s Crypto Asset Regulatory System
Qatar has a prosperous economy and has always had a modern financial system and a relatively complete regulatory mechanism. The country’s introduction of a series of bills on financial and crypto asset regulation has provided a solid institutional foundation for the crypto industry, especially creating a stable regulatory environment for the development of the crypto industry.
4.1 Financial Services Regulations
The Financial Services Regulations include the powers of regulatory agencies, the scope of regulated activities, authorization requirements and processes, enforcement procedures, complaints and compensation systems, etc. Specifically, the regulations stipulate that regulatory agencies should establish procedures to identify and manage conflicts of interest that their directors, senior officers, employees and agents may face in the performance of their duties to ensure that these persons do not make decisions on matters in which they have significant conflicts of interest, so as to safeguard the independence and fairness of regulatory decisions. In addition, the regulations also emphasize the regular review and supervision of financial institutions, limited liability partnerships and their branches to ensure that they strictly comply with regulatory requirements. The regulations not only regulate and guide financial activities, but also provide a code of conduct for participants in the financial market to ensure the legality and standardization of financial activities. The establishment of financial services regulations is an important part of the tax supervision of the crypto industry in Qatar. While laying a solid foundation for the healthy development of cryptocurrencies and the crypto industry in the future, it also plays a certain reference role in the subsequent financial management order of the crypto industry. In the future, the regulations will better provide a fair and orderly market environment for various entities, and provide a solid legal guarantee for the high-quality development of Qatar's financial industry and the prevention and resolution of major financial risks.
4.2 Digital Asset Regulations in 2024
On September 2, 2024, the Qatar Financial Centre Authority (QFCA) and the Qatar Financial Centre Regulatory Authority (QFCRA) announced the launch of the QFC Digital Asset Framework, which aims to provide a new institutional framework for the creation and regulation of digital assets within the QFC. The Qatar Central Bank has completed the infrastructure for digital currency and plans to test it with local and international banks. The framework establishes the legal and regulatory basis for digital assets, including asset tokenization, legal recognition, and smart contracts. The QFC Digital Asset Framework pursues high standards and is committed to building a secure and transparent digital asset ecosystem in line with international best practices. The QFC Digital Asset Regulatory Framework mainly discusses five parts.
Part 1 Definition of digital assets: Digital assets (also called tokens) are digital representations of property rights (called subject matter). When a subject matter is represented by a token, the subject matter is called tokenized. It covers a variety of forms such as cryptocurrencies, stablecoins, and tokenized securities. This part mainly classifies digital assets according to their uses and risk characteristics, and applies different regulatory requirements to each.
Part II Market Access and Compliance Requirements: For companies that want to operate digital asset businesses in Qatar, the new regulations set out clear market access conditions. These include but are not limited to obtaining an operating license issued by the central bank, meeting anti-money laundering (AML) and know your customer (KYC) requirements, and providing transparent business operation reports. It also involves some important content such as Token Service Provider (TSP) 1, Token Service 2, etc. These compliance requirements are aimed at preventing illegal activities and protecting the interests of investors.
Part III Technical Standards and Security Assurances: In order to ensure the security of digital asset transactions, the new regulations also put forward clear requirements for technical standards. Including security requirements for blockchain networks, data privacy protection measures, risk management mechanisms, etc. These technical standards will help improve the overall security and trust of the digital asset market.
Part 4 Consumer Protection and Education: The Qatar Central Bank will also strengthen investor protection measures, require digital asset service providers to disclose relevant risks, and develop emergency response mechanisms. At the same time, the central bank will also carry out investor education activities to enhance the public’s knowledge and risk awareness of digital assets and minimize the public’s losses caused by insufficient understanding.
Part 5 International Cooperation and Standardization: In view of the global nature of digital assets, the Qatar Central Bank stated that it will strengthen cooperation with other countries and international organizations to jointly formulate and promote international standards in the field of digital assets. This move will help enhance the international competitiveness and influence of Qatar’s digital asset market.
5. Summary and Outlook
From a total ban to the establishment of a regulatory framework, Qatar's attitude towards crypto assets has changed from absolute resistance to active embrace. At the same time, Qatar's crypto asset tax compliance issues will inevitably receive more and more attention. The Qatari government once banned the trading of crypto assets, indicating that it has a deep understanding of the potential risks of crypto assets. This risk awareness continues in the digital asset regulatory framework. The publication of this framework will establish a more detailed tax and regulatory framework for crypto assets and related transactions, thereby promoting financial innovation while protecting financial security and tax security, and effectively combating money laundering and terrorist financing.
Abdulaziz Nasser Al-Emadi, acting CEO of the Qatar Stock Exchange, once said in an interview that Qatar’s goal is to create a financial and capital market that demonstrates innovation, efficiency and investor protection to unleash Qatar’s full economic potential. Qatar regards the development of the capital market as one of the four pillars of the “National Vision 2030”, in order to lead regional innovation and efficiency improvement and promote national development by increasing liquidity. We believe that in the future, Qatar will further improve the laws and regulations on crypto assets. This is not only an inevitable move to adapt to the global financial technology trend, but also can strengthen Qatar’s supervision of this field to ensure the stability of financial order and market order.
References
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