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Qatar Double Tax Agreement - Layman Version

This document outlines the key provisions of the Agreement between the Government of the Republic of South Africa and the Government of the State of Qatar for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income. This Agreement aims to prevent individuals and businesses from being taxed twice on the same income by both South Africa and Qatar, and to promote economic relations between the two countries. It officially entered into force on 2 December 2015.

 

Please note: This information is derived directly from the provided excerpts of the Agreement. While it simplifies complex legal language, it is not a substitute for professional tax or legal advice, and its application depends on individual circumstances. You may want to independently verify any information for your specific situation.

 

Key Aspects of the South Africa-Qatar Double Taxation Agreement

 

Purpose of the Agreement

    • Avoids Double Taxation: Prevents the same income from being taxed by both South Africa and Qatar.
    • Prevents Fiscal Evasion: Helps combat tax dodging.
    • Strengthens Economic Ties: Promotes economic relations between the two countries.
    • Entry into Force: The Agreement became effective on 2 December 2015.

Who and What is Covered?

    • Persons Covered: The Agreement applies to persons who are residents of either South Africa or Qatar, or both.
    • Taxes Covered: It applies to taxes on income. This includes taxes on total income or specific elements of income, such as gains from selling movable or immovable property.
      • In Qatar, it covers “taxes on income” (referred to as “Qatari tax”).
      • In South Africa, it covers specific taxes, including:
        • Normal tax
        • Withholding tax on royalties
        • Dividends tax
        • Withholding tax on interest
        • Tax on foreign entertainers and sportspersons (These are collectively referred to as “South African tax”).
        • The Agreement also covers any identical or substantially similar taxes that either country imposes after the Agreement was signed, replacing or adding to the existing taxes. The tax authorities of both countries will inform each other of any major changes to their tax laws.

Understanding Key Terms

    • Contracting State: Refers to either Qatar or South Africa.
    • Competent Authority: This is the official body responsible for tax matters in each country:
      • In Qatar: The Minister of Finance or an authorised representative.
      • In South Africa: The Commissioner for the South African Revenue Service (SARS) or an authorised representative.
    • Person: Includes an individual, a company, and any other group of people treated as an entity for tax purposes.
    • Tax: Means either Qatari tax or South African tax, depending on the context.
    • Business: Includes professional services and other independent activities.
    • Company: Any body corporate or legal entity treated as such for tax purposes.
    • Enterprise: Refers to carrying on any business.
    • International Traffic: Transport by ship or aircraft managed from one of the Contracting States, unless it’s solely within the other State.
    • National: Any individual with the nationality of a Contracting State, or any legal person/association deriving its status from the laws of a Contracting State.

Determining Tax Residency (Article 4) – Crucial for Individuals

    • This Article defines who is considered a “resident” for the purposes of the Agreement, which determines where they are primarily taxed.
      • Resident of a Contracting State:
    • For Qatar: An individual with a permanent home, centre of vital interest, or habitual abode in Qatar, or a company with its place of effective management in Qatar. It also includes the State of Qatar itself and its local authorities/political subdivisions.
    • For South Africa: Any person liable to tax in South Africa due to their domicile, residence, place of management, or similar criteria. It also includes South Africa and its political subdivisions/local authorities. However, it does not include persons liable to tax in South Africa only for income from South African sources.
      • Resolving Dual Residency (Tie-Breaker Rules for Individuals): If an individual is considered a resident of both countries under the above rules, their status is determined as follows:
    • Permanent Home: They are a resident of the State where they have a permanent home available to them.
    • Centre of Vital Interests: If they have a permanent home in both, they are a resident of the State where their personal and economic relations are closer (their “centre of vital interests”).
    • Habitual Abode: If the above doesn’t resolve it, or they have no permanent home in either, they are a resident of the State where they have an habitual abode (where they spend more time).
    • Nationality: If they have an habitual abode in both or neither, they are a resident of the State of which they are a national.
    • Mutual Agreement: If they are a national of both or neither, the tax authorities of both countries will settle the question by mutual agreement.
      • Resolving Dual Residency (for Non-Individuals like Companies): If a person other than an individual (e.g., a company) is a resident of both countries, it is considered a resident solely of the State where its place of effective management is situated.

Permanent Establishment (Article 5) – Important for Businesses

    • A “permanent establishment” is a fixed place through which a business is wholly or partly carried on. This concept is crucial because it determines if a business has a taxable presence in the other country.
      • What is a Permanent Establishment? It generally includes:
        • A place of management, a branch, an office, a factory, a workshop.
        • A mine, oil/gas well, quarry, or any place for natural resource exploration/extraction.
        • A warehouse (if storage facilities are provided to others).
        • A sales outlet, a farm, plantation, or orchard.
        • A building site, construction, assembly, or installation project or related supervisory activity that continues for more than six months.
        • Furnishing services (including consultancy) through employees or other personnel, if these activities continue for the same or a connected project for periods exceeding 183 days in any twelve-month period.
        • Professional services or independent activities by an individual if they continue in a Contracting State for periods exceeding 183 days in any twelve-month period.
      • What is NOT a Permanent Establishment? Activities that are generally considered preparatory or auxiliary in nature are not considered a permanent establishment, such as:
        • Using facilities solely for storage, display, or delivery of goods.
        • Maintaining a stock of goods solely for storage, display, or delivery, or for processing by another enterprise.
        • Maintaining a fixed place of business solely for purchasing goods or collecting information.
        • Maintaining a fixed place of business solely for any other preparatory or auxiliary activity.
        • A combination of the above activities, provided the overall activity is preparatory or auxiliary.
      • Other Scenarios:
        • An enterprise can be deemed to have a permanent establishment if a person (not an independent agent) habitually concludes contracts on its behalf in a Contracting State.
        • An insurance enterprise is deemed to have a permanent establishment if it collects premiums or insures risks in the other State (except for reinsurance) through a non-independent agent.
        • An enterprise is not deemed to have a permanent establishment just because it carries on business through an independent agent (like a broker), provided they act in their ordinary course of business.
        • One company controlling another company (even across states) does not automatically make either company a permanent establishment of the other.

Taxation of Different Income Types

    • Income from Immovable Property (Article 6): Income a resident of one State earns from immovable property (like land, buildings, farms) in the other State may be taxed in that other State. This includes income from direct use, letting, or any other form of use.
    • Business Profits (Article 7): Generally, an enterprise’s profits are taxable only in its home State. However, if the enterprise carries on business through a permanent establishment in the other State, then profits attributable to that permanent establishment may be taxed in the other State. Expenses incurred for the permanent establishment (including executive and administrative expenses) are deductible.
    • Shipping and Air Transport (Article 8): Profits from operating ships or aircraft in international traffic are taxable only in the State where the enterprise’s place of effective management is situated. This also applies to profits from renting ships/aircraft used in international traffic (on a bare boat basis) if incidental, and profits from using/renting containers for international transport.
    • Associated Enterprises (Article 9): If two related companies (e.g., one controls the other, or common management/control) have commercial or financial relations that differ from what independent companies would agree to, then any profits that would have accrued without those differing conditions can be included in the profits of the enterprise and taxed accordingly. If one State adjusts profits, the other State may make an appropriate adjustment to the tax charged.

Dividends (Article 10):

    • Dividends paid by a company resident in one State to a resident of the other State may be taxed in that other State.
    • They may also be taxed in the State where the company paying the dividends is resident, but with limits if the beneficial owner is a resident of the other State:
    • 5% of the gross amount if the beneficial owner is a company (not a partnership) holding at least 10% of the paying company’s capital.
    • 10% of the gross amount in all other cases.
    • Dividends are exempt from tax in the company’s resident State if paid to the other Contracting State or its local authority/political subdivision/statutory body.
    • The term “dividends” refers to income from shares or other profit-sharing rights, and income treated similarly to share income under the laws of the distributing company’s resident State.
    • Anti-abuse rule: The provisions of this Article will not apply if the main purpose of creating or assigning the shares was to take advantage of this Article.
    • Special Protocol: Exemptions in this Article for government bodies apply to Qatar Investment Authority, Qatar Holding, and their subsidiaries as long as they are wholly owned by the State of Qatar.

Interest (Article 11):

    • Interest arising in one State and paid to a resident of the other State may be taxed in that other State.
    • It may also be taxed in the State where it arises, but with a limit of 10% of the gross amount if the beneficial owner is a resident of the other State.
    • Exemptions: Interest arising in a Contracting State is exempt from tax in that State if:
        • The payer is the Government of that State or a political subdivision/local authority.
        • The interest is paid to the Government of the other State or a political subdivision/local authority.
        • The interest is paid by the Central Bank of either Contracting State.
        • The interest is paid to an institution or body wholly owned, directly or indirectly, by the other Contracting State or its political subdivision/local authority.
        • The interest is in respect of a debt instrument listed on a recognised stock exchange.
    • Recognised Stock Exchanges: This specifically includes the Johannesburg Stock Exchange in South Africa and the Qatar Exchange in Qatar, or any other agreed upon by the competent authorities.
    • The term “interest” includes income from all kinds of debt-claims (e.g., government securities, bonds, debentures), but not penalty charges for late payment.
    • Anti-abuse rule: The provisions will not apply if the main purpose of creating or assigning the debt-claim was to take advantage of this Article.
    • Special Protocol: Exemptions in this Article for government bodies apply to Qatar Investment Authority, Qatar Holding, and their subsidiaries as long as they are wholly owned by the State of Qatar.

Royalties (Article 12):

    • Royalties arising in one State and paid to a resident of the other State may be taxed in that other State.
    • They may also be taxed in the State where they arise, but with a limit of 5% of the gross amount if the beneficial owner is a resident of the other State.
    • “Royalties” means payments for the use of or right to use intellectual property (like copyrights, patents, trademarks, secret formulas, or information on industrial/commercial/scientific experience).
    • Anti-abuse rule: The provisions will not apply if the main purpose of creating or assigning the rights was to take advantage of this Article.

Capital Gains (Article 13):

    • Gains from selling immovable property in the other State may be taxed in that other State.
    • Gains from selling movable property that is part of a permanent establishment’s business property in the other State may be taxed in that other State.
    • Gains from selling ships or aircraft used in international traffic or related movable property are taxable only in the State where the enterprise’s place of effective management is situated.
    • Gains from selling shares of a company whose property consists mainly of immovable property in a State may be taxed in that State (unless the property is used for industrial/manufacturing activity).
    • Gains from selling any other property are taxable only in the State where the seller is a resident.

Income from Employment (Article 14) – Key for South Africans Working Abroad:

    • Generally, salaries and wages earned by a resident of one State are taxable only in that State, unless the employment is exercised in the other State. If exercised in the other State, the income may be taxed in that other State.
    • 183-Day Rule (Exemption): However, remuneration derived by a resident of one State for employment in the other State is taxable ONLY in the first-mentioned State (the home country) if ALL these conditions are met:
        • The recipient is present in the other State for a period(s) not exceeding 183 days in any twelve-month period.
        • The remuneration is paid by, or on behalf of, an employer who is NOT a resident of the other State.
        • The remuneration is NOT borne by a permanent establishment the employer has in the other State.
    • Special Rules for Transport Employees: Remuneration for employment aboard a ship or aircraft operated in international traffic is taxable only in the State where the enterprise’s effective management is situated.
    • Special Rule for Air Transport Employees Stationed Abroad: Salaries/wages received by an employee of an air transport enterprise of one State who is stationed in the other State are taxable ONLY in the first-mentioned State for four years (from the date they first perform duties), provided the employee is not a national or resident of that other State immediately prior to commencing employment there.
    • Directors’ Fees (Article 15): Fees and similar payments received by a resident of one State as a board member or top-level manager of a company resident in the other State may be taxed in that other State.
    • Entertainers and Sportspersons (Article 16): Income earned by entertainers (theatre, film, radio, TV artistes, musicians) or sportspersons from their personal activities in the other State may be taxed in that other State. This also applies if the income accrues to another person. However, such income is exempt from tax in the other State if the visit is mainly supported by public funds of the home State or takes place under a cultural agreement.
    • Pensions and Annuities (Article 17): Pensions and similar remuneration, and annuities, arising in one State and paid to a resident of the other State, may be taxed in the first-mentioned State.

Government Service (Article 18):

    • Salaries (not pensions) paid by a Contracting State (or its subdivisions/authorities) for services rendered to that State are taxable only in that State.
    • However, if the services are rendered in the other State and the individual is a resident and national of that other State, or became a resident for reasons other than solely for rendering the services, then the salary is taxable only in that other State.
    • Pensions paid by a Contracting State for services rendered to that State are taxable only in that State.
    • However, such pensions are taxable only in the other Contracting State if the individual is a resident of, and a national of, that State.
    • If the government services are related to a business carried on by the government, then the rules for regular employment, directors’ fees, entertainers/sportspersons, and pensions/annuities (Articles 14, 15, 16, 17) apply instead.
    • Students, Apprentices, and Business Trainees (Article 19): Students, apprentices, or business trainees present in one State solely for education or training, who were residents of the other State immediately before, are exempt from tax in the first-mentioned State on payments received from outside that State for their maintenance, education, or training.
    • Other Income (Article 20): Income of a resident of a Contracting State that is not covered by any other Article in the Agreement is generally taxable only in that resident’s State. However, if this “other income” arises in the other Contracting State, it may also be taxed in that other State. If such income is connected to a permanent establishment in the other State, the business profits rules (Article 7) apply.

How Double Taxation is Eliminated (Article 21)

    • Both Qatar and South Africa use a method to ensure that income taxed in one country is not taxed again in the other.
      • In Qatar: If a resident of Qatar earns income taxable in South Africa under this Agreement, Qatar will allow a deduction from its tax equal to the South African tax paid. This deduction cannot exceed the part of Qatari tax attributable to the South African income.
      • In South Africa: South Africa will deduct the Qatari tax paid by its residents on income taxable in Qatar from the South African taxes due. This deduction is subject to South African law regarding foreign tax deductions and cannot exceed the proportion of South African tax payable that the foreign income bears to total income.

Non-Discrimination (Article 22)

    • This Article ensures fair tax treatment.
      • Nationals: Nationals of one State should not be subjected to more burdensome taxation or related requirements in the other State than nationals of that other State in similar circumstances. This also applies to non-residents.
      • Permanent Establishments: A permanent establishment of an enterprise from one State in the other State should not be less favorably taxed than enterprises of that other State carrying on the same activities. However, this doesn’t oblige a State to grant personal allowances or reductions for civil status/family responsibilities that it grants to its own residents.
      • Deductibility of Payments: Interest, royalties, and other disbursements paid by an enterprise of one State to a resident of the other State are deductible under the same conditions as if paid to a resident of the first-mentioned State (unless specific anti-abuse rules apply).
      • Enterprises Owned by Residents of Other State: Enterprises of one State that are wholly or partly owned/controlled by residents of the other State should not face more burdensome taxation or requirements than other similar enterprises in the first-mentioned State.
      • Qatari Nationals: The fact that Qatari nationals are not taxed under Qatari tax law is not considered discrimination under this Article.
      • Scope: This Article applies to taxes of every kind and description.

Resolving Disputes and Exchanging Information

    • Mutual Agreement Procedure (Article 23): If a person believes they are being taxed contrary to the Agreement, they can present their case to the “competent authority” of their resident State (or national State if it relates to non-discrimination based on nationality). The competent authorities will try to resolve the case by mutual agreement and can consult each other on interpretation or application difficulties. They can communicate directly to reach agreements.
    • Exchange of Information (Article 24): The tax authorities of both countries can exchange information that is foreseeably relevant for carrying out the Agreement or enforcing their domestic tax laws.
    • Confidentiality: Information received must be treated as secret and only disclosed to persons or authorities involved in tax assessment, collection, enforcement, prosecution, or oversight. It can be disclosed in public court proceedings or judicial decisions.
    • Limitations: A State is not obligated to:
    • Carry out administrative measures contrary to its own or the other State’s laws/practices.
    • Supply information not obtainable under its own or the other State’s laws/normal administration.
    • Supply information that would reveal a trade/business/industrial/commercial/professional secret or process, or whose disclosure would be contrary to public policy.
    • Duty to Obtain Information: A requested State must use its information-gathering measures to obtain requested information, even if it doesn’t need it for its own tax purposes. It cannot decline solely because it has no domestic interest in the information.
    • A State cannot decline to supply information solely because it’s held by a bank, financial institution, nominee, or relates to ownership interests in a person.
    • Diplomatic Missions and Consular Posts (Article 25): The Agreement does not affect the fiscal privileges of members of diplomatic missions or consular posts under international law or special agreements.

Termination (Article 27)

    • The Agreement remains in force indefinitely. However, either State can terminate it by giving written notice through diplomatic channels, provided it’s not later than 30 June of any calendar year, starting five years after the year it entered into force.
    • If terminated, the Agreement ceases to apply for taxes withheld at source for amounts paid/credited after the end of the calendar year notice is given, and for other taxes for taxable years beginning after the end of that calendar year.
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