Qatar is exempting non-Qatari investors from paying taxes on their share of profits in the joint stock companies listed on the Qatar Exchange , a move that is ought to augur well not only for those overseas investors but also for the domestic entities.
The country, which is keen to attract more foreign capital into the market, is also extending the benefits of tax exemptions enjoyed by stocks to other investment instruments.
At a recent Cabinet meeting, presided over by Deputy Prime Minister and Minister of State for Cabinet Affairs HE Ahmed bin Abdullah al-Mahmoud, an approval was accorded to a draft law amending some provisions of the Law No 20 of 2008.
The move also comes on the backdrop of a recent report by the World Bank, International Finance Corporation and PriceWaterhouseCoopers, which ranked Qatar second in the world for its "less demanding" tax system.
The share of non-Qatari investors in the profits of some Qatari holding companies, whose shares have been put in Qatar Security Market ( Qatar Exchange ), shall be exempted from income tax law, according to Article I of the original Law No 20 of 2008.
"The move is certainly beneficial. From the amendment, we are to believe that the exemption will now be extended to all companies listed rather than only holding companies as per the original law," one of the sources told Gulf Times.
On January 1, 2010 a new tax law came into effect, imposing a flat 10% rate for all non-Qatari companies and foreign partners in Qatari companies, except for the energy sector where there is at least a 35% tax, unless exempted by Emiri decree.
The recent amendment is aimed at encouraging the foreign capital to invest into the Qatari market .
"It is certainly a win-win situation for both foreign investors and domestic companies," they said, adding the amendment has twin benefits apart from bringing in more clarity.
The domestic firms will not have to incur taxes on account of non-Qatari shareholders; which would in turn further enhance "distributable profits", a source said.
The non-Qatari shareholders would now have clarity and certainty regarding their status on taxes on profits from their holdings.
"Clarity on tax regime is as important as certainty in regulations and macroeconomic fundamentals for attracting foreign capital," he said.
The amendment also clarified that there would be no capital gains tax (i.e. tax on profits realised from the trading of securities, including units of investment funds listed for trading on the stock exchange).
The move appears to be beneficial considering the Qatar Exchange is now actively engaged in expanding the investment portfolio, which includes exchange traded funds. Moreover, efforts are on to allow domestic non-government entities to tap the debt market.
The mutual fund law (Law No 25/2002) allows expatriates to invest indirectly in the stock market.
Now that the government has gone one step forward, it will also be worthwhile to ponder over raising the cap on foreign holding limits in the listed companies, a move that could possibly upgrade the Qatari bourse's to "emerging" market from the current "frontier" status, a financial analyst said.
Qatar bank loans to grow
Qatar may see greater demand for credit with the country's banking sector estimated to see a growth in loan disbursement of up to 15% this year on the back of improved liquidity, a recent study shows. Liquidity conditions have "materially improved" with the current loan-to-deposit (LDR) ratio at 107% compared with a 2012 high of 124% recorded in April, QNB Financial Services said in its latest report. But it expects the net interest margin (NIM) to remain under "some pressure" throughout 2013.