Current Double Taxation Treaty between Turkey and Qatar has been signed in the year 2001 and is in force since January 1st of 2009. On the other hand, Turkey and Qatar has signed a new DTA on a date December 12 of 2016. New treaty will take place of the current agreement when whole process completed by each side for the entry into force of new agreement. Turkish side has completed the processes but since Qatar has not completed, new treaty is not in force yet. (*)
I summarize the main differences between new and current treaties as follows.
- Definition of place of residency
While current treaty has a common definition of place of residency for both sides, new treaty defines place of residency for each side separately. In fact, there is no substantial differences between new and current treaty in respect to the definition.
- Permanent Establishment
Current treaty gives taxing right to source country in the case only if an enterprise has fix place of business in the source country. New treaty introduces duration conditions in addition to fix place of business. For source country taxation. According to the new treaty, if the services conducted in the source country more than six-month, source country has the taxing right even if the enterprise does not have fix place of business in the source country. Since it is more probable that Turkish enterprises provide services in Qatar, that change will be benefited mostly by Qatar.
Most important changes in the new treaty is about source country taxation of the dividends. Current treaty gives 10% taxing right of the dividends to the source country in the case of 25% participation rate. New treaty from one side reduces source country taxing right to 5% and from other side reduces participation rates to 20%.
On the other hand, new treaty reduces standard rate of source country taxation on dividend from 15% to 10%.
Since it is expected that direct investment and portfolio investment stream is mostly from Qatar to Turkey, new treaty will be limiting the taxation right of Turkey.
While current treaty does not give taxation right to the source country on interest derived by government and central bank of resident country, new treaty extends that limitation of taxing right of source country on interest derived by an enterprise owned wholly by government of residence country.
- Independent Personal Services
While provision of current treaty regarding taxation of independent personal services is applicable to individual and enterprises, provision of new treaty applies only to individual. Since there are no changes in the content of the said provision, taxation of individual who derives independent personal services income from other country has not been changed. Source country has taxation right only in case if individual has fix place of business in source country.
- Teachers and Researchers
A new provision regarding source country taxation of the income derived by teacher and researchers is introduced. With that, new treaty limits taxation right of source country on income derived by teachers and researchers from teaching and researching activities conducted in the source country.
While there is no protocol provision attached to current treaty, there is one attached to new treaty. Protocol clarifies that in the case of contracts for a building site, constructions or installations, the profits of a PE shall not be determined on the total amount of the contract, but shall be determined only on the basis of that part of contract which is effectively carried out by the PE.
Protocol also clarifies that non-taxation of Qatari nationals under Qatari tax law shall not be regarded as discrimination under the non-discrimination article of the treaty.
- Exchange of Letter
New treaty also has a letter attached to treaty which is exchanged between Ministry of Finances of the Countries. Letter clarifies that the term “wholly owned” used regarding taxation of dividends and interest includes both direct and indirect ownership.
Letter also clarifies that income derived from Islamic Financial İnstruments shall be treated within the scope of provision regarding taxation of interest in the same way as their equivalents in conventional finance.
- Other provisions
New treaty changes some other provision of the current treaty. Since these changes are not make substantial differences, they are not detailed here.
“*According to President Decree published in Official Gazette dated April 19, 2019, treaty between Turkey and Qatar has been entered in to force on the date of December 31, 2018”