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Streamlining Compliance with SAP Localization for Qatar Withholding Tax and Payment Retentions.

Khalifa
Product and Topic Expert
Product and Topic Expert
4 weeks ago
283

Compliance with local regulations is crucial for seamless operations in today's global business environment. For businesses operating in Qatar, understanding and adhering to the local requirements for supplier payment retentions and withholding tax (WHT) is essential. SAP’s localization solution for Qatar offers a robust framework to ensure compliance with these regulations, as outlined in Circular No. 2 from 2011.

Understanding the Regulatory Landscape

Qatar’s tax regulations mandate that certain final contract amounts must be retained from payments made to temporary branches. This retention is either 3% of the contract value (excluding the val

ue of supply and work carried out abroad) or the final contractual payment, whichever is higher. The retained amount is held until the temporary branch provides a No Objection Certificate (NOC) from the General Tax Authority (GTA).

SAP Localization Solution for Qatar

SAP’s localization solution for Qatar was developed to help businesses streamline compliance with these regulations efficiently. The solution integrates seamlessly with SAP S/4HANA and SAP S/4HANA Cloud Public Edition, providing automated processes for managing supplier payment retentions and withholding tax.

The solution integrates the specific requirements for supplier payment retentions and withholding tax into the SAP system, ensuring that all necessary checks and validations are performed automatically.

Key Features

    1. Automated Validation:
      • The SAP localization solution automatically checks the company code, tax card, and commercial registration status, ensuring compliance before processing payments.

        To activate the enhanced solution for retention-based validations in SAP S/4HANA using the customizing “Activate Enhanced Localization for Withholding Tax and Retention for Qatar” (view V_FIAPQAC_AP_MIG). Learn more about the activation of enhanced solution at this link.
        To activate retention-based validations in SAP S/4HANA Cloud, use “Activate Validations for Withholding Tax and Payment Retention Liability” (SSCUI ID: 105883).
        The activation blocks excess payments to suppliers.
        Maintain unique payment block reasons with “Check Payment Block Reason” (SSCUI ID: 101040).
        For automatic payments, map these reasons using “Specify Payment Blocks for Validation Categories” (SSCUI ID: 104350).

         

    2. Retention Logic:
      • The solution includes the latest QA retention logic, ensuring that payments are withheld appropriately based on the supplier's compliance status.
      • The solution automatically calculates the retention amount based on the contract value and the specific criteria outlined in the regulations.
      • Before processing payments, the solution checks for the presence of a valid NOC from the GTA. If the NOC is not available, the payment is retained.

  1. Withholding Tax Calculation:
    • The solution ensures that withholding tax is applied correctly based on the supplier’s residency status, registration status, contract duration, and the necessary certificates as required by law.

  2. Error Handling and Warnings:
    • The system raises appropriate warnings and errors if any compliance issues are detected with the supplier’s tax card or commercial registration, preventing non-compliant payments from being processed.

Ensuring Smooth Operations

By leveraging SAP’s localization solution, businesses can ensure compliance with Qatar’s regulatory requirements, minimizing the risk of penalties and operational disruptions. The solution's automated processes and comprehensive checks streamline the management of supplier payments and withholding tax, allowing businesses to focus on their core operations.

Supplier Payment Retentions and Withholding Tax

Supplier payment retentions and withholding tax are standard practices to ensure that suppliers fulfill their contractual obligations. In Qatar, the process involves several key steps and checks:

  1. Payment Initiation: The process begins with initiating a payment in the SAP system.

  2. Company Code Validation: The system checks if the payment is associated with a Qatar company code.
    • If not, the payment proceeds without additional checks.
    • If yes, the system proceeds to the next step.

  3. Retention Logic Activation: The system verifies if the new retention logic is active.
    • If not, the old retention solution is applied.
    • If yes, the system continues with the new logic.
      Khalifa_2-1731326842091.png
  4. QFC Certificate Validation: The system checks for a valid QFC (Qatar Financial Centre) certificate.
    • If valid, the process continues.
    • If not, the old retention solution is applied.

  5. Residency, Tax Card Checks, and Commercial Registration: The system verifies the supplier's residency status and the availability of a tax card. Payments cannot be made to suppliers with expired commercial registrations or a tax card that was not presented.
    • Use the country-specific tab in the Maintain Business Partner app master to manage the Supplier's Tax Card and Residency status. Learn more about Qatar's Tax Card at this link.
      Khalifa_1-1731327228736.png
    • Use the country-specific tab in the Maintain Business Partner app master to manage the Supplier's Certificates and residency status. Learn more about the Supplier Certificate at this link.
      Khalifa_2-1731327887727.png
Retention Scenarios for non-resident suppliers:

A non-resident supplier has a non-permanent branch linked to a specific period or project at least one year

Non-resident Non-Permanent Branch =1.png

  • Retain all payments under the contract until a tax card is presented. 
  • Retain the final payment or 3% of the contract value (whichever is higher) until a valid NOC from the GTA is presented.

Khalifa_1-1731322353049.png

A non-resident supplier has a permanent branch registered in the Commercial Register.

Non-resident Permanent Branch =1.png

  • Retain the final payment under the contract until a tax card is presented.

Khalifa_2-1731322617026.png

Retention Scenarios for Resident Suppliers:

A resident supplier does not have a tax card

Resident Permanent Establishment.png

  • Retain the final payment under the contract until a tax card is presented.

 

Withholding Tax (WHT):

Withholding tax is crucial to Qatar's tax system, particularly for non-resident suppliers. The key points include:

  1. Liability: Suppliers must ensure their tax cards and valid commercial registrations to avoid payment disruptions.
      • The Withholding tax applies to payments made to non-resident suppliers who are not registered in the Commercial Register or are registered for short-term activity contracts for less than a year.
      • The withholding tax is also applicable if the commercial registration of a non-resident supplier has expired.
      • The automatic determination of Withholding Tax for services is based on Material Group Classification as local, foreign, or exempt. For local services, it uses the configuration step Specify Service Origin and Withholding Tax Codes for Material Groups. Khalifa_0-1731320122828.png

        To activate the enhanced solution for retention-based validations in SAP S/4HANA using the customizing “Specift Service Origin and Withholding Tax Codes for Material Groups” (view FIWTQAV_MGC). Learn more about the activation of enhanced solution at this link.
        To activate retention-based validations in SAP S/4HANA Cloud, use “Specift Service Origin and Withholding Tax Codes for Material Groups” (SSCUI ID: 104295).
        Withholding tax only applies to local services. When multiple codes exist in the supplier master data, a single tax code is selected for purchase order-based and supplier invoices.
        Khalifa_3-1731324528141.png

        The supplier is subject to a couple of withholding taxes related to two services.


        Khalifa_4-1731325270192.png

        Only one Withholding Tax code has been captured based on the Material Group Classification assigned



  2. Statutory Reports and Supplier Certificates: SAP Document and Reporting Compliance enables you to process and monitor the statutory reports for the use of your businesses with operations in Qatar. It comprises functions designed for laws and business practices. As a result, your business stays compliant with local legal obligations in Qatar for the following statutory reports:
    • Withholding Tax Declaration report.
    • The Withholding Tax Certificate is a correspondence form that generates all withholding tax certificates for foreign suppliers based on withholding tax transactions from the Withholding Tax Declaration report.

Conclusion

Compliance with local regulations is a critical aspect of doing business in Qatar. SAP’s localization solution for Qatar offers a comprehensive framework to efficiently manage supplier payment retentions and withholding tax. By automating key processes and ensuring rigorous compliance checks, the solution helps businesses easily navigate the complexities of Qatar’s regulatory landscape.

Useful Links

  • Learn more about the enhanced solution for Qatar Withholding Tax and Payment Retention at this link.
  • Learn more about the withholding tax statutory reports available for Qatar at this link.
  • Learn more about the old solution in SAP S/4HANA at this link.

 

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