Economy

The Law of the Land

Legal

Qatar gained its independence in 1971, and is one of the most prosperous countries in the world with the fastest growing economy in the Gulf Cooperation Council (GCC). It is […]

Qatar gained its independence in 1971, and is one of the most prosperous countries in the world with the fastest growing economy in the Gulf Cooperation Council (GCC). It is also one of the top 10 wealthiest countries with a GDP growth rate of 2.80%. Qatar’s wealth is largely derived from the production of oil and natural gas. However, the Qatari government is making concerted efforts to diversify its economy by encouraging increased private and foreign investment in non-energy sectors such as financial services, health, education, sport, and business-related tourism. Consequently, the non-oil and gas sector contributed 48.3% of Qatar’s nominal GDP in 2010 compared with 39.6% in 2003.

As a member of the World Trade Organization (WTO) and other international financial bodies, Qatar offers investors a mature and sophisticated banking environment.
More recently, Qatar has distinguished itself from other GCC nations by focusing on hosting sporting events in the region such as the 2006 Asian Games, the 2010 IAAF World Indoor Championships, and the 2011 AFC Asian Cup. In 2010, Qatar won the right to host the 2022 FIFA World Cup, which will necessitate major infrastructure works.

Setting Up Business in Qatar

An understanding of the regulations that govern foreign investments is a key starting point for those seeking to do business in Qatar. Law No. 13 of 2000 (“The Foreign Investment Law“) and the amendment to it in 2010 (Law No.1 of 2010) stipulate that foreign investment can be made in most sectors in Qatar provided that a legal presence is registered in Qatar. If that legal presence is a company, at least 51% of its shares must be owned by a Qatari Partner (i.e. a Qatari national or a Qatar company wholly owned by a Qatari national).
Role of the Ministry of Economy and Commerce
Under Article 2(1) of the foreign investment law, foreign investors are allowed to contribute to a company’s capital with maximum of 49%. However, it provides the Ministry of Economy and Commerce with the ability to authorize foreign investors to own 100% of a company’s capital if:
• The entity operates in the agriculture industry, healthcare, education industry, tourism, IT, technical consultations, cultural, sport and entertainment services, distribution services, exploitation and development of natural resources, energy or mining sectors; and
• The project is compatible with Qatar’s development plan.
Such authorization is given on a case-by-case basis and according to the discretion of the Minister covering the relevant sector of the business.
New Commercial Companies Law No. 11 of 2015 (New Companies Law)
On June 16, 2015, His Highness Sheikh Tamim Bin Hamad Al-Thani issued the new Commercial Companies Law No. 11 of 2015 (New Companies Law), which took effect on August 6, 2015. The New Companies Law repeals Law No. 5 of 2002, and the most significant amendment under the new law is that no more minimum capital is required to establish a Limited Liability Company (LLC)—a major attraction for foreign investors, as a Limited Liability Company (LLC) can be established quickly and the liability of its shareholders is generally limited to the amount of share capital that they have committed.
Available Options for Foreign Investors
Foreign investors can conduct a business through a legal presence in Qatar such as:
1. Incorporating a local entity under Law No. (5) of 2002 (the Commercial Companies Law);
2. Incorporating or registering with the QFC;
3. Incorporating or registering in the Qatar Science and Technology Park (the QSTP)
4. Obtaining a license for a temporary branch
5. Representative Trade Office (RTO);
6. Appointing a commercial agent;
7. Appointing a distributor; or
8. Appointing a commercial representative.
9. International Engineering Consultancy Office (IECO)
10. Unincorporated Joint Venture (UJV)
11. Mergers & Acquisitions

1. Incorporating a local entity under the Commercial Companies Law (Law No.5 of 2002) as amended by Law No.16 of 2006.

Types of Entities
• Limited Liability Company (LLC)
• General Partnership;
• Simple Limited Partnership;
• Limited Partnership with Shares;
• Incorporated Joint Venture
• Joint Stock Company (Public or Private);
• Single-Person Company.

Key differences between some of these entities are as shown in the table below:

The most often set-up business entity by foreign investors is the Limited Liability Company (LLC). The foreign Investment Law requires the participation of one or more Qatari nationals (either- individuals or body corporate) with the foreign shareholding restricted to 49% unless otherwise specifically approved. Approval for a foreign shareholding in excess of 49% is discretionary and is only granted to projects in specific sectors where the applicant demonstrates that the project is strategically significant to Qatar. An LLC is not permitted to engage in the business of insurance, banking, or in the investment of funds.
Establishing an LLC usually takes 4-8 weeks.

2. Incorporating a local entity with the Qatar Financial Centre (QFC)

The QFC is an onshore regime that operates within its own legal, tax and regulatory framework, which is independent of, but runs parallel to the existing framework in the State of Qatar. The QFC has its own Civil and Commercial Courts, as well as an Independent Regulatory Tribunal. The legal framework is modeled closely after the English Common Law and existing major financial centers. QFC-established entities can access the local market, be 100% foreign owned, are subject to no currency restrictions, and can repatriate 100% of their profit. Entities can be based at premises anywhere in Qatar (provided those premises are approved by the QFC). A QFC entity can take various legal forms, including:
• Limited Liability Company (LLC);
• Limited Liability Partnership (LLP);
• Company Limited by Guarantee – LLC (G);
• Branch of a non-QFC company;
• Branch of a non-QFC LLP.

Only entities performing certain limited activities are allowed to operate within the QFC. Permitted activities fall into two broad categories:

• Regulated activities: the Qatar Financial Center Regulatory Authority (QFCRA) authorizes QFC entities to conduct regulated activities from within the QFC. These regulated activities include activities relating to financial services, insurance reinsurance, asset management, funds administration, funds advisory, pension funds, the provision of credit, brokerage services, financial agency, corporate finance advisory and custodian services
• Non-regulated activities: the QFCA may license QFC entities to conduct permitted activities, which are considered non-regulated activities, from within the QFC. These non-regulated activities include ship brokering, ship agency services, classification services, grading services, company administration services, the business of holding companies, the formation, operation and administration of trusts and professional advisory services (including accounting, audit, tax, consulting, and legal services).

The initial step in considering setting up in the QFC is to submit a business case to the QFC Authority Strategic Development Team to determine whether the proposal falls within the QFC’s objectives. Provided an entity is carrying out a permitted QFC activity, the process to set up in the QFC is to either:

• Complete and submit QFC form Q01 ‘Application for a License to Conduct Non-regulated Activities’ to the QFC Regulatory Authority. The completion and submission of this form will also cover the application to the Companies Registration Office (CRO) to establish a legal presence in the QFC by incorporating as an LLC or an LLP, or by registering a branch office; or

• Complete and submit form Q02 ‘Application for Authorization to Conduct Regulated Activities’ to the QFC Regulatory Authority. The entity will be required to provide details including a description of the proposed business, financial information about the firm, and information on the firm’s IT systems. The information provided will be used by the CRO to establish the applicant as an LLC, LLP or a branch office, and will cover the licensing of the applicant to operate in the QFC and the authorization by the Regulatory Authority to conduct Regulated Activities.
The Regulatory Authority aims to process all applications within three months of receipt of the completed form.

3. Incorporating a local entity in the Qatar Science and Technology Park (QSTP).

The Qatar Science and Technology Park (QSTP) was established to provide a home for technology-based companies from around the world and to generate opportunities for Qatar’s scientists and entrepreneurs. The QSTP is a “free zone,“ meaning that QSTP entities are fully exempt from Qatar tax in respect to their licensed activities, can have 100% foreign ownership, and can trade directly in Qatar without a local agent. Another benefit is that the rents of the premises in the QSTP are subsidized. QSTP entities must be physically located in the QSTP and can only perform activities specified in their license. There are three types of licenses:
• Standard license: issued to businesses that incorporate in the free zone as a QSTP LLC or register as a branch office. According to the new commercial law amendments, QSTP LLCs are no more required to maintain a minimum capital of QAR200,000. These incorporated or registered businesses are entitled to all free zone benefits.
• Restricted license: issued to various types of entities that do not qualify for the standard license. This license only provides limited free zone benefits, as designated by QSTP management.
• Service license: issued to entities providing services to QSTP tenants. This license does not provide any free zone benefits

The process to set up in the QSTP and the compliance requirements are as follows:

• Applicants should submit a description of their business and research plans to the QSTP to demonstrate that the majority of their activities will be dedicated to research and development;
• If QSTP grants approval then the applicant can either apply to incorporate or to register as a branch office;
• Applicant applies for a license and completes a lease agreement; and
• Annual financial and activity reports must be submitted to the QSTP.

4. Obtaining a license for a temporary branch

Under Article 3 of the Foreign Investment Law, a foreign company can open a temporary branch office in Qatar if the company is awarded a governmental or quasi-governmental contract. This process requires ministerial approval. In this situation, the Minister of Economy and Commerce can license the foreign company to conduct business in Qatar for the specific purpose of completing the contract. There is a standard application process and, provided the required documents are submitted, ministerial approval will typically take 4-8 weeks to obtain. The license to operate the temporary branch office will expire once the contract is completed although it is possible to apply to add other governmental or quasi-governmental contracts to the branch. This may enable the foreign company to extend the life of the branch; however, ministerial approval is required each time a contract is added to the branch’s commercial registration.

5. Representative Trade Office (RTO)

A ministerial decision in 2006 allowed foreign entities to set up RTOs in Qatar with 100% foreign ownership.
An RTO is an option where a foreign company wishes to only market products and services in Qatar. An RTO is effectively a structure to establish a “shop window“ and it is not allowed to undertake contracted business in Qatar. It is possible for a RTO to employ foreign nationals commensurate with its marketing activities.
An RTO cannot conduct financial transactions in Qatar and its activities are limited to marketing and administrative functions.
A company wishing to establish an RTO must seek permission from the Ministry of Economy & Commerce

6. Appointing a Commercial Agent

If a foreign entity wishes to sell goods or services in Qatar but does not wish to maintain a physical presence in the country, it may enter into a commercial agency relationship with a Qatari national or legal person. A commercial agency contract should specify the products or services covered by the agreement, the territory of the distribution and the duration of the relationship. A commercial agency arrangement may be registered by the agent at the Ministry of Economy and Commerce. Upon registration, the agent receives, among other things, statutory protections relating to exclusivity, commission and termination. An agent in a non-registered agency relationship may also benefit from similar protections to those afforded to registered agents by virtue of certain provisions of the Commercial Companies Law.

7. Appointing a Distributor

A distributor may be appointed by a foreign investor to represent him in distributing and selling certain goods in Qatar. The distribution arrangement must be agreed in writing and include specific details regarding the limit of the distributor’s responsibilities, the fee, the geographical scope of the distribution arrangement, the terms of the relationship, and the use of intellectual property relating to the products that are the subject of the distribution arrangement. The distribution contract between the principal and the distributor must be for a term of no less than five years if the distribution contract requires the distributor to utilize showrooms, storerooms or to provide facilities for the maintenance of the products that are the subject of the distribution. The principal cannot appoint more than one distributor relating to the same product in the same geographic area. Similar to commercial agency arrangements, a distributor has certain protections under the Commercial Companies Law.

8. Appointing a Commercial Representative

A foreign investor may appoint a commercial representative through an employment contract with such person. The commercial representatives perform commercial activities in Qatar on behalf of foreign investors for a fee. Principals are liable for the acts of their commercial representatives provided that the relevant commercial representative acts within the parameters set forth under his or her employment contract.

9. International Engineering Consultancy Office (IECO)

Law No. 19 of the year 2005 specifies the requirements for registration of engineers and the conditions under which different types of engineering consultant offices can be established. An International Engineering Consultancy Office is effectively a 100% foreign-owned branch that is permitted to work on multiple contracts in the engineering sector and that does not have a specified lifespan. As it is therefore a permanent branch, Qatar customers are not required to deduct retentions from payments made to the IECO provided it can present a valid tax card.
Engineering Consultancy is defined in the law as “works involving preparation of architectural, construction, survey and planning drawings, plans and designs, supervision of execution, rendering of advice, conducting of feasibility studies, cost estimation, cost accounting, and management of projects in various engineering professions.“
Law No. 2 of 2014, which applies to licensing of engineers and architects working in Qatar does not change (a) the requirement that a license is mandatory before acting as an engineer/architect or an engineering consultant; (b) the substantive requirements for obtaining a license; or (c) the threat of imprisonment for three years for practicing without a license.

10. Unincorporated Joint Venture (UJV)

A UJV usually involves several parties pooling resources to jointly control and manage a specific project. While there may be business benefits from operating as a UJV, the accounting, legal, and tax consequences of forming a UJV can be complicated and therefore requires careful planning prior to entering into such arrangements.

11. Mergers & Acquisitions

Foreign companies can acquire or invest in an existing Qatar company. Both share and asset purchases are possible in Qatar. Particular factors to bear in mind include:
• The very limited amount of publicly available information and so the need for thorough due diligence.
• The requirement for the participation of one or more Qatari nationals (either individuals or body corporate) with the foreign shareholding restricted to 49% unless otherwise specifically approved.
• Ministerial approval for a direct transfer of shares in a company in Qatar requires a no- objection certificate (“NOC“) from the Qatar tax authority. They may refuse to issue the NOC until a return has been submitted and tax paid in respect of non-resident capital gains arising from the sale.
• The impact of Qatar end of service benefits in the case of asset transfers.

You may also be interested in...

Energy & Mining

Qatar Sustainability

Going Green in the Gulf

View More

Telecoms & IT

Built to Last

The World Cup legacy

View More

Economy

Finding a Bright Side

Emerging stronger from crisis

View More
National,Flag,Of,Qatar,Made,From,Colored,Smoke,Isolated,On

Energy & Mining

Locally Made

Made in Qatar

View More
Deft Diversification

Energy & Mining

Deft Diversification

Diversification

View More
Going Green

Agriculture

Going Green

Sustainable & environmentally friendly economy

View More
Ideal Location

Health & Education

Ideal Location

Qatar’s contribution to global RDI

View More
Well Taken Care of Two

Health & Education

Well Taken Care of Two

The next healthcare hub

View More
View All Articles