Rules of the game: Legislation for operating a business

In its Public Information Notice No. 12/7, the International Monetary Fund noted that Qatar’s GDP growth rate is projected to be approximately 6% in 2012, half of which is related to hydrocarbons sales. In line with its effort to lessen its reliance on the oil and gas sector, it is estimated that government investment in large-scale infrastructure projects will sustain continuing growth at between 9% and 10% in the non-hydrocarbons sector beyond 2012.

On the ground in Qatar, the anticipated growth suggested above appears to be a conservative forecast. Since winning the bid for the 2022 FIFA World Cup in December 2010, infrastructure planning and development has kicked into overdrive, with almost weekly announcements of new mega-projects in addition to those already under way.

Qatar’s emphasis on its infrastructure has yielded several interesting legal developments, including a new focus on occupational health, safety and environment (HSE), and a risk-centric consideration of the way in which business is conducted in the construction sector as a result of the implementation of the UK Bribery Act 2010 (see analysis). These developments, combined with other significant pieces of legislation, support Qatar’s objective of maintaining transparency whilst simultaneously enhancing the investment appeal for foreign firms coming into the country.

LEGAL STRUCTURE: For those not already familiar with its legal system, Qatar is a civil code jurisdiction (unlike, for example, the UK, which is a common law jurisdiction). The legal system and its key laws are modelled on those of Egypt, which, in turn, are modelled on the Napoleonic Code of France.

As is the case in most civil jurisdictions, courts in Qatar do not rely on a formal system of precedent, and since 2010 there has been no formal reporting of court decisions. This can potentially lead to an increased level of unpredictability in litigious matters, which may affect business operations.

With the exception of the rules and regulations of the Qatar Financial Centre (QFC), laws in Qatar take the form of Emiri decrees. These laws are supplemented by implementing or executive regulations.

All Qatari laws (save for those issued by the QFC to regulate its own business) are issued in Arabic and there are no official translations. Therefore for the purposes of drafting this article we have used our own in-house translation and interpreted the same in the context of Qatari regulation and current market practice. This article aims to provide an overview of the following topics:

• Set-up options for foreigners wishing to do business in Qatar; and

• A brief explanation of some of the laws affecting business operations in Qatar.

SET-UP OPTIONS FOR FOREIGN BUSINESSES: Foreigners (personal or corporate) wishing to conduct business in Qatar outside the QFC are subject to certain legal restrictions imposed on non-Qatari parties (the foreign party). Primarily, but not exclusively, those restrictions are found in the Foreign Investment Law (No. 13 of 2000) and regulations issued under it – as well as the amendment to that law contained in (Law No. 1 of 2010) – the Proxy Law No. 25 of 2004, the Commercial Companies Law (No. 5 of 2002) and Ministerial Decision No. 142 of 2006 regarding the Organising of Commercial Representative Offices and the Commercial Agencies Law (No. 8 of 2002).

Considered collectively, these laws prohibit a foreign party from conducting business in Qatar unless they do so by way of certain approved vehicles. While various vehicles are, in theory, available, in reality the most appropriate and commonly used vehicle for foreign businesses is the incorporation of a limited liability company (LLC) in conjunction with a Qatari party (the local party).

Other possible vehicles for foreign business operations in Qatar include registration of a branch office, a commercial representative office, a commercial agency arrangement, establishment in the QFC or in the Qatar Science and Technology Park (QSTP). These options are summarised below.

INCORPORATION OF AN LLC: The most notable aspects of incorporating an LLC are as follows:

• A local party is generally required – they can be Qatari national/s or wholly owned Qatari company/ies. The local party will generally own a minimum of 51% of the shares in the new LLC.

• The foreign party can own 49% of the shares (but a higher percentage may be permitted).

• Minimum share capital is usually QR200,000 ($55,000).

• The foreign party’s share of profits will be taxable.

• Where agreed by the shareholding parties, the management of the LLC can mostly be conducted by the foreign party.

• Similarly, where agreed to by the shareholding parties, the profits of the LLC can be split in proportions that are different to the shareholding proportions and which reflect the different degrees of participation that the respective shareholders have in the management and operation of the LLC.

• Restrictions or prohibitions may apply to certain activities e.g. banking, insurance, commercial agency or engineering (engineering is the subject of a separate and highly regulated regime under Law No. 19 of 2005 and its by-laws and regulations). Establishing an LLC generally takes around four to six weeks once all the necessary paperwork is prepared and translated into Arabic.

A foreign party has the option to apply to the Minister of Business and Trade for an exemption allowing them to own up to 100% of shares in companies involved in certain sectors. These include:

• Agriculture;

• Industry;

• Health;

• Education;

• Tourism;

• Development and utilisation of natural resources;

• Energy and mining;

• Information technology;

• Consulting and technical services;

• Cultural, sports and recreational services; and

• Distribution services. Such exemptions, however, are at the discretion of the minister and historically have not regularly been given.

One other corporate set-up option available in limited circumstances is the creation of an “Article 68 Company” (this is a reference to Article 68 of the Commercial Companies Law No. 5 of 2002). Article 68 companies are joint venture arrangements owned partly by the government or a public authority in partnership with a foreign party.

REGISTRATION OF A BRANCH OFFICE: A foreign party wishing to operate in Qatar may be able to open a temporary branch office if its presence in Qatar is required to perform a specific contract that relates to a project which facilitates the performance of a public service or utility.

Generally speaking, if a foreign party has a contract with a Qatari governmental or quasi-governmental entity, this is likely to be regarded as being a contract that facilitates the performance of a public service or utility. Subcontracts relating to that type of contract usually also entitle a foreign sub-contractor to open a branch office.

One feature of a branch office is that the involvement of a local partner is not required (compare this to the LLC option above). A disadvantage is that the foreign party registered as a branch is only entitled to perform the contract in respect of which it is registered – this means that a branch registration will not be suitable for foreign parties wishing to conduct business pursuant to various contracts, with varying parties, in Qatar. Companies registered as branches will generally be taxable.

COMMERCIAL REPRESENTATIVE OFFICE: A commercial representative office (CRO) may be an option when a foreign party wishes only to market products and services in Qatar – essentially a “shop window” operation.

A CRO of a foreign company is not allowed to conduct business in Qatar, e.g. provide goods or services in Qatar. A CRO is, however, permitted to make contacts with the public and private sector in Qatar in order to establish commercial relationships. A foreign company wishing to establish a CRO in Qatar must apply for permission to do so from the minister of business and trade.

COMMERCIAL AGENCY AGREEMENTS: Foreign businesses wishing to make direct sales in Qatar without establishing an LLC, branch or other formalised business presence may be able to do so through an agency arrangement. If an agreement is registered at the Agents’ Registry at the Ministry of Business and Trade (or is characterised by the relevant authorities as a commercial agency arrangement), then Commercial Agencies Law (No. 8 of 2002) will apply. If the agreement is not registered then the Commercial Law No. 27 of 2006 will apply. These laws allow for the appointment of a local commercial agent to market goods and services in Qatar with commission being paid to the agent. The agent must be a Qatari national or a company wholly owned by Qatari nationals.

While this option has some obvious advantages – no need for a local partner, no need to set up a legal presence – it also has several significant disadvantages. Once appointed, it can be very difficult to terminate an agency relationship and, if termination occurs, the law requires the principal to pay the agent significant amounts in compensation. Additionally, it can also be difficult for the principal to set up an LLC or an alternative formalised legal presence once an agency relationship is in place.

Agency arrangements involving a foreign principal also need to be carefully considered to ensure they do not breach the Foreign Investment Law.

QATAR FINANCIAL CENTRE: Established in 2005, the QFC is designed to attract international financial institutions and multinational corporations to establish business operations in a “best-in-class” international environment. Firms operating within the QFC must be licensed by the QFC Authority (QFCA) and those wishing to undertake financial services will also require authorisation from the QFC Regulatory Authority (QFCRA). Interested companies will additionally need to establish a legal presence by way of incorporation and be registered at the QFC Companies’ Registration Office.

Financial services that may be conducted from the QFC (with appropriate QFCRA authorisation) include all types of banking, insurance (including reinsurance and captives), financial advisory services, asset management, securities and derivatives dealing, and Islamic finance. As part of its strategic initiative, the QFC has sought to develop into a business centre for reinsurance, captive insurance and management, and asset management.

The QFC has also implemented its own tax regime applicable to those entities licensed within its jurisdiction. Ministerial Resolution No. 13 of 2010 promulgating the QFC Tax Regulations effectively ended the tax holiday originally provided in Decree No. 7 of 2005 (as amended) establishing the QFC.

The tax regulations have been designed to introduce a straightforward and streamlined tax system for companies in the QFC, thereby facilitating the transition into a taxable environment.

The QFC has already attracted many of the world’s top-rated banks, asset managers, insurance companies, accountancy and legal firms. Advantages of establishment in the QFC include:

• Principle-based legislation of international standards modelled closely on those found in London and other financial centres;

• 100% foreign ownership is permitted; and

• A low corporate tax rate on business profits of 10%. In May 2012 the QFC Civil and Commercial Court became the new Qatar International Court and Dispute Resolution Centre, which more accurately reflects the international jurisdiction and range of dispute resolution services offered by the centre. In addition to adjudicating disputes, other services offered by the centre include the following:

• Arbitration;

• Mediation;

• Early neutral evaluation; and

• Fast-track construction scheme.

QATAR SCIENCE & TECHNOLOGY PARK: QSTP, part of the highly successful Qatar Foundation, offers a legal and business free zone environment to both foreign and local technology-based companies and start-up enterprises.

In order to set up in the QSTP, a company’s main activity must relate to the advancement of technology. This reflects the QSTP’s primary purpose of spurring research and development in Qatar rather than providing a business centre facility. For companies able to set up in the QSTP, it offers a number of advantages, including 100% foreign ownership.

The information above in relation to setting up business operations in Qatar is a general overview only. In all cases, legal advice specific to the proposed new business operations should be obtained to ensure there is compliance with the applicable laws.

KEY LAWS AFFECTING BUSINESS OPERATIONS: undefined This section makes reference to some of the laws (outside of the QFC framework) that businesses operating in Qatar may encounter.

Note, however, that this is a selection of laws only and a much broader set of laws will apply to local business operations and such laws will need to be considered on a case-by-case basis.

EMPLOYMENT LAW: The majority of (but not all) employer/employee relationships in Qatar are regulated by the Labour Law No. 14 of 2004 and the ministerial resolutions issued pursuant to it ( together the Labour Law).

The Labour Law imposes a highly regulated regime on the employer/employee relationship and affords numerous protections and minimum entitlements to employees including provisions relating to:

• Health and safety;

• Non-discrimination;

• Women’s rights;

• Limits on working hours;

• Payment for overtime worked;

• End-of-services benefits;

• Provision of annual and sick leave; and

• Compensation for work injuries. Priority in employment must be given to Qatari nationals, but non-Qataris can be employed where no qualified Qatari worker is available. Employment contracts must be written in Arabic and be registered with the Labour Department. Recent reports suggest that the historical “sponsorship” system will be abandoned in favour of a contractually defined employment relationship. However, such a change is likely to take time, and there is no indication when, or if, a new system will indeed be implemented.

COMPETITION LAW: Anti-competitive business practices are prohibited by Law No. 19 of 2006 (the Competition Law). This legislation prohibits a range of anti-competitive practices that are also banned by equivalent legislation in Western jurisdictions. Enforcement of the Competition Law is delegated to a committee, which was established in May 2008.

This law does not apply to governmental acts or any acts of any entity controlled or supervised by the state. This effectively limits the applicability of the law to the private sector and it will not apply to existing monopolies controlled by the government, such as Mowasalat (which has a monopoly on taxis and buses in Qatar for 20 years from 2004) and Qatar Fuel (WOQOD, which has a monopoly on the sale and distribution of fuel and other petroleum products in Qatar for 15 years from 2003).

CONSUMER PROTECTION LAW: Consumer Protection Law No. (8) of 2008 gives consumers a wide range of rights in relation to the safety and quality of commodities purchased and to correct information about commodities and services. The law also makes it mandatory for suppliers of defective commodities to refund consumers, provide a replacement or repair the damage at no charge to the consumer. Pursuant to an amendment in 2011 the fines applicable in the law may be up to QR1m ($274,600) and shops operating in contravention to the law may be closed for up to three months.

E-COMMERCE LAW: The e-Commerce Law No. 16 of 2010 was drafted and proposed by the Supreme Council of Information and Communications Technology (ictQATAR), the country’s information and communications regulator, which supervises the telecommunications and information technology sectors. The law applies to parties which agree to conduct transactions using electronic communications and gives legal effect to a contract formed by means of such electronic communications.

Reflecting broadly the models adopted by the European Union and United Nations, the country’s e-Commerce Law introduces internationally recognised standards to electronic transactions in Qatar and addresses matters such as e-signatures, e-documents and document authentication.

INTELLECTUAL PROPERTY RIGHTS: Trademarks are currently protected in Qatar by Law No. 9 of 2002 (the Trademarks Law). The GCC Supreme Council, in December 2006, approved a Unified Trademarks Law to harmonise the protection of trademark rights throughout the GCC. The proposed law will not introduce a single regional trademark registration system; it aims to implement consistent terms of protection between the various GCC offices.

Qatar has issued domestic legislation to give effect to the GCC Supreme Council’s law (Law No. 18 of 2007) promulgating the GCC Trademarks Law. However, the legislation will not come into force until implementing regulations are drafted. In the interim, the 2002 Trademarks Law remains effective. Once registered, trademarks are valid for 10 years and are renewable perpetually thereafter.

Law No. 7 of 2002 (the Copyright Law) deals with the protection of copyright and related rights.

At present there is no direct patent registration system in Qatar. This stands out among the other GCC states, all of which offer direct registration. Patent protection is presently extended through applications filed with the GCC Patent Office, which provides for registration of patent rights throughout all GCC countries. Implementing legislation in Qatar is contained in the Patents Law (No. 30 of 2006). A standard granted GCC patent is effective for 20 years.

Administration of the trademarks, copyright and patents laws is carried out by the Commercial Affairs Department of the Ministry of Business and Trade. Specific offices established for these purposes are the Trademarks Office, the Office for the Protection of Copyright and Neighbouring Rights, and the Patents and Innovation Section.

These offices perform a licensing function and also receive complaints from persons concerned that their intellectual property rights have been infringed. Complaints are assessed by the respective offices and legal action can be taken by either the authorities or the complainant. Some matters, such as an infringement of a trademark, can be referred to the police.

IMMIGRATION LAW: The Immigration law (Law No. 4 of 2009) was issued in 2009. The law repealed a number of existing Qatari laws pertaining to immigration and introduced some additional provisions. This one law (and any subsidiary legislation issued under it) now sets out the rules under which expatriates may enter, exit, work and reside in Qatar.

The ministry responsible for the application of the law is the Ministry of Interior and the main agencies of administration are the Immigration and Labour Departments. Given the high number of expatriates living in Qatar, this law has generated much interest and discussion.

Visas may not be granted to an expatriate where he or she has previously been sponsored unless more than two years has elapsed or his or her last sponsor of residence provides a letter of no objection.

PROPERTY LAW: Ownership of land by non-Qataris, both individuals and companies, is restricted. Non-Qatari investors can access land for projects via long-term leases. Leases can be obtained for periods of up to 50 years, which may be renewed.

Additionally, Law No. 17 of 2004 permits non-Qataris to own freehold property in three developments in the country (West Bay, The Pearl and Al Khor). Furthermore, leasehold property (usufruct rights) is available in a further 18 regions.

TAX LAW : Another law which generated – and continues to generate – much controversy and discussion when it was enacted is Law No. 21 of 2009, Qatar’s Tax Law. This legislation had been eagerly anticipated by the foreign business community in Qatar as it reduces the top tax rate from 35% to 10% effective from January 1, 2010 for foreigners doing business in Qatar.

This legislative change has made the country a more attractive corporate destination given the reduced tax rate applicable to foreign businesses in Qatar. We note, however, there are exceptions to this – for example, the law retains a 35% (or higher) tax rate for the oil and gas sector.

Additionally, the 2009 Tax Law also introduced a withholding tax that applies in the context of certain payments to non-residents that do not have a permanent presence in Qatar. The amount required to be withheld will be either 5% or 7% depending on the nature of the services being offered in Qatar.

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The Report: Qatar 2012

Legal Framework chapter from The Report: Qatar 2012

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