Rules for foreign investment: A look at the legal environment and the framework for investment

The Foreign Investment Law regulates the investment of foreign capital in economic activities. It applies to non-Qatari nationals who wish to undertake business in the country. In most sectors of the Qatari economy, foreign investors are allowed to carry out businesses provided that they have a Qatari partner with a share of at least 51% of the company’s equity. As a result of this provision, foreign investors’ share shall in principle not exceed 49% of the company’s capital. To avoid doubt, the Qatari partner, often referred to as a sponsor in the public domain, could be either a Qatari individual or a Qatari company. Article 3 of Law No. 5 of 2002 (Company’s Law) specifies that every company established in the country is considered to be a Qatari national. Therefore, a company registered in Qatar may also act as the sponsoring partner in the establishment of a new entity, even if this sponsoring partner is partially owned by a foreign individual or entity.

Exceptions

Notwithstanding the limit of 49% set out for foreign ownership, exceptions can be made in certain industries where the government has an interest in encouraging foreign investment. Therefore, subject to the approval of the minister of economy and commerce, foreign investors are allowed to have an equity stake ranging from 49% to 100% in specified sectors, including consultancy services, IT, distribution services, agriculture, manufacturing, health, education, tourism, and the exploitation and development of natural resources, energy or mining. The determination of the percentage of foreign ownership is generally left to the ministry in charge of the relevant sector.

Special Provisions

The Ministry of Business and Trade may grant privileges with respect to foreign investments, although they will be granted on the condition that the relevant projects are in line with the government’s development objectives.

Some provisions of the Foreign Investment Law are not enforceable vis-a-vis nationals of the GCC. A number of Qatari laws (for example, Law No. 6, 1988;

Law No. 9, 1988; and Law No. 3, 1992), as well as regional economic integration treaties, govern the rights of GCC nationals to carry out specified activities in Qatar under the same conditions as Qatari nationals. At this stage, GCC nationals can only own up to 100% of a company in two sectors: contracting and transportation.

Alternative Options For Registration

The alternative options for registration of a foreign enterprise include the following.

Qatar Financial Centre (QFC): The QFC is an alternative offered to foreign investors who wish to own 100% of a company’s capital. It was established in 2005 under Law No. 7 and is operated by a commercial authority, the QFC Authority (QFCA), and the QFC Regulatory Authority (QFCRA), which is the independent regulatory authority that has powers to authorise, supervise and discipline QFC firms and individuals. Entities within the QFC are permitted 100% ownership by foreigners, and can remit all profits and capital outside Qatar.

The QFC law provides a range of activities, referred to as permitted activities, which can be conducted either in or from the QFC. Permitted activities are divided into non-regulated and regulated activities. Non-regulated activities are services that support financial services provided by accounting, audit and law firms, which do not require extensive supervision.

Regulated activities include financial services such as banking, insurance or securities, which, unlike the non-regulated activities, require close and continuing supervision and a pre-authorisation by the QFCRA.

Permitted activities can only be conducted in the QFC provided the establishment of a legal presence in the QFC by incorporating a company or partnership, or by registering a branch of a non-QFC entity.

Qatar Science & Technology Park (QSTP)

The QSTP is a free zone established in 2004 under Law No. 36, and it aims to attract technology-based companies from around the world and to promote the advancement of technology. As a free zone, the QSTP provides a large number of benefits for foreign investors wishing to establish a company in the QSTP. For example, foreign ownership is allowed up to 100% of QSTP companies’ capital, investors may trade in Qatar with no requirement to go through a local agent, QSTP-licensed entities are exempted from tax and can import goods and services free of any value-added tax (VAT), and the lease of QSTP premises is highly subsidised. Entities that wish to be incorporated or registered in QSTP must be mainly engaged in technology activities.

Projects that are particularly encouraged are those that collaborate with universities and research institutes in Qatar and that are aiming for technology, development and commercial trading.

Legal Presence In Qatar

Entrepreneurs wishing to carry out business in Qatar can establish a legal presence there by incorporating a local company, establishing a branch office, opening a representative office or entering into a commercial agency relationship.

Incorporating A Local Company

Apart from the companies incorporated or registered under the QFC law or in the QSTP, the majority of corporate entities in Qatar are established at the Ministry of Business and Trade in conformity with the provisions of the Commercial Companies’ Law. Starting a business in Qatar under the Companies’ Law requires an investor to:

• Identify a Qatari partner to hold 51% of the corporate capital (on behalf of foreign investors);

• Obtain the name and activity approval for the company;

• Elect a domicile for the company’s activities by renting commercial office space;

• Open a bank account with the minimum required amount of capital;

• Draft the company’s articles of association;

• Prepare the required documentation for registration before the Chamber of Commerce;

• Prepare the needed documentation and make the necessary follow-up for the registration of the company before the Ministry of Business and Trade;

• Prepare the relevant documentation to obtain the immigration card for the company; and

• Prepare the needed documentation for obtaining the licence from the appropriate municipality.

Types Of Legal Entities & Structures

There are several types of different legal entities and structures available in Qatar, including a single person company, a limited liability company (LLC), a joint stock company (JSC), a holding company, a branch office, a representative office and a commercial agency relationship. Single Person Company: A single person company is a company formed by a sole shareholder at a minimum capital of QR200,000 ($54,780). Limited Liability Company: An LLC is the legal entity most commonly used by foreign and local investors in Qatar. It is formed by a minimum of two shareholders and a maximum of 50. An LLC is launched with a minimum capital of QR200,000 ($54,780), divided into equal value shares, with the value of each set at no less than QR10 ($2.74), and with the liability of the shareholders limited to the value of their shares in the capital. The allowed activity range for an LLC is quite wide, although investment banking and insurance activities are not allowed. Local participation in an LLC shall not be less than 51% of the capital unless full foreign ownership is allowed for the categories provided for in the Foreign Investment Law of 2000 and its amendments. LLCs shall submit an annual tax return and are liable to pay an income tax of 10% on the profits generated in Qatar. Joint Stock Company: The incorporation of a public or private JSC is subject to the authorisation by decree of the Ministry of Business and Trade, and this decree shall be published in the official gazette. The public JSC requires a minimum capital of QR10m ($2.74m), whereas the capital of a private joint stock company shall be a minimum of QR2m ($547,800). Such companies shall be formed amongst at least five shareholders whose liability is limited to their shareholdings.

Public joint stock companies are public shareholding companies open to the public subscription, whilst the private joint stock companies are closed to public shareholding. Foreign investors may participate in the public shareholding companies provided that foreign subscription does not exceed 25% of the capital, unless the signed articles of association duly approved by the Council of Ministers provide a higher limit for the foreign ownership. Holding Company: A holding company is an entity that must be a shareholding company or a limited liability company, and which has financial and management control of other companies by owning at least 51% of the controlling shares of such companies. A holding company requires a minimum capital of QR10m ($2.74). Branch Office: A foreign firm can conduct business in Qatar by opening a branch office if the company is awarded a specific contract that “would facilitate the performance of a public service or utility”. Stringent requirements are applicable to opening a branch office, especially in light of the fact that a Qatari partner is not necessary.

Branch offices must be licensed by the Ministry of Business and Trade and cannot conduct activities other than those for the specific purpose of completing the government contract. Therefore, a branch office cannot be established to be used for business dealings with the private sector. Branch offices are fully taxable, unless a special exemption has been granted under the Foreign Investment Law. Representative Office: A foreign company that only wishes to be introduced to Qatari companies and projects without conducting a business in Qatar can open a representative office.

The purpose of a representative office is to promote the foreign company’s brand in Qatar. A representative office is not allowed to sell or enter into contracts in Qatar and contracts entered into by a representative office can only be performed by the foreign company if the contracts are performed outside Qatar. If the foreign company wants the performance to take place in Qatar, the foreign company would need to open a branch office or an alternative company structure. Commercial Agency Relationship: A commercial agency allows a foreign entity to sell goods and products in the territory of Qatar without any physical presence in the country. The commercial agent must be a wholly Qatari-owned entity or a Qatari individual. Commercial agency relationships in Qatar are governed by the Commercial Agencies Law (Law No. 8, 2002). The agency relationship is to be registered before the Ministry of Business and Trade.

Registered commercial agents are granted various protections under the Commercial Agencies Law. To name but a few, registered commercial agents have an exclusive right to distribute and sell the products or services specified in the agency agreement, and they are also entitled to a specific commission on the sales made within the specified territory. The agent can also claim compensation from his principal in the event of termination of the agency agreement should the principal elect not to renew the agreement while the agent believes his activities have brought substantial success in promoting the products of the principals.

Labour Law

Qatar Labour Law No. 14 of 2004 governs the employment of the majority of individuals who are currently working in Qatar. This law also regulates the entry, as well as the sponsorship and residency of foreigners in Qatar. Qatar’s Labour Law grants priority for employment to Qatari citizens, who may register with the ministry for potential job placements.

As for foreigners, the law requires the employer to obtain permission from the Labour Department at the Ministry of Labour before their recruitment for work in Qatar. As is the case in most Gulf countries, it is important to note that employers in Qatar may hire foreign employees under a sponsorship system, or what is commonly known as kafala, which in Qatar forbids foreign employees to seek other jobs in the country without their employer’s prior approval. Without a release letter, the employee is required to leave the country for a minimum of two years before being able to return to work for another employer in Qatar. The law principally limits working hours for all employees to 48 hours per week (36 hours during the month of Ramadan) and requires the employer to pay the employee for any additional worked hours at the rate of the basic wage and an addition of not less than 25% thereof. The employee is also entitled to a paid annual leave and a paid leave on public holidays such as Eid Al Fitr (three working days), Eid Al Adha (three working days), Independence Day (one day) and Sports Day (the first Tuesday of the second week of every February), which was recently designated as a public holiday in Emiri Decree No. 80 of 2011. The law outlines safety protocols that employers must implement, sets precise rules for the employment of juveniles, and favourable conditions for women’s employment. In the event of an indefinite employment contract, the law provides that any of the parties may terminate the contract without giving reason for such termination, provided that the party who wishes to terminate the employment contract notifies the other party of said decision.

The notification must be given not less than a month from the desired termination date if the employment is five years or less, and not less than two months if it is more than five years. In a contract of a determined duration, the parties may terminate the contract before its term, but only for valid reasons as specified by the law. In the event of an employer-employee dispute, the law states that the parties may seek mediation through the Labour Department and the Labour Relations Department at the Ministry of Labour. If the mediation proves to be unsatisfactory, either party may submit a claim to the Qatar Labour Court.

Property Law

Property law in Qatar had been governed by the general principle set forth in Law No. 5 of 1963, which states that only Qataris are allowed to own real estates in Qatar. In fact, by virtue of Law No. 17 of 2004 regulating the ownership and usufruct of real estate and residential units by non-Qataris, foreign investors may:

• Own freehold properties in three designated areas: The Pearl-Qatar, West Bay Lagoon, and Al Khor Resort for a period of 99 years renewable.

• Own land, buildings and residential units in the abovementioned projects, together with the right to dispose of, or exploit, those interests in accordance with the applicable laws, as provided for in Cabinet Resolution No. 20 of 2004. As for GCC nationals, they are permitted the same rights as other foreign individuals and are given additional privileges. They may own real estate properties in additional investment areas, namely, Lusail, Al Khuraj and Thaayleb Mountain.

Intellectual Property Law

Qatar is a signatory to a large number of worldwide conventions on intellectual property, including those of the World Trade Organisation. Patents are protected by Decree Law No. 30 of 2006, which provides patent protection for a period of 20 years.

The registration of inventions and foreign patents is carried out at the Qatar Patent Office located in the Ministry of Justice. Furthermore, a GCC patent can be obtained by registering at the Patent Office in Riyadh, Saudi Arabia. Copyrights are protected by Law No. 7 of 2002 on the Protection of Copyright and Neighbouring Rights (the Copyright Law), which repealed its predecessor Law No. 25 of 1995. The Copyright Law provides protection to authors of original literary and artistic works during the life of the author and for 50 years after his or her death, or after the first date of publication for an anonymous or collective work.

Protection applies to original works which include: books, pamphlets and other writings, works delivered orally such as lectures, addresses, sermons, or other works such as poems and hymns, plays, musicals, music, choreographic works and pantomimes, audiovisual works, photographic and similar works, applied art, drawings and paintings, and computer programs.

The protection extends to the works of non-Qataris published first in Qatar or published in another country and then published in Qatar within 30 days of the first publication date, and to works protected by international agreements. Copyrights and neighbouring rights are registered at the Ministry of Justice.

Trademarks are protected by Law No. 9 of 2002 on trademarks, commercial indications, trade names, geographical Indications and industrial designs (the Trademarks Law). The protection period for trademarks is 10 years as of the date of submission of the registration’s request. Such protection can be renewed indefinitely. If a trademark has not been used for five consecutive years, it may be cancelled. Foreigners and Qataris have the same rights under the Trademarks Law, provided that they are nationals of a country that treats Qatar in a reciprocal manner.

Trade secrets are protected by Law No. 5 of 2005 on the Protection of Secrets of Trade (the Trade Secrets Law). Foreigners and Qataris have the same rights under the law, provided that they are nationals of a country that treats Qatar reciprocally.

Choice Of Law & Dispute Resolution

Parties entering into an international contract are free to choose the law and jurisdiction which will govern a contract such as this. If they do not choose an applicable law, the contract will be governed by the Qatari Civil Code Law (No. 22 of 2004).

Further to this, business contracts in Qatar between foreigners and Qataris increasingly select arbitration as the method of dispute resolution. There are two arbitration centres in Qatar: the Qatar International Centre for Arbitration (QICA) in the Chamber of Commerce and Industry, and the QFC Tribunal. The QICA applies the Civil and Commercial Procedure Law (Law No. 13) of 1990, while the QFC applies its own arbitration regulations and procedures.

In relation to foreign arbitration awards, Qatar acceded in 2003 to the UN New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the New York Convention). Consequently, foreign arbitral awards rendered in countries that are party to the New York Convention are enforceable in Qatar in accordance with the provisions of that convention. As for the foreign judgements, Qatari courts will enforce them to the extent that there is reciprocity between the two jurisdictions. THE QATAR INTERNATIONAL COURT & DISPUTE RESOLUTION CENTRE: In addition to the regular national courts, it should also be noted that Qatar currently offers a modern business court. This court adheres to as well as applies international standards in resolving high-end commercial disputes that international businesses demand.

The Qatar International Court and Dispute Resolution Centre (QICDRC) was established in 2009 by Sheikh Hamad bin Khalifa Al Thani. This has represented a step towards the gradual reform of the legal framework of Qatar, with a view to making it more attractive for foreign investments. The QICDRC is not profit-driven and the resolution of disputes before its courts is completed in a quick, economical, fair and private manner. QICDRC has mandatory jurisdiction for disputes relating to firms registered with the QFC, and also has an opt-in global jurisdiction. The QICDRC also offers alternative dispute resolution in the form of arbitration, mediation and adjudication.

Taxation Law

The rules governing taxation and Customs duties are as follows. Companies Taxation: Tax in Qatar is governed by Law Decree No. 21 of 2009, issuing the Income Tax Law. This law repealed Law No. 11 of 1993 and replaced the sliding scale tax rate under the 1993 law with a flat tax at the rate of 10%. According to the 2009 Income Tax Law, any business activity carried out in Qatar is subject to corporate income tax. Tax applies on the companies’ profits and income sourced in Qatar for each previous taxable year commencing on January 1 and ending on December 31.

Pursuant to the provisions of the 2009 law, taxable income includes income arising from activities carried out in Qatar, contracts wholly or partly performed in Qatar, shares in resident companies in Qatar or listed on the Qatar Exchange, services supplied to head offices, branches or associated companies, interest on loans obtained in Qatar, income arising from the exploration, drilling or exploitation of natural resources, and taxable income under double taxation treaties. Notwithstanding the taxation of the companies’ profits and income sourced in Qatar, tax shall be imposed on bank interest and returns, commissions due under agency, and brokerage or commercial representation agreements realised outside Qatar, provided that they derive from activities in connection with the activities carried on inside Qatar. The new applicable tax rate under the 2009 tax law is a flat rate of 10%; however, business activities of companies owned in full by Qatari nationals are exempted from this tax. In fact, Article 4 of the income tax law, provides exemption from tax, inter alia, on the gross income of Qatari natural persons resident in the State of Qatar, including their shares in the profits of legal persons and the gross income of legal entities wholly owned by Qatari nationals. Where specific agreements have been concluded between the Qatar government and foreign companies in the oil sector and for the development of natural wealth and resources, the tax rate specified in the agreement would apply, provided that it is not less than 35%. A new withholding tax regime on payments made to non-residents has been established under the 2009 tax law, as follows: 5% of the gross amount of royalties and technical fees, and 7% of the gross amount of interest, commissions, brokerage fees, director’s fees, attendance fees and any other payments for services carried out wholly or partly in Qatar. Some countries have treaties with Qatar, examples of which include France, Russia, China, Switzerland and the UK, to avoid double taxation. Personal taxation: There are no personal taxes, social insurance, or other statutory deductions from salaries and wages paid in Qatar. Custom duties: The GCC has a Customs union whereby the duty is 5% on most items imported into GCC countries. Once in Qatar, products may be exported to other GCC countries freely without further duties.

Exemption from Custom duties can be obtained on the importation of the equipment and machinery relating to a specific project as well as on the importation of raw materials and semi-manufactured products necessary to the production and which are not available in the domestic markets.