After a decade spent languishing in the shadow of Dubai and Bahrain, Qatar’s business community is emerging into what many observers predict will be a golden age.
Much of this is down to the Qatari government and its regulatory bodies, which have tightened legislation and insisted upon international best practice standards across a wide range of sectors. Added to that is international confidence in the long-term profitability of investment in Qatar: huge hydrocarbon revenues will ensure significant government spending, which will in turn filter into the pockets of the private sector.
There are currently three main options for foreign companies that wish to establish a presence in Qatar without operating from a free-trade zone: a Local Joint Venture Company, a Branch of a Foreign Company, and a Commercial Agency.
With a Local Joint Venture Company, the unit must be majority-owned by a Qatari partner. With a minimum 51% stake, that partner will in theory control the company and take 51% of any profits, although in practice this is not always necessarily the case.
While some Qatari partners may be hands-on and look to play an active role in the direction and running of the venture, others are hands-off and rely more on their influence in the local business community, to add value to the company. A ministerial exemption to the 49% limit on foreign ownership may be granted in the case of investment in certain areas including agriculture, manufacturing, health, education, tourism, development of natural resources, mining and utilities.
In order to open a Branch of a Foreign Company, a foreign firm which is making a significant investment in Qatar may appeal to establish a business entity by ministerial decree; this is common practice with foreign firms working on the development of public services or utilities. The company must first be authorised by the Ministry of Economy and Commerce, and the company will usually operate only for the duration of a specific project or venture, before it is wound up.
Finally, foreign firms may approach Qatari companies with the aim of establishing a Commercial Agency, under which a local firm is appointed as an agent to market goods and services within the state of Qatar.
The foreign company does not therefore establish a direct presence in Qatar; this has become common practice in the retail industry across the wider GCC, not just in Qatar. Agents operate under the regulations of the Qatar Agency Law, while the establishment of companies is controlled by the Qatar Commercial Companies Law.
Citizens of the other five GGC countries – Bahrain, Kuwait, Qatar, Saudi Arabia and the UAE – are exempt from the application of Qatar’s foreign investment laws, and as such may take up to a 50% stake in a company (the other 50% must still be held by a Qatari), as well as own freehold land in three designated zones within Qatar.
Foreign companies may also establish their operations through a free-trade zone, a practice that has proved popular across the GCC region, and helped to bolster the big-name credentials of markets such as Dubai and Bahrain.
In 2006 a cabinet resolution established the country’s first ‘free zone’ near Doha International Airport. It was authorised to host companies operating in a wide range of fields: small and medium clean industries, medical industries, maritime industries and high-end industries, electricity and desalination plants, telecommunication and data technical industries, service providers, accounting, auditing, tax, legal and consulting firms, financial and investment consulting, media, entertainment and tourism businesses and cargo, transit and storage businesses.
Development of the free zone is still proceeding, however, and has since been overshadowed by the creation of Qatar’s first free zone to attract foreign companies to conduct applied research and development. The zone, which includes the
(QSTP), allows businesses to be established that are 100% foreign owned, and free from tax and duties. Those companies are permitted to trade without a local agent, can sponsor their own employees, and have the choice of operating as a branch of an overseas company, or incorporating a new local company. They are also unrestricted in terms of the repatriation of capital and profits.
In return, companies at QSTP are required to make technology development their main activity, whether through research, the development and testing of new products and services, or technology-related training. To that end, Qatar has spent some $600m on building world-class offices and laboratories specifically designed for technology-based companies; firms can lease premises, or commission their own buildings for design and build by QSTP.
The Qatar Financial Centre (QFC), meanwhile, was established in 2005 and is a legal and business environment structured to attract international financial institutions and firms that provide professional services to the financial sector. As well as the QFC Authority, which is responsible for leading the expansion of Qatar’s financial services sector and for developing relationships with the regional and global financial community, the QFC also includes the QFC Regulatory Authority (QFCRA), and an independent judiciary comprising a Civil and Commercial Court, and a Regulatory Tribunal.
Although the QFC is neither an offshore centre nor a free zone, it has modelled its legislation largely on standards used in London and other major financial centres. It has its own immigration and employment laws, which means that all such arrangements are handled by the QFC. As of January 2010, the QFC announced it would levy a tax rate on business profits of 10%, with profits generally to be based on accounts, whether prepared under International Financial Reporting Standards or other appropriate Generally Accepted Accounting Principles.
To operate in or from the QFC, firms must be registered by the QFC Companies Registration Office, licensed by the QFC Authority, and in the case of regulated activities, authorised by the QFCRA. However, in order to simplify the registration procedure firms need only make one submission to the QFCRA. According to QFC regulations, the applicant must demonstrate its ability to comply with QFC standards and requirements, as well as provide evidence of a strategic fix with QFC’s objectives. The QFCRA is permitted by law to take action against firms which do not comply with applicable laws and regulations.
In the manufacturing sector, meanwhile, both foreign and domestic firms should benefit from the recent establishment of the Qatar Authority for the Development of Small and Medium Scale Projects. The new agency, which is an autonomous body, will promote, finance and monitor small and medium-sized enterprises (SMEs), as well as formulate a national strategy to develop SMEs in co-ordination with other state bodies.
Its launch was preceded by the establishment last year of a $550m initiative labelled Enterprise Qatar, which is aimed at providing finance, training and consultancy services to entrepreneurs looking to establish their own SMEs.
As part of this programme, students, existing SME owners, entrepreneurs and members of the local business community were invited to attend working groups to identify key priorities. There were requests for increased opportunities through greater access to finance for SMEs, especially for start-ups, and through different financial product offerings and services, both debt- and equity-based, and for more comprehensive training courses, as well as information and assistance in franchising, finance, land acquirement and legal and regulatory needs.
Tuesday, May 24- 2011 @ 10:45 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.