Qatar's Foreign Direct Investment Law Research Paper

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Qatar's Foreign Direct Investment Law

Qatar's Foreign Investment Law

Why is Qatar Attracting Foreign Investors?

Qatar's Foreign Direct Investment

Foreign Investor

How to Apply

Investment Laws

Investment Sectors

Qatar's Investment Environment

Qatar's Foreign Investment Law

With a population of approximately 1.7 million people, Qatar happens to be one of the tiniest states in the Arab Gulf. Although Arabic is the official state language, English remains one of the country's most widely spoken languages (CIA). The country's capital is Doha. Being a constitutional monarchy, it is also important to note that since the 19th century, this Gulf Arab State has been under the leadership of the Al-Thani family.

According to the state's Ministry of Economy and Commerce -- MEC, the country has in the recent past been striving to make economic diversification a reality. In the words of MEC, "although oil is the main contributor and component of the gross domestic product (GDP), Qatar encourages making use of investment opportunities in different sectors, such as petrochemical industries, financial, real estate and industrial sector" (MEC). In an attempt to further spur economic growth, Qatar has also created a business environment conducive for investment -- both to locals and foreign investors. In seeking to evaluate investment in Qatar, this text largely concerns itself with Qatar's foreign direct investment law.

Why is Qatar Attracting Foreign Investors?

Qatar's commitment to the promotion of foreign direct investment has been witnessed on a number of occasions. In addition to an Emir decree that led to the passage of the Foreign Investment Law back in the year 2000, the state has further demonstrated its commitment to foreign participation by setting up a special investment facilitation and promotion unit at the Ministry of Economy and Commerce.

Being a World Trade Organization member, Qatar has also consistently opened up numerous economic sectors to foreign participation by amongst other things creating a conducive environment for foreign investment. The country's business regulations have also been relaxed for the same reason. Some of the incentives the country offers foreign investors include, but they are not limited to, withdrawal of import duty on specified items like machinery, subsidized electricity and gas rates, etc. As a calculated measure to further attract foreign investment, the country also has in place tax free zones that are designed to spur activity particularly within the industrial sector. At the moment, the said zones comprise of both the Qatar Science and Technology Park and the Qatar Financial Sector (MEC).

In what I consider to be a move to further entice foreign investors, the country has also within the last one decade invested heavily in modern telecommunication facilities, excellent educational and medical facilities, etc. Amid all these new developments, the all important question in this case remains; why is Qatar attracting foreign investors?

It should be noted that currently, Qatar's economy happens to be amongst one of the most active in both the North African and Middle East regions. Oil according to the country's Ministry of Commence remains "the main contributor and component of the gross domestic product" (MEC). Given that oil is a depletable resource, the country sees foreign direct investment as a way to develop a private sector that is broad-based. Such a sector will come in handy in the sustenance of decent living standards long after the country's gas and oil reserves run out. It is also important to note that according to its year 2030 National Vision, the country plans to have in place an advanced society capable of maintaining the current development record (Beydoun). To achieve this, Qatar must entice foreign investors.

Qatar's Foreign Direct Investment

Foreign Investor

Various definitions exist for foreign direct investment (FDI). The standard definition of FDI that will be adopted in this text is that offered by the Organization for Economic Cooperation and Development. According to Jones and Wren, a key aspect of the definition of FDI offered by OECD "is that it represents the notion of one enterprise in a particular country having a degree of control over another enterprise in a different country, as opposed to just the provision of financial capital" (8). It is important to note that unlike portfolio investments, FDIs have an element of control. As per the definition given by OCED above, the "degree of control" has not been defined in absolute terms. However, according to Jones and Wren the threshold OCED offers as far as FDIs are concerned is 10%. In the final analysis therefore, for purposes of this particular discussion, foreign investors will constitute those individuals owning a minimum of 10% of ordinary shares or voting stock in the company seeking to make an investment, a venture, or some other economic undertaking.

How to Apply

There are a number of requirements that entities seeking to be incorporated in Qatar must satisfy. According to McNair Chambers, attorneys with extensive experience in international commerce, in addition to obtaining a Memorandum and Articles of Association, an entity wishing to be incorporated must also obtain a letter from a Qatari bank indicating that the paid up capital has been deposited. Further, such an entity must also obtain Commercial Registration and Certificate of Registration from the Ministry of Business and Trade, and Qatar Chamber of Commerce respectively (McNair Chambers). It should also be noted that entities that want to set up operations in this particular country must also satisfy a number of other industry specific conditions. For instance, healthcare institutions must seek (and obtain) the relevant permit from "the Department of Medical Licensing at the Qatar Supreme Council of Health" (Ministry of Business and Trade -- Investment Promotion Department). Additionally, the concerned entity must also seek approval from the country's Investment Promotion Department. As the Ministry of Business and Trade -- Investment Promotion Department further points out, industrial companies must also seek a feasibility study and license from the Department of Industrial Development. Other economic activities for which sector specific requirements must be met include, but they are not limited, to educational institutions, government contracts, tourism, law office, engineering consultancy office, consulting services, and I.T projects (Ministry of Business and Trade -- Investment Promotion Department).

There are some requirements a foreign investor must satisfy to obtain approval to fully own a company. To begin with, According to Hamdan, in addition to applying for approval from the Investment Promotion Department, an investor interested in a 100% ownership stake must furnish the said department with a feasibility study. Exemption in this case as the author points out is given on a case by case basis. The other requirement that ought to be met in this case is that the entity being established should "be new, innovative, creative or a special business idea and shall lead to an enhancement of business in Qatar or create new jobs in Qatar" (Hamdan). The business, as it has been pointed out elsewhere in this text, must also fall into any of the recommended categories. According to Hamdan, it is on the basis of the requirements above that "the Minister of Economy and Trade will either grant a special approval or reject the application."

Investment Laws

Essentially, the law responsible for the regulation of foreign investment capital is the Qatar Investment Law No.13 of 2000. According to the country's Ministry of Foreign Affairs, this particular law was "issued about the organization of the foreign capital investment in the economic activity to determine fields allowed to non-Qataris to operate within" (sic). In that regard therefore, it is in accordance with this particular law that foreigners may directly channel their investments into the country's various economic activities, including but not limited to natural resources exploration and development, tourism, education, agriculture, etc. It should however be noted that since the year 2004, Qatar has formulated new laws in an attempt to create a more conducive business environment. In the past, foreigners were only allowed 100% ownership in two sectors, i.e. The science and technology sector and the finance sector. Approval from the Ministry of Business and Trade was required for full ownership in all the other sectors. The new laws have increased the number of sectors foreigners could invest in with 100% shareholding. However, foreigners seeking to participate in quite a number of other economic activities must not exceed 49% equity shareholding. Foreigners must also not exceed a 25% ownership cap placed for publicly listed firms unless this is explicitly states in the concerned entity's memorandum as well as articles of association (McNair Chambers). Generally, Qatari law places strict restrictions (or bans all together) on foreign ownership of entities in the fields of real estate, insurance, and banking fields (Ministry of Foreign Affairs).

Investment Sectors

In basic terms, as information posted on the country's Ministry of Foreign Affairs Website points out, foreigners are permitted to invest in all sectors, provided that their shareholding does not exceed 49%. Those seeking 100% shareholding could still be permitted to invest in a good number of sectors, save for those requiring special permits or acceptance stamps from the Minister of Business and…[continue]

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