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Qatari legal points to help set up construction firms

By David Silver

With the government committed to spending at least 40 per cent of its current gross domestic product on infrastructure projects and its economy currently in overdrive, Qatar is one of the more attractive jurisdictions in the GCC for construction companies to operate.

To carry on commercial activities in Qatar, entities must be entered in the Commercial Register maintained by the Ministry of Business and Trade. Although the process for registering commercial companies is largely a standard process, particular consents may be required for particular activities. The law relating to registration of a commercial presence in Qatar is the Foreign Capital Investment Law – Law No13 of 2000, as amended (the FCIL). This limits the options for registration of a presence to carry on commercial activities generally to the establishment of a company with limited liability (a "WLL") that is owned not less than 51 per cent by one or more Qatari interests.

Article Three of the FCIL permits the Minister of Business and Trade to approve the registration of a branch of a foreign entity that is engaged to execute a contract in Qatar of sufficient public benefit to justify an exemption. This exception typically applies in the case of a contract for the construction of a project in Qatar that had been tendered for international contractors.

Previously such exemptions were granted for projects sponsored by the government or an entity closely related to the government. However, exemptions have also been obtained for major projects sponsored by the private sector. In circumstances where the main contractor has been granted an exemption, exemptions may be obtained for specialist subcontractors if a letter of support for such application is obtained from the project sponsor.

Registration granted under the exemption arising pursuant to Article Three of the FCIL limits the successful contractor to carrying out only the contract in respect of which the exemption has been granted and is valid only for the term of that contract.

A contractor working in Qatar on the basis of an Article Three registration may bid for, and be awarded, new projects. In such cases, the effect of Article Three is to require the successful bidder to make an entirely new application to register a second branch on the basis of the new award. In practice, if the Minister approves the granting of an exemption in respect of the new contract, the ministry will simply add the new contract to the existing commercial registration of the current branch.

The Ministry of Municipal Affairs and Urban Planning operates a system of categorising construction firms. The process of registering with the Municipality is a complicated system that establishes certain interchangeable criteria including share capital, physical assets and workforce. Each category requires a minimum standard.

Qatari law relating to construction contracts is similar, but not identical, to UAE law. It has a decennial liability for the main contractor that cannot be reduced or waived by contract and has a section of the Civil Code, Law No22 of 2004, that deals with construction contracts that is similar to the equivalent provisions in the UAE Civil Code.

As with most GCC countries, the traditional bugbear of construction companies is the ability to obtain "block" visas for construction personnel. Qatar operates a quota system for particular nationalities. However, the Ministry of Labour has recently reorganised the committee responsible for processing such applications.

The Labour Law, Law No14 of 2004, obligates the contractor to ensure adequate healthcare and certain minimum health and safety standards in respect of its employees. The negotiation of compensation remains a matter between the employee and employer.

The Qatar tax law, Decree Law No11 of 1993 establishes a corporate income tax on the profits of any company derived from contracts performed in Qatar. Tax is levied on the taxable profits based on a "slabbed" scale under which the first QR100,000 (Dh100,998) of taxable profit is exempt and thereafter tax is imposed at a sliding scale beginning at 10 per cent and rising in five per cent slabs up to a maximum rate of 35 per cent on all taxable profit above QR5 million. The good news is that the government has announced an intention to reduce the existing tax rates to a flat rate of 10 per cent early in 2010.

Construction equipment imported permanently into the country will be subject to customs duty unless it's paid under the new GCC Unified Customs Law. Alternatively, equipment may be imported on a temporary basis for a six-month renewable period with the consent of the customs authority.

David Silver is partner at Fulbright & Jaworski. This article is a general commentary on legal affairs and not legal advice. No attorney-client relationship is established by means of this article. The views expressed are his own


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