Doing Business in Qatar, a PEST Analysis Approach.
Updated: Feb 21
By Angelos Tsigkopoulos, Publisher, The Decision Maker
Article sponsored by: Luxury Transfers
PEST Analysis as a Market Entry Tool
A PEST (Political, Economic, Socio-Cultural, and Technological) analysis is always necessary before entering a foreign market.
As a general rule, Changes in your organization's business environment might present both substantial opportunities and challenges. Opportunities might come from new technology that enable you connect with new clients, new funding sources that let you spend money on better equipment, and changes in governmental regulations that let you access new markets.
Risks could include deregulation, which exposes you to more intense competition, a contracting market, or an increase in interest rates, which could be problematic for businesses that are heavily indebted.
In order to examine the Political, Economic, Socio-Cultural, and Technological developments in your business environment, you can utilise the straightforward and often used PEST Analysis tool. So that you can take advantage of the opportunities they bring and better grasp the "big picture" causes of change to which you are exposed.
There are four key benefits of PEST analysis:
You can see potential business or personal possibilities and receive early notice of any serious dangers.
In order to adjust what you're doing to work with the change rather than against it, it displays the direction of change within your corporate environment.
To prevent beginning projects that are likely to fail, you can also employ to analyse hazards in your surroundings.
As a result, when you enter a new nation, area, or market, you may base your business decisions on actual information rather than uninformed assumptions.
Many firms will start operating in Qatar for the first time in 2023, and those that already have operations there will want to take advantage of the increased foreign investment. Although this is an attractive opportunity, foreign enterprises might not be aware with Qatar's legal requirements. In this post, we outline 10 factors to take into account when conducting business in Qatar.
1. Withholding tax
Any taxpayer who is not a Qatari resident but is listed in the Qatar Commercial Register is subject to withholding tax. Any activity completed in full or in part in Qatar that is unrelated to a permanent establishment in the country is subject to a 5% fee.
Qataris who pay money to non-residents must withhold tax from that payment. Qatari enterprises often request the ability to deduct any appropriate withholding taxes from any sums owed when they enter into contracts with foreign corporations.
The computation, timing, and mode of payment will all be clearly stated in well-written payment terms, and they will also include useful protections for creditors. Contracts with back-to-back (or pay when paid) payment terms are frequent in Qatar and have a higher credit risk than those with predetermined payment schedules.
The following clauses are frequently used in Qatar to give creditors more protection:
· the authority to halt work and/or end the contract in the case of a payment default;
· keeping possession of the commodities until payment is received;
· making copyright licences payment-conditional;
· the ability to give or receive direct payments from subcontractors; and
· Disputation resolution provisions which are explicit and suitable.
Lack of a clear provision under Qatari law for the awarding of interest on late payments is one barrier to early payment. Although it is widely acknowledged that parties are free to decide on late payment penalties, contractual late payment penalties are likely to be sustained by the courts in accordance with the general freedom of contract principle at Article 171 of Law No. 22 of 2004. (the Qatar Civil Code). However, in fact, the maximum rate of interest the Court may grant is 5% and it can only be simple interest.
Parties should think about whether it is reasonable to obtain payment security before, or during, any negotiations. In Qatar, the following security measures are frequently used:
Performance bonds, letters of credit, parent company or personal guarantees, advance payment and escrow accounts, credit risk insurance and post-dated checks are a few examples of bank guarantees.
The most desirable types of security for a supplier or creditor are often bank guarantees and letters of credit. Only if the customer or debtor is regarded credit worthy will the issuing bank, for a price, issue the security, indicating that the ability of a debtor to obtain a bank guarantee or letter of credit alone provides an indication of credit worthiness.
However, post-dated checks are easily accessible and come at no additional expense to the debtor. Article 357 of Law No. 11 of 2004 (the Penal Code), which makes it an offence in some situations to make payment using a cheque that is later dishonoured, is the main reason post-dated cheques have such sway on the Qatari market and are regularly accepted as collateral.
4. Restrictions on Liability
As a general rule, parties contracting in Qatar are free to limit responsibility in their agreements. Article 267 of the Qatar Civil Code, which reads as follows: "If the loss exceeds the value of the agreed compensation, the creditor may not claim more than this amount, unless he establishes that the debtor has committed fraud or grave mistake," strengthens this privilege.
However, responsibility resulting from fraud or substantial fault is exempt from this authority to restrict liability. Additionally, the legislation has stringent liability provisions that are required and cannot be negotiated out of. For instance, the law of Qatar imposes a form of liability known as "decennial liability," which holds engineers and construction contractors jointly liable for failures or structural flaws that affect the stability or safety of buildings or installations they have designed or constructed for ten years following the date of handover.
According to Qatari law, compensatory damages, which aim to make up for any losses suffered by an injured party, are the principal remedy for contract violation. Rarely will a breach of a contractual notice by itself result in serious harm or deprive a party of any rights under the agreement.
Because of this, notification requirements are frequently written as "conditions precedent." A condition precedent is a clause in a contract that must be followed before any right or entitlement can materialise. This can involve making any entitlement to claim time or money contingent upon notice being given in the context of notice provisions.
Although conditions precedent are recognised as valid by both common law and Qatari courts, common law courts apply them more strictly, making failure to provide a notice potentially fatal to a claim. The provisions of Qatari law, in contrast, offer some latitude to disapply notice conditions precedent, for instance, when any damages experienced, if the notice condition precedent is applied, are found to be excessive in comparison to the loss sustained as a result of no notice being given.
It is debatable whether a court ruling is necessary under Qatari law to cancel a contract unless the parties agree differently. Article 184 of Law No. 22 of 2004 (the Qatar Civil Code), which reads as follows: "Agreement may be made to consider the contract annulled automatically without the need for a judicial ruling when there is a failure to perform the obligations arising from it," is the foundation for this point of view.
7. Force Majeure
In the event of an extraordinary incident beyond the parties' control, force majeure clauses are designed to shield the parties from liability (and, ideally, to provide adequate remedies). Depending on how they are written, these clauses may or may not cover acts of God, natural disasters, or actions by governments and regulatory bodies that prevent a party from carrying out their contractual responsibilities.
In general, the Qatar Civil Code upholds the independence of parties to negotiate their own contractual conditions, and Article 258 permits parties to stipulate that a contractor will be responsible for the results of a force majeure or unforeseen incident. Article 171(2) also addresses extraordinary, unforeseen circumstances that make contract fulfilment difficult (as opposed to impossible), and it gives a Qatari court the power to strike a balance between the parties' competing interests and restore the duties to a fair level.
Taking into account the specifics of the occurrence and the type of the express term seeking to re-allocate its risk, this will probably be done on a case-by-case basis. Article 171(2) of the Qatar Civil Code is a requirement that cannot be waived by the parties. It may be quite rare for performance to become "impossible"; for instance, price rises would probably not satisfy this condition. As a result, the court's discretion may be used broadly and the bar will probably be high.
8. Jurisdiction and Governing Law
Contract parties that fall under the purview of the state courts of Qatar may elect to have any legal disagreements regulated by the laws of another country. Any party requesting the application of foreign law must, however, present certified translations of those laws. This could be particularly difficult in common law countries because there isn't a single, authoritative body of law that can be easily translated.
The Qatar state courts have a strict stance on jurisdiction, and they typically ignore any agreement between the parties to subject their contracts to the jurisdiction of foreign courts for reasons of national policy. If a Qatari court determines that it is qualified to hear a case, it will probably reject any request to send the case to a foreign court. However, agreements to arbitrate conflicts are frequently accepted.
9. Dispute settlement
Foreign companies might be familiar with alternate dispute resolution mechanisms that are consistent across jurisdictions (e.g. arbitration). Businesses should be mindful of the following things if they have little or no experience with Qatar's state courts:
As a civil law country (many of which are not published), Qatar does not recognise the concept of binding precedent;
The laws of Qatar are founded on Shariah principles and might differ significantly from those of other Gulf countries on matters like compound interest;
Any document cited in court proceedings must be translated by one of just three court-certified translation agencies because Arabic is the language of the courts;
Original documents are typically required by courts, and copies are normally given less weight in the court's decision-making process. Courts in Qatar operate at a reduced capacity during the summer and are closed for Ramadan and Eid. Successful parties are not given hefty costs awards in Qatari courts.
10. Good Faith
According to Article 172 of the Qatar Civil Code:
1. The contract shall be performed in good faith and in line with its terms.
2. The obligations imposed on a contracting party go beyond the contract's terms and also include any requirements established by the law, custom, and justice appropriate to the obligation's nature.
In actuality, this means that the parties' performance under all contracts will be evaluated in accordance with both specific contractual responsibilities and the requirements of good faith.
Although the definition of "acting in good faith" depends greatly on the circumstances, it typically calls on parties to be truthful, reasonable, and fair to one another.
Although these obligations are typical throughout the GCC, several jurisdictions, including England and Wales, do not call on parties to operate in good faith until under specific conditions (often where there is a significant imbalance in their negotiating power).
Notably, parties are not compelled to advertise or negotiate in good faith because the duty to act in good faith solely relates to contractual performance.