Distribution Channels

Using a Commercial Agent or Distributor
In certain circumstances foreign companies doing business in Qatar may elect to have a local commercial agent. A commercial agent generally acts as the exclusive provider of services of the foreign principal or exclusive seller in Qatar for foreign produced goods. Companies having agency agreements or planning to have agency agreements with Qatari firms are encouraged to review Law No. 8/2002 (the “Commercial Agents Law”). The law consists of 28 articles, enshrining two basic principles:

- The business of commercial agents is exclusively restricted to Qatari nationals or to companies wholly owned by Qatari nationals.
- Any Qatari agency is to be considered as an exclusive agency.

It should be noted that the Commercial Agents Law mandates certain outcomes with respect to the expiration or termination of agency contracts and these provisions should be reviewed carefully when entering into an agency or distribution agreement.

When finally approved by both parties, the Arabic text of agency or representation agreements should be registered with the Commercial Affairs Department of the Ministry of Business & Trade (MOBT). Local agents usually follow up on the routine work required by the MOBT registration regulations. Disputes between parties in relation to an agency agreement are filed at the MOBT prior to referral to arbitration if appropriate. The local civil courts are the final course of action if the dispute cannot be resolved.

The Commercial Agents Law allows the importation and sale of brand name products by other local entities, upon payment of a commission not to exceed five percent to the appointed local agent, unless otherwise agreed between the parties in a written agency agreement.

Establishing an Office and Doing Business in Qatar
In order to do business in Qatar and establish a local office, foreign and local companies are required to obtain a commercial registration from the Ministry of Business and Trade. Qatar enacted Law No. 25/2005 (the “Commercial Registry Law”) which states that no individual person or single entity may engage in commercial activity before registering in the Commercial Registry maintained by the MOBT. Any inquiries regarding the registration process should be directed to the Director of Commercial Affairs at the MOBT.

The general rule under Law No. 13/2000 (the “Foreign Investment Law”) is that non- Qataris, whether natural or juristic persons, may invest only through the medium of a joint venture company incorporated in Qatar in which one or more Qatari persons or 100 percent Qatari-owned entities hold no less than 51% of the share capital. Joint venture companies with Qatari partners are allowed in all sectors of the economy excluding commercial agencies and real estate. Establishing a joint venture in the banking and insurance sectors is possible with an approval from the Cabinet of Ministers.

Important exceptions to the general rule are as follows:

100 percent foreign investment: Subject to an exemption from the Ministry of Business & Trade, the Foreign Investment Law allows foreign firms 100 percent ownership of the share capital of companies developing projects in the fields of agriculture, industry, health, education and tourism sectors, as well as projects involved in the development and exploitation of natural resources or energy or mining, pending approval from the government. The law specifically prohibits foreign investment in banking, insurance, commercial agencies and procurement or purchase of real estate. However, Law No. 31/2004 allows foreign investment in the banking and insurance sectors upon approval of the Cabinet of Ministers. Each application is reviewed on a case-by-case basis and foreign firms working in sectors not specifically mentioned in these laws may be granted a 100 percent ownership on a case-by-case basis, upon approval of the Ministry of Business and Trade. Although there is paperwork to be filed, approvals to be obtained and registration fees assessed during this process, this mode of registration offers the opportunity for foreign companies to operate independently. However, it should be noted that only a small number of foreign companies have received the necessary Ministerial resolution to operate as a 100% wholly owned subsidiary.

Article 68 companies: The Foreign Investment Law provides that it shall not apply to companies and individuals whom the State entrusts with excavation, utilization or management of natural wealth resources under a concession or agreement, nor to companies that are established by the Government or in which the Government participates (so called “Article 68 Companies”). Special rules apply in these circumstances.

Representational office: The Decision of the Minister of Economy and Commerce No. 142/2006 provides that foreign firms may open representational offices without a local partner. Such offices may not conduct any financial transactions related to the company’s commercial activities in Qatar and are therefore not subject to taxation. Though the representational office may be registered in the Commercial Registry and employ staff in its own name, it is really a “shop window” to source business. A representational office could be converted into a joint venture company or 100% foreign ownership at a later date.

Branch registration: The Foreign Investment Law contains provisions that, subject to an exemption from the Minister of Business & Trade, allow a branch of a foreign company to be registered in Qatar if that foreign company has a contract in Qatar that results in facilitating the rendering of a service or implies a public benefit. This has generally been interpreted to mean engaging in a contract with the GOQ or a quasi-government entity. This registration does not allow the foreign company to conduct commercial activity that is not related to the subject of its registration. Foreign companies registered under this category do not need a sponsor or service agent.

Service agents or sponsorship: In the past this type of agency consisted of appointing a Qatari entity to act as a service agent for a foreign firm. Specific services would be determined by the two parties and may include handling administrative and business matters in Qatar, including immigration procedures, import licenses, providing introductions to decision-makers, etc. Although the service agent remains a common business practice in the region, it is no longer appropriate as an option for doing business in Qatar, specifically in light of Law No. 25/2004 which is commonly known as the “Proxy Law”. The Proxy Law was enacted in Qatar to address the practice of concealing non-Qataris doing business in Qatar in violation of existing Qatari law. It prohibits natural or legal persons from concealing the business activities of non-Qataris, for example by allowing a non-Qatari to use the name, license or commercial registration of Qatari party. According to Law No. 25/2004, the service agent relationship is considered a form of proxy business and fines and imprisonment penalties can be imposed on whoever infringes the law.

QFC, QSTP, and Free Zones: The State of Qatar has established the Qatar Financial Centre (QFC) and the Qatar Science and Technology Park (QSTP). Both provide environments for international companies and institutions to operate under certain free zone type conditions. The criteria and limitations to operate in these environments are fairly stringent. The QFC is restricted to financial services and ancillary services companies and the QSTP is restricted to entities engaged in research and development activities in Qatar. Applications must be submitted by interested parties for both the QFC and the QSTP for assessment of eligibility to establish a corporate presence. Qatar is also developing additional investment free zones to attract investment in the industrial, agricultural, technical and tourism fields and other fields to be decided upon by the Cabinet of Ministers.

There are many franchises in Qatar besides fast food or casual dining. Franchises such as fitness centers, car rental, computer learning centers, apparel shops, real estate brokerage, and language learning centers exist. The potential of growth in non-food franchises is significant. Some Qatari entities have a strong interest in investing in this business, given the ease of readymade business plans offered by franchises. A local sponsor is required to establish a franchise business.

One of the keys to success in franchise operations in Qatar is to use a local franchisee versus a regional master franchisee expanding to Qatar. Qataris are sensitive to businesses owned or operated in Qatar by neighboring countries’ companies or nationals.

Direct Marketing
Foreign companies are generally not allowed to market their products and services directly. A local agent is needed to do so, unless the foreign company has an appropriately registered entity in Qatar. However, in cases where the foreign company is working on a major public project, direct marketing to the contractor is possible. Direct marketing is also possible through the representational office.

Direct marketing is possible in the food processing sector, particularly in vegetable oils, including corn oil, soybean and sunflower-seed oils, beverage bases, dried pulses and a variety of food ingredients, particularly for the snack food and bakery industries.

Joint Venture Companies
The Commercial Companies Law, Law No. 5/2002 (replacing Law No. 11/1981) controls the establishment of all private business concerns in Qatar. The updated law allows corporate mergers, corporate bonds, and the conversion of corporate partnerships into joint stock companies.

As mentioned above, joint ventures involving foreign partners primarily take the form of limited liability companies. Generally, foreign investors may own up to 49 percent and the Qatari partners no less than 51 percent of a limited liability concern. Foreign partners in partnerships organized as limited liability partnerships must pay the full amount of their contribution to authorized financial institutions in cash or in kind prior to the start of operations. These firms are normally required to set aside 10 percent of their profits each year in a statutory reserve, until it equals 50 percent of the venture's authorized capital.

Selling to the Government
The Qatari government is the biggest end-user of a wide range of products and services. In principle, all government procurement contracts are administered under provisions of bidding and tender regulations included in Law No. 26/2005. The Central Tenders Committee (CTC) of the Ministry of Economy & Finance is responsible for processing the majority of public sector tenders that are in excess of QR 1 million. The CTC applies standard tendering procedures and adheres to established performance practices. It also establishes the standards for rules that regulate bidding procedures.

Information on CTC tenders may be obtained from the CTC office in Doha or on the Internet at http://www.ctc.gov.qa. In tenders valued in excess of QR 50 million (USD 13.5 million), the approval of the Emir is required. Technical bids submitted to the CTC, or other specialized tenders committees as the case may be, are referred to the appropriate government end-user for short-listing. The CTC then opens the commercial bids and recommends the lowest priced technically qualified bidder to the entity concerned, who will make the final award decision. Inquiries about specific award decisions should be directed to the CTC.

Some governmental entities have internal tender committees. Qatar Petroleum processes all tenders independently. Qatar Armed Forces and the Ministry of Interior are responsible for issuing tenders for classified materials and services. Public Works Authority and Urban Planning and Development Authority issue their tenders independently, as well.

Bid and performance bonds are required in the form of unconditional bank guarantees with a local bank or certified bank checks local. The standard bid bond is 5 percent and performance bond is 10 percent of the contract. However, the above rate can be larger for certain projects. For the bid process, foreign architectural, contracting and engineering firms are not required to have a local presence. However, by the time a contract is ready to be signed, participating foreign firms may need to have satisfied local establishment requirements.

The State Purchase Office (SPO), a division of the CTC, handles all local purchase orders (LPOs) for equipment and supplies required by various government ministries. The SPO handles bids worth hundreds of millions of dollars every year. The period for preparation of quotations is usually 30 days, but very often less than three weeks after the announcement of tenders. Under these circumstances, an established local distributor is very useful for successful bidding.

Government contracts may include arbitration clauses. Unless stated otherwise in the contract, the standard clauses stipulate that disputes emanating from government contracts will be subject to arbitration in Qatar.

Foreign and local contractors are usually paid 20 percent of the contract awarded to them against unconditional bank guarantees. Further payments are made according to a standard payment schedule based on the progress of the project. It should be noted that the payment schedule almost always authorizes the government to retain portions of payments due until after the completion and acceptance of the project. Foreign and local contractors may experience delayed payments, which do not accrue interest, usually due to bureaucratic red tape. Arabic is the official language in Qatar though English is widely used. Bids should be in Arabic unless the tender document specifically indicates that English is required or accepted.

Distribution and Sales Channels
The GOQ is the biggest end user of a wide range of products and services. The government procurement process is based on standard tender procedures. A foreign supplier wishing to participate in government tenders may appoint a local commercial agent; however, appointing a commercial agent in Qatar raises specific legal and commercial issues that should be carefully considered by a foreign company or supplier. An effective agent in Qatar will have extensive contacts in both the public and private sectors, enabling the collection of valuable information for the business.

Most Qatari trading entities represent a variety of foreign firms in the local market. To maximize their market penetration.

  • Private supermarkets account for the vast majority of retail sales, and this sector is expanding.

  • Consumer cooperative societies account for 20 percent of the food retail sales in Qatar.

  • Institutional users account for 10 percent of food distributed.

  • Wholesalers and small convenience stores account for the balance of 5 percent of food products marketed in Qatar.

  • The distribution channel is as follows: importer/agent sells to private supermarkets (60 percent), cooperatives (20 percent), institutional users (10 percent) and wholesalers and convenience stores (5 percent).

  • Wholesalers sell directly to consumers, to jobbers and small supermarkets and restaurants.

  • Generic and brand supermarket promotions are common in Qatar and are commonly employed by both local and foreign companies.

  • Newspaper advertisements and inserts are most commonly used for food and other products. TV advertising, while very effective, is expensive.

  • Food product margins typically run 20-25 percent for distributors, 5 percent for wholesalers, when applicable, and 10-15 percent for retailers. Qatar does not apply a VAT.

Selling Factors/Techniques
Suppliers should emphasize the competitive price, high quality, and, if applicable, the new-to-market status of their products. Initial face-to-face contact with importers will significantly increase a company's business prospects. Qatari companies distributing foreign products usually request marketing and advertising assistance from the principals to introduce a new product to the market or to improve sales of existing products.

Electronic Commerce
E-Commerce is still developing in Qatar since a significant number of Qataris and businesses are fully utilizing computers and information technology. The majority of commercial banks and utility companies offer a wide range of services to their clients on their respective web sites. Qatar Central Bank (QCB) is primarily responsible for regulating electronic banking activities and electronic financial transactions. The GOQ is encouraging greater use of modern technology in government transactions. In fact, two major decisions were taken to promote and enhance E-Commerce. The first was the creation of the E-Government Committee and the second was the creation of the Supreme Council for Telecommunications and Information Technology. Several government services and transactions are now possible through the Internet. The private sector however, has taken slow steps in developing its B2B and B2C portals. E-Commerce is expected to flourish given GOQ interest in enhancing this service throughout Qatar.

There is a large variety of local and foreign products in the Qatari market. Local consumers like many other countries, are very price conscious and actively seek out sales and promotions. Local distributors of international products often engage in promotions in order to attract consumers and gain market share. Companies should work closely with their local distributor in order to determine appropriate pricing strategies. There is no VAT or sales tax in Qatar. However, the matter is being discussed in the Gulf Cooperation Council meetings and VAT could be implemented in the future. The average importer markup on food products is about 10-15 percent. Retail food prices are generally 25-30 percent above import prices.

Sales Service and Customer Support
After sales service and customer support is considered to be the responsibility of the local distributor or agent. As a Qatari entity must obtain a license for all imports, local firms generally maintain a supply of spare parts for distributed products. Local distributors may also establish workshops for after-sales support, as appropriate.