How to work with commercial agencies in Qatar
2022 will see many businesses enter Qatar for the first time, and companies with existing operations in Qatar will look to capitalise on an influx of foreign investment and tourism presented by the Qatar World Cup. While this is an exciting opportunity, Qatar has legal provisions which may be unfamiliar to foreign businesses. In this article, we set out 10 things to consider when doing business in Qatar.
Withholding tax is levied on any taxpayer who is not resident in Qatar and registered in the Qatar Commercial Register. It is charged at the rate of 5% in respect of any activity undertaken, in whole or in part, in Qatar which does not relate to a permanent establishment in the state.
Residents of Qatar are responsible for withholding tax on amounts paid to non-residents. Qatari companies contracting with foreign businesses will regularly seek the right to withhold applicable withholding taxes from any amounts payable.
Well drafted payment terms will leave no doubt as to the calculation, timing and method of payment, and will incorporate valuable safeguards for creditors. Back-to-back (or pay when paid) payment terms are common in Qatar contracts and present a greater credit risk than those where the timing of payments is pre-determined.
Provisions commonly used in Qatar to provide additional protection for creditors include:
One obstacle to prompt payment is the lack of any express provision under Qatar law for the award of interest on late payment. However, it is generally accepted that parties are free to agree on late payment penalties and, thus, contractual late payment penalties are likely to be upheld by the Courts pursuant to the general freedom of contract principle at Article 171 of Law No. 22 of 2004 (the Qatar Civil Code). The rate of interest the Court might award is, however, capped in practice at 5% and is limited to simple interest only.
Before, or at an early stage of negotiations, parties should consider whether requesting security of payment is appropriate. Common forms of security used in Qatar include:
Bank guarantees and letters of credit are generally the most attractive forms of security for a supplier or creditor. The issuing bank will, for a fee, issue the security only if the customer or debtor is deemed credit worthy meaning the ability of a debtor to raise a bank guarantee or letter of credit itself provides an indication of credit worthiness.
Post-dated cheques however are readily available at no extra cost to the debtor. The potency of post-dated cheques in the Qatar market and the reason they are frequently accepted as security lies principally in Article 357 of Law No 11 of 2004 (the Penal Code) which makes it an offence in certain circumstances, to make payment using a cheque that is subsequently dishonoured.
As a rule, parties contracting in Qatar can choose to limit liability in contract. This right is bolstered by Article 267 of the Qatar Civil Code which directly translates as:
“If the loss exceeds the value of the agreed compensation, the creditor may not demand more than this amount, unless he shows that the debtor has committed deception or gross mistake.”
However, this right to limit liability does not apply to liability arising from fraud or serious fault. There are also strict liability clauses in the law which cannot be contracted out of, i.e. they are mandatory. For example, Qatar law imposes ‘decennial liability’; a form of liability under which construction contractors and engineers are jointly liable for failure or structural defects which effect the stability or safety of buildings/installations they have designed or constructed for ten years from the date of handover.
Under Qatar law, the primary remedy for breach of contract is compensatory damages which look to recompense an injured party for any loss sustained. By itself, a failure to give a contractual notice will rarely cause significant damage or deny a party any rights under a contract.
Parties are aware of this so commonly requirements to give notice are drafted as ‘conditions precedent’. A condition precedent is a contractual term which requires compliance as a precondition to any right or entitlement arising. In the context of notice provisions, this can involve making any entitlement to claim for time or money conditional upon notice being given.
Although common law and Qatari courts both acknowledge conditions precedent as valid, common law courts take a stricter approach to application, meaning that failure to issue a notice can be fatal to a claim. Qatari law provisions, by contrast, provide some scope to disapply notice conditions precedent – for example, when any losses suffered, if the notice condition precedent is applied, are deemed to be disproportionate to the loss suffered as a result of no notice being given.
Under Qatar law, it is arguable that a court order is required to terminate a contract unless the parties agree otherwise. This view is based on Article 184 of Law No 22 of 2004 (the Qatar Civil Code) which states:
“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.”
The provision is ambiguous (partly due to the use of the term ‘annulment’ in the translation above as opposed to termination) and court decisions supporting both contentions that an order is and isn’t required, can be found. Absent an express provision, the Courts of Qatar may still require an order before termination of a contract and it is prudent for advice to be sought before actioning the same. Parties to a contract can agree that a court order is not required to terminate a contract and doing so removes some uncertainty.
Force majeure clauses are intended to protect parties from liability (and ideally include sufficient remedies) when an extraordinary event occurs outside the parties’ control. The scope of such clauses depends on their drafting, but they can generally be expected to relate to acts of God, forces of nature, or acts of governments and regulatory authorities, that prevent a party from fulfilling their contractual obligations.
The Qatar Civil Code generally supports the freedom of parties to agree their own contractual terms and Article 258 allows parties to agree that a contractor will be liable for the consequences of a force majeure or unexpected event. Article 171(2) further deals with exceptional, unforeseeable events which render performance of a contract burdensome (as opposed to impossible), and allows a Qatari court to balance the interests of the parties and restore the obligations to a reasonable level. This will likely be done on a case-by-case basis taking into account the circumstances of the event and the nature of the express term seeking to re-allocate its risk. Article 171(2) is a mandatory provision of the Qatar Civil Code and cannot be contracted out of by the parties. Performance becoming ‘impossible’ may be quite a rare occurrence; for example, price increases would likely not meet this requirement. Therefore, a court’s discretion may have wide application and the threshold will likely be high.
Parties to contracts falling within the jurisdiction of the Qatar state courts may choose to have any disputes governed by the laws of a foreign jurisdiction. However, any party seeking to have foreign laws applied must provide certified translations of the relevant laws. This may be particularly challenging in the case of common law jurisdictions where a single, authoritative body of law is not readily available for translation.
The Qatar state courts’ approach with regards to jurisdiction is robust and they generally disregard, on public policy grounds, any agreement by the parties to submit their contracts to the jurisdiction of foreign courts. Should a Qatari court find itself competent to hear a dispute it will likely refuse to allow any referral to a foreign court. Agreements to arbitrate disputes are, however, generally recognised.
Foreign businesses may be familiar with alternative forms of dispute resolution which remain similar regardless of the jurisdiction (e.g. arbitration). Businesses with little or no experience with the Qatar state courts should be aware of the following points:
Article 172 of the Qatar Civil Code states:
“1. The contract must be performed in accordance with its contents and in good faith.
2. The obligations placed on a contracting party are not limited to the contract’s contents, but also include its requirements according to the law, custom and justice in accordance with the nature of the obligation.”
In practice, this means the parties’ performance of all contracts will be measured against the standards of good faith as well as express contractual obligations. What constitutes ‘acting in good faith’ is highly fact specific but generally requires parties to be honest, fair and reasonable and avoid deceiving one another. Although such duties are common across the GCC region, many jurisdictions, such as England and Wales for example, do not require that parties act in good faith except in limited circumstances (often where there is a significant imbalance in their negotiating power).
Notably, the duty to act in good faith only relates to contractual performance meaning parties are not required to advertise or negotiate in good faith.
It is important to ensure familiarity with Qatar laws and contractual risks before executing legal agreements. If you would like further information on the points raised in this article, or any other points of Qatar law, please do not hesitate to contact Laura Warren or Jonathan Parker.
Our Qatar hub helps businesses and individuals ensure they are prepared to navigate the legal landscape ahead of the 2022 World Cup.