Commercial Agency vs Company Set Up - Options for doing Business in Qatar
For companies looking to access the Qatar market, the first major decision is whether to use a Commercial Agent, to set up a Trade Representative Office, a Branch Office or to establish a full local Qatari Trading Company.
Using an agent will be cheaper in the short term as there are no company setup costs or requirements, therefore you will be in a position to begin carrying out your business activities sooner. You will be using the agent’s company and licence and they will sell your product or deliver your service. The agent will then typically charge a percentage of sales.
The drawback of using an agent is that you will be giving up an element of control. The agent will ‘own’ your product and brand in Qatar so you will need to ensure that the commercial agent does not also have competitor companies in their portfolio that may conflict with your product or service.
We would urge you to seek legal advice before signing any commercial agency agreement in Qatar or the wider GCC or MENA region, as disputes with commercial agencies in this region are often resolved in favour of the local party and exclusivity and indefinite terms can often be implied in these contracts even if they are not stipulated within the document.
It would also be wise to familiarise yourself with what constitutes a commercial agency under Qatari law in order to clearly understand your rights and obligations with an agreement of this nature.
A commercial agency is defined as “Every person exclusively licensed to distribute the goods and products and to put them on sale or circulation or to perform certain services within the scope of the agency on behalf of his principal in exchange of remuneration.” Article 2 of law no.8 of 2002 of The Qatari Commercial Agency Law.
This case created a precedent in Qatar of what constitutes a commercial agency and changed the registration of commercial agency contracts with the Ministry of Business and Trade.
Types of Agent in Qatar
- A commercial agency contract in Qatar is normally an exclusive contract between a foreign party and a local Qatari owned commercial agency. The commercial agent will be in control of the marketing and sales of the product or service in Qatar. If the foreign party wants to take back full control in the future, this would be relatively difficult to do, as the registered commercial agent would need to agree to relinquish control. The desire for the foreign company to take back control from the exclusive deal with their commercial agent has been the reason behind some very extensive legal cases in Qatar in recent years.
- The commercial agency arrangement is for a foreign company wishing to make direct sales in Qatar without establishing an LLC or branch, or having any formalised business presence in Qatar. The commercial agency law allows for the appointment of a local commercial agent to market goods and services in Qatar with commission being paid to the agent. Exclusive agencies must be registered at the Ministry of Commerce and Industry. The commercial agent must be a Qatari national or a company which is owned 100% by Qatari nationals. A significant disadvantage of the agency arrangement is that once established it can be very difficult to terminate an agency relationship and if terminated the principal must compensate the agent.
- The commercial agents law allows for the importation and sale of brand name products by other local entities. However, the commercial agent is permitted to request commission from the foreign principal in accordance with their commercial agency agreement where the products have been imported for the purpose of trading, as opposed to personal use or exportation, which are exempt from commission. [https://www.export.gov/apex/article2?id=Qatar-using-agent]
- The biggest risk with the commercial agent, however, is that the contracts are often exclusive and exist in perpetuity. Therefore, if the commercial agent is underperforming and not meeting the foreign companies’ requirements, it is extremely hard for the foreign company to get out of the arrangement.
In these situations, what tends to happen most often is that the foreign company either finds another distributor or chooses to set up their own company in order to regain some control over the local operations.
Different types of business setups in Qatar:
- Limited Liability Company
One of the main requirements of setting up an LLC is that the foreign investors with non-Qatari nationality may invest only through the medium of a company incorporated in Qatar, in which one or more Qatari nationals or a 100% Qatari owned company, hold no less than 51% of the share capital.
One of the key advantages of an LLC setup is that the partners have limited liability exposure due to their share in the total investment capital. The minimum share capital to obtain the commercial registration, was QAR 200,000. This has recently been amended as a result of the new Companies Law, No. 11 of 2015, and currently there is no set limit for the share capital deposit and no requirement to deposit the share capital.
- Branch Office
A Branch Office in Qatar is a registered company in the state of Qatar that does not require a sponsor. This allows the foreign business to maintain 100% ownership. However, in order to establish the branch, the company must have a government or quasi government contract. The law specifies that branches are not to be considered as separate legal entities from the principal company. Any foreign company which aims to execute a contract with the Qatari Government has the flexibility to set up a branch office in Qatar provided they abide by the regulations set by the Ministry of Qatar, similarly, they could establish an LLC and service the government contract through that entity.
- Trade Representative Office
A foreign company may open a representative office without a local partner in Qatar. These offices promote the goods and services of the parent company. However, they are not allowed to conduct any financial transactions related to the company’s activity in Qatar which results in tax exemption.
The trade office cannot import, export or sell any product in the State of Qatar and cannot promote any product not produced by the company. The purpose of this type of entity is only to hire staff in Qatar and to build initial relationships in the country.
How can Venture Partner Qatar help: Commercial Agency
Venture Partner Qatar (VPQ) can refer you to one of our corporate partners who will be able to directly assist you with a ‘Registered Commercial Agent’.
Venture Partner Qatar can assist to set up an LLC, Branch Office or Trade Representative Office
Venture Partner Qatar has an extensive team with experience and knowledge in providing professional assistance and guidance for international companies, entrepreneurs, and investors on the best way to set up businesses, deliver services and sell products in the local Qatari market.
Our dedicated operations teams and PROs have strong relationships with local government authorities to ensure that the correct information is provided, and requirements are met in an effective and timely manner.
If you need assistance in setting up a trading company in Qatar, and for further information on any other related company setup, local partner or PRO service matter in Qatar, do get in touch with us on +974 4478 8765 or email us at email@example.com and we will be delighted to assist you.