Doing Business In Qatar
The Qatar Financial Centre (QFC) was established by the government in 2005 with a mandate to support the development of a world-class financial services sector in the State of Qatar. Qatar's rapid growth, political stability, open economy and geographic position between East and West are instrumental in helping the country to realise its ambition to be a leading financial centre. The QFC offers both local and foreign firms a legal system based on English common law, one of the region's most robust regulatory regimes along with one of the most business friendly tax environments in the world and efficient administration.
Over the past six years, the QFC has been refining the legal and regulatory environment and developing the infrastructure needed to realise the investment potential of Qatar and the wider region. Whilst continuing to welcome all types of financial services firms, in 2010 the QFC Authority further refined its strategy to focus on the creation of hubs in niche sectors, creating a uniquely sustainable platform for regional growth in reinsurance, captive insurance and asset management.
Growth drivers for financial services
Hydrocarbons are the main propellant of Qatar's economic expansion. The country has the world's third largest reserves of natural gas, which, assuming oil at $95 per BOE and a continuing link with the price of gas, equates to an estimated US$16.7 trillion in monetisable oil and gas reserves (based on a QFC Authority analysis of the BP Statistical Review of World Energy).
Qatar's national income doubled between 2006 and 2010 and, according to the latest forecast from the International Monetary Fund (IMF), GDP will increase by a further 18.7% in 2011, against 16.6% in 2010. This stellar economic performance makes Qatar today the most rapidly expanding economy in the GCC region and is the primary driver for the growth of financial services In Qatar and, indeed, the GCC region as a whole.
The fast economic growth rate and diversification strategy have two critical consequences for the development of financial services. One is that high per capita incomes have led to one of the most impressive savings rates in the world, at 49%.
The other consequence is enormous capital spending. Sustainable infrastructure projects worth some US$200bn are due to be completed in the next 10 years - US$80bn worth are underway and more than US$100bn worth are expected to be started in the next three years. The FIFA World Cup in 2022 will give rise to considerable additional investment. About US$3 billion will be committed to building nine new stadiums and renovating another three. This enormous investment is a huge opportunity for the financial services industry to help Qatar fund it in the most efficient way.
As a result, the financial services industry increasingly recognises that Qatar is not just a source of capital but is also a centre from which to manage capital allocation within the country and the wider region, drawing on domestic and international pools of capital.
The QFC Authority driving business opportunities in three key sectors
In particular, the QFC Authority is focussing on developing three types of financial service industries: asset management, reinsurance, and captive insurance.
The huge pool of wealth in the region, including Qatar, is a ready source of demand for asset management. Investors in the region are becoming more sophisticated about their asset allocation and increasingly prefer their investment managers to be closer to home. Investment managers are also recognising the considerable advantages of being closer to where they are investing.
The IMF expects Qatar's per capita income to surge to US$109,900 by the end of 2011, up from US$76,160 in 2010, to rank Qatar's GDP per capita as the second highest in the world after Luxembourg. At US$146,623, Qatar also has the highest average wealth per adult in the Mena region in 2011, an almost six-fold rise from that in 2000, according to a recent report by Credit Suisse.
Institutional wealth is also rising with sovereign wealth funds (SWFs), insurers and pension funds also spurring growth in the asset management industry. Qatar's SWF, managed by the Qatar Investment Authority (QIA), accounts for about US$85bn of global SWF assets (SWF Institute). Insurers are broadening their asset management requirements, stimulated by rising GCC insurance premiums, while pension fund assets are also rising in the region.
The range of investible assets is increasing with the swift development of Qatar's capital markets. The establishment of a sovereign yield curve began with the State of Qatar's multi-trance US$7bn bond issue in 2009, while last year Qatar accounted for 31% of all GCC sovereign and corporate bond issuance (Markaz bond market survey 2010). Meanwhile, the Qatar Stock market, with more than 40 listed companies, has been one of the few markets to avoid a share decline in 2011.
The Qatari market's liquidity, accessibility and efficiency have also been improved by the launch of the Universal Trading Platform in September 2010 and the adoption of Delivery Versus Payment (DvP) rules in March this year.
The QFC Authority believes the insurance sector across the Middle East is set for significant growth over the next few years. A recent Business Monitor International report forecasts insurance premiums in Qatar will treble between 2010 and 2015. However, insurance penetration rates (premiums as a %age of GDP) remain low by international standards at 0.91% in 2010, up from 0.71% in 2000. Similarly, insurance density (premiums in cash per head of population) in Qatar is a little above the world average of about US$600 but well below mature economy levels.
At present, however, GCC insurance markets rely heavily on international reinsurance. However, action is being taken to redress this imbalance and one of the first initiatives has been the establishment of Q-Re, Qatar's first reinsurance company, which aims to provide the Qatari insurance industry with competitive reinsurance services. It is clear that the scope for reinsurance is considerable as the insurance penetration rate rises in Qatar and the GCC region.
Several factors are encouraging companies in the region to consider establishing captive insurance companies as an alternative way of transferring risk. Infrastructure spending is increasing, previously state-owned assets are being privatised and transparency and governance requirements are growing. In addition, company managers and directors are becoming more sophisticated in the appreciation of different ways of doing business.
The QFC offers an open and transparent market
The QFC provides an onshore trading environment with a legal structure based on English common law and a strong principles-based regulatory structure. Foreigners may own 100% of companies in Qatar and profits can be repatriated. Civil and commercial disputes may be brought before the QFC Civil and Commercial Court (in English), while work is in progress to unify and streamline the country's financial regulatory system. The QFC seeks the continuous evolution of the environment to ensure the optimum conditions for financial services growth. The last 12 months have been no exception with a number of notable enhancements to the regulatory regime as well as to the legal and tax environment in Qatar.
The QFC Authority enacted regulations introducing an attractive new tax regime which became effective on 1 January 2010. The salient features of the regime include:
10% corporation tax on locally sourced profits
Self-assessment regime and advance transaction ruling scheme
Tax incentives for the reinsurance, captive insurance and asset management industries
Zero personal income tax
No restrictions on dealing in any currency
Access to an extensive network of double taxation treaties negotiated with other countries.
The new 10% corporation tax compares very favourably with many other financial centres which often have higher rates of tax or have other charges (or fees) and taxes on turnover rather than profits, with the result that Qatar now offers one of the friendliest tax regimes in the world. An advance transaction ruling scheme has been incorporated into the regime to provide firms with certainty of tax treatment while tax returns and payment are due a reasonable six months after the end of each accounting period. Overall, the regime offers clarity of law along with ease and transparency of administration, while ensuring that firms operate in a well-recognised tax efficient environment.
Meanwhile in July this year the Captive Insurance Business Rules 2011 (CAPI) and Insurance Mediation Business Rules 2011 (IMEB) were introduced by the QFC Regulatory Authority and apply to captive insurers, captive managers and insurance intermediaries and were designed to support the development of Qatar as a regional centre for captive insurance. In particular a new "Class 4" captive was introduced to allow innovative or unique structures to be developed. A new minimum capital requirement was adopted focusing on a risk-based model which reflects the generally lower risk profile of captive insurers, the introduction of letter of credits (LOCs) as eligible capital provided certain conditions are met and allows broader categories of captive insurers to establish protected cell companies.
Enhancements were also made to the approved individual process, reducing application and annual fees to ensure they support the captive hub strategy. Foreign captive insurers are now allowed to re-domicile to the QFC environment if appropriate standards and requirements are successfully met.
Furthermore, through the IMEB, the QFC Regulatory Authority has introduced a dedicated rulebook for captive insurance management and insurance mediation. This aims to re-classify activities conducted by insurance intermediaries and captive managers along lines that more clearly differentiate these activities in terms of their risk profile.
The QFC has benefited from extensive consultation with global captive insurance managers to ensure that the new framework meets international standards and provides a strong foundation for the successful development of a captive and reinsurance market in Qatar. The implementation of the new rules comes at a time when many companies from Qatar and the region are increasingly focusing on more effective and efficient risk management practices and exploring the use of captives as a risk management mechanism which could better control risks and insurance costs.
The QFC, through the QFC Regulatory Authority (The QFC Regulatory Authority is the independent regulatory body of the Qatar Financial Centre (QFC). It regulates and supervises all firms which conduct financial services in or from the QFC), has already licensed one Captive Manager, Kane LLC, and is working with several other companies seeking a license. The expectation is that the new regime will promote significant development of the sector over the next few years and lead to the authorisation of more captive managers as well as captive insurers.
The development of Qatar as a regional hub for asset management is also being strongly supported by the QFC. The QFC Regulatory Authority has published revised rules to extend the QFC's Collective Investment schemes regime. These revised rules are set out in the Collective Investment Schemes Rules (COLL) and the Private Placement Scheme Rules (PRIV). The revised rules aim to facilitate the development of the sector in the QFC in line with international best practices and will allow QFC institutions to provide retail investors with access to the asset management sector in the QFC ,operate a non-QFC scheme as well as introducing rules dealing with specialist schemes (such as private equity funds etc.).
As a result of this favourable environment, a growing number of asset managers have been licensed by the QFC. They include Amwal, Axa Investment Managers, Concordia Capital, Credit Suisse and Matrix MEA Fund Management.
The most recent World Economic Forum Global Competitiveness Report ranked Qatar as the world's 14th most business-friendly country in 2011-12, the highest ranking in the Mena region, while in October 2011, the World Bank benchmark Doing Business Index report ranked Qatar 36th in the world and third in the region, its best ever result.Qatar's success as a place to do business is increasingly being recognised with a Standard & Poor's stable sovereign rating of AA/A-1+ and a Moody's stable sovereign rating of AA2.
The QFC itself has also won international recognition this year with the award of Best Financial Centre in the Middle East from Global Investor, a leading financial publication, while in the latest financial centre rankings drawn up by Z/Yen Group, Qatar is the highest ranked financial centre in the Middle East and thirtieth in the world.
The QFC Authority is committed to building on this success. The rising number of licensed companies is compelling evidence that financial services providers around the world see Qatar and the QFC as the gateway to regional opportunities.