Boom-town Qatar is becoming the New York City of the Middle East
WHEN chancellor Alistair Darling announced the introduction of a 50 per cent tax on all income over £150,000 from April 2010, there was immediately talk of a mass exodus from the City. High earners, said the chancellor’s critics, would look to preserve their wealth and firms try to attract the best talent. Some were expected to relocate to the US or Switzerland. But others are bolstering their Middle Eastern operations.
The Gulf states often have favourable tax regimes for both workers and companies and they are excellently located for international businessmen travelling between Western Europe, Asia and the United States. Although Dubai’s reputation as a global hub has been left somewhat tarnished by the global recession and tales of unfinished construction projects, its less glitzy neighbour Qatar has been quietly building up a reputation among the multinationals as a place to be.
The emirate’s economy is growing strongly and is expected to recover well from the recession. Annual real GDP has grown in double digits since 2006 and the IMF projects that this will continue in 2009, despite the recession. It forecasts the emirate to grow 11.5 per cent this year and an astonishing 18.5 per cent in 2010.
Its booming economy has been underpinned by the country’s large natural gas and oil reserves – Qatar currently is the world’s third-largest producer of natural gas after Russia and Iran. The emirate is benefiting from the current political climate, where developed countries are less willing to rely on Russia and Iran for energy supplies.
“Qatar is one of the few countries that still has healthy growth figures and healthy growth potentials, particularly because of its energy resources,” says Stuart Pearce, chief executive officer and director general of the Qatar Financial Centre Authority. “Energy really underpins the robustness of the economy and therefore the country has avoided a number of problems of the crisis.”
The development of Qatar’s financial sector was enhanced in 2005 when the Qatari government established the Qatar Financial Centre (QFC) in order to attract international financial services and multinational corporations to grow and develop this market in the Gulf region.
VIBRANT ECONOMY
And against this backdrop of a vibrant economy, Qatar is rapidly establishing itself as a global financial hub with the aim of competing on the world stage.
Andrew Wingfield, a partner in the Doha offices of international law firm Simmons & Simmons, which was the first international firm licensed to operate individually in Qatar, says: “It’s not the same as New York or Hong Kong yet, but it is striving to be a financial centre for the region and wants to diversify its economy away from total reliance on the natural gas and oil sector.”
The QFC Authority’s Stuart Pearce says that people are now looking at Qatar as a strong contender for their regional hub. Wingfield agrees, saying: “If you speak to investment bankers, then the places they think they can do deals in the Middle East at present are Qatar, Abu Dhabi and Saudi Arabia. They may be based in Dubai, but all the deals are done elsewhere.”
The QFC has played an important part in attracting international firms with plenty of clout and presence to the emirate.
Wingfield says: “The attraction for foreign financial services firms coming into the QFC is that the regulatory environment is one they recognise because it is based on the FSA model. All the rules and regulations are in English and there is a good insolvency regime, together with a QFC Court. This is attractive to financial services companies that want to set up here.”
DEVELOPING RELATIONSHIPS
The QFC Authority is responsible for the organisation’s commercial strategy, and for developing relationships with the global financial community and other key institutions both within and outside Qatar. There is also a regulatory authority, which is an independent statutory body that authorises and supervises businesses as well as having the power to discipline both regulated firms and individals.
The centre provides an environment in which financial services firms can operate but it is not solely for investment banks; it also incorporates non-regulated firms, which provide professional services to the financial sector.
International firms wanting to establish themselves in Qatar but outside the QFC have to find a local partner and create a joint venture where the local firm owns 51 per cent of the shares. Wingfield is at pains to point out that this does not necessarily mean 51 per cent of the profits.
These joint venture firms are also currently liable for corporation tax of as much as 35 per cent. That’s compared to 10 per cent levied on QFC firms and no tax at all on companies wholly-owned by Qatari citizens. However, the Qatari government is expected to level the playing field from the start of next year, introducing a flat rate of 10 per cent for all international firms whether they are in the QFC or not.
That is only likely to encourage more firms to the emirate. Having already hosted the Asian Games in 2006 and the Brazil-England football match last weekend, the country has the budget surplus to realise its grand plans to host other international sports events such as the Olympics and the football World Cup. Construction projects are still booming and this is providing plenty of work for law firms, accountants and financial institutions. Qatar’s day in the sun is only just beginning.
QATAR INTERNATIONAL COMPANIES
The past decade has seen international companies flock to Qatar to take advantage of the emirate’s favourable tax regime (see adjacent box), the country’s economic power and its position as a financial hub for the Middle East.
Many of the big financial institutions have offices in Qatar, even if their regional headquarters remain in Dubai. HSBC opened an office there in 2006, and was joined by Goldman Sachs and Citi in 2007.
Many accountants and lawyers have followed these banks to the emirate but some of the big names predate the rise in Qatar’s popularity: Deloitte, for example, set up there in 1950.
QATAR QFINANCE
Launched by the Qatar Financial Centre Authority earlier this year, QFINANCE is a free reference on finance that focuses on financial practice rather than theory.
Updated online regularly and published annually, QFINANCE contains contributions from leading figures on topics such as finance, regulation, the challenges facing the industry at the moment and best practice.
QFC Authority CEO Stuart Pearce says: “There are compelling reasons to make something like QFINANCE available at a time when the world of finance is reconsidering what went wrong.”