New regulations provide much-welcomed clarity on how investors (both Qatari and foreign) may use the QFC as a conduit for real estate transactions in Qatar.
Historically, QFC entities (regardless of their ultimate ownership) have faced difficulties in registering title over real estate in Qatar. As the QFC Authority noted in its consultation paper, while QFC entities have been able to own real estate outside of Qatar, there was no in-principle position adopted within Qatar.
This changed on 6th September 2021, when the Minister of Commerce and Industry signed into effect the new Qatar Financial Centre (QFC) Real Estate Ownership Regulations (the QFC Real Estate Regulations). The regulations, along with the State of Qatar Law No. (16) of 2018 Regulating Non-Qatari Ownership and Use of Real Estate (the 2018 Law), now provide a clear framework on the use of QFC entities to hold real estate in the State of Qatar.
OWNERSHIP IN "DESIGNATED AREAS" OF QATAR
- Real estate ownership is generally restricted to Qatari persons, but certain designated areas (the Designated Areas) are open to all investors—regardless of nationality.
- Investors may use QFC entities to (i) own; or (ii) exercise usufruct rights (i.e. 99-year lease) in these Designated Areas, regardless of the percentage of non-Qatari ownership of those QFC entities.
- Cabinet Resolution no. (28) of 2020 recently confirmed the list of Designated Areas where non-Qataris may hold real estate, with 9 areas designated for full ownership and 16 for usufruct rights only.
- The 2018 Law created a Committee to Regulate Non-Qatari Ownership and Use of Real Estate within the Ministry of Justice (the MOJ Committee), and empowered the Committee to ensure that ownership or usufruct rights be granted to non-Qatari investors only within the Designated Areas.
OWNERSHIP OUTSIDE OF DESIGNATED AREAS
- In order to own or have usufruct over real estate outside of the Designated Areas, the QFC entity must be "wholly-owned, directly or indirectly, by one or more Qatari persons".
- For the purposes of the QFC Real Estate Regulations, the following entities would meet the "wholly-owned by Qatari persons" requirement:
- Qatari legal entities that are wholly owned by one or more Qatari natural persons or by state entities; and
- Entities listed or wholly owned by entities on Qatar Stock Exchange or any other regulated exchange in Qatar
- The QFC Real Estate Regulations notably include QSE-listed companies, which are not subject to 100% local ownership requirements. QSE-listed companies are subject to a 49% cap on foreign ownership, and the Cabinet of Ministers recently approved a draft law allowing non-Qataris to own up to 100% of the capital of QSE-listed companies.
- These legal developments could, in turn, create an opportunity for QFC subsidiaries of QSE-listed companies to be able to own or hold a usufruct interest in real estate throughout Qatar, regardless of the percentage of ultimate foreign ownership.
APPLICATION AND MONITORING PROCESS
In order to ensure compliance with the provisions of the QFC Real Estate Regulations, the QFC Authority may:
1) require all QFC entities wishing to own real estate outside of the Designated Areas to first apply to the QFC Companies Registration Office (the CRO) for approval. (Although the MOJ Committee is not referenced by name, it can be inferred that QFC approval will ultimately be required by the MOJ Committee in connection with any registration of ownership or usufruct rights by the MOJ Committee over real estate outside of the Designated Areas.)
2) take measures necessary to confirm that the applicant is wholly owned, directly or indirectly, by Qatari persons.
3) before issuing the approval, impose a restriction on the QFC entity so that no shares may be transferred to third parties without the written consent of the CRO.
4) impose similar restrictions to the applicant's corporate shareholders that are also QFC entities. For shareholders that are not QFC entities, the CRO will obtain an undertaking from those shareholders not to transfer ownership at any level.
5) request any QFC entity to provide full and accurate information relating to: (a) its shareholding; and (b) its Real Estate ownership (including usufruct) within 10 days from the date of the request.
In addition to the approval and compliance powers above, the QFC Real Estate Regulations authorise the QFCA to carry out enforcement procedures and impose penalties on persons violating the provisions of the regulations. For example:
- the QFCA may impose financial penalties from QAR 500,000 to QAR 10,000,000; and
- the QFCA may direct the QFC entity to take remedial action to address any contraventions.
- QFC firms must apply to register their ownership/usufruct interests (if any) with the CRO within 30 days (i.e. by no later than 5th October 2021).
- It is unclear whether the QFC has already contacted all firms to inform them of this obligation and how to properly follow the registration procedure.
Although foreign nationals were previously able to invest in Qatari real estate (subject to certain limitations) before the implementation of the QFC Real Estate Regulations, many opted to invest in their individual capacities due to uncertainty over the use of corporate vehicles, including QFC entities. The new regulations pave the way for foreign nationals (including institutional investors) to invest in the Qatar real estate market while enjoying the advantages of the Qatar Financial Centre.