Is it correct that every government which does not apply the rules of the Sharee‘ah (revealed laws of Islam) must be considered disbelieving and hence overthrown, pursuant to the verse in which Allaah The Almighty Says (what means): {Legislation is not but for Allaah.} [Quran 12:40] Is this correct?

All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad is His slave and Messenger.

Anyone who applies laws other than those revealed by Allaah The Almighty is either convinced that man-made laws are better and is therefore, a disbeliever; that is, an apostate; or, he believes that it is obligatory to rule according to the laws of Allaah The Almighty, but in a certain issue he rules according to his whims and does not abide by the rulings set by Allaah and does so while admitting his mistake and sin. Such a person has committed a minor act of disbelief, yet is still considered a Muslim.

The first type involves those who legislate laws which legitimatize acts prohibited by Allaah The Almighty, or vice versa, and those who are content with such laws and impose them.   

Allaah Knows best.