BLOG

Our Latest Blogs

Posted By: Wassim El Sayegh | 25 Sep 2016

Doing Business in Bahrain

doing-business-in-bahrain

The Business Environment

General Information

 

Geography

Located in the heart of the Arabian Gulf, 24 kilometers off the eastern coast of Saudi Arabia, lies the Kingdom of Bahrain. A causeway of about 30 km stretches across to the eastern coast of Saudi Arabia, increasing trade and traffic between the two kingdoms. The capital and largest city is Manama, with a population of approximately 300,000.

 

Government and Political Powers

The Kingdom of Bahrain is a constitutional monarchy, headed by the King, His Majesty Shaikh Hamad bin Isa Al Khalifa. He is the eldest son of the previous Amir, Shaikh Isa bin Salman Al Khalifa, and became Head of State on February 1999.

 

Population and Language

The Kingdom’s population, according to the latest estimates has reached 1,332,000 in 2014 of which non-nationals account for about 55%. Arabic is the native language of Bahrain. English is widely understood and commonly used by all nationalities, especially in the fields of business and commerce. Farsi, Hindi and Urdu are also widely spoken.

 

Currency

The unit of currency in Bahrain is the Bahraini Dinar (BHD), which, although freely convertible, is in practice pegged to the US dollar at the rate of USD 2.6490 = BHD 1.

 

Legal System

The Kingdom of Bahrain has an independent legal system administered by the High Judicial Council, which oversees Bahraini courts. The Kingdom has developed its system of legislation along the lines of the civil model, drawing also from Egyptian doctrines and other European civil codes.

 

Business Entities

The Kingdom of Bahrain’s Commercial Law is largely derived from the Napoleonic Code, as in most other Middle Eastern countries. There are several types of business establishments, some of which may be relatively new to those used to Anglo-Saxon legal systems.

 

The type of investment vehicle that is eventually chosen by foreign investors will depend on the industry or service they wish to offer, the geographical market and whether the import of goods or manufacturing is involved. The most common used structures are:

 

Limited Liability Company

A limited-liability company consists of two or more shareholders who are accountable for the debts of the company to the extent of their individual interests in the capital. However, the number of shareholders in a limited-liability company cannot exceed 50, and the transfer of shares is restricted. A limited-liability company may not engage in activities such as insurance, banking or investment

 

Single Person Company

Single Person companies are limited-liability companies whose capital is fully owned by a single natural or corporate person. The liability of the owner is limited to the extent of the capital invested in the company.

 

Branch of Foreign Company

Branches of foreign companies and representative offices are allowed in Bahrain. However, a Bahraini in the same area of business must act as a sponsor unless the branch or office is being set up in Bahrain to act as a regional goods or services distribution center.

 

Investment in Bahrain

Attractions

The Kingdom has many attributes that encourage investment by foreign investors. Its political stability, excellent communications facilities, easy access to the Saudi Arabian market, relatively skilled work force with a good standard of spoken English, low cost of fuel and power, absence of personal and corporate taxation, and lack of exchange and profit-repatriation controls are factors that make it the ideal place for many businesses to locate their manufacturing or service functions for the area, or simply the regional head office.

 

In brief, simplified administrative and legal systems and procedures, along with rapid industrialisation, assure excellent opportunities for potential foreign investors considering Bahrain as a Middle Eastern hub for business activity.

 

Investment incentives also include:

  • 100% foreign ownership allowed for certain categories of business.
  • No VAT nor any form of sales tax on goods or service.
  • Duty-free access to the Gulf Cooperation Council States (subject to conditions).
  • Sustained low inflation.
  • Strategic geographical position in a market of 100 million people.
  • A liberal and high standard of living.
  • A well-developed multilingual labour force at one-third the cost of those in industralised countries.
  • No customs duties on imports of raw materials, semi-finished commodities brought for further processing, imports required for development projects, machinery for manufacturing, or on goods imported for re-export.

 

 

THE TAX SYSTEM

There is hardly any direct taxation in Bahrain on either businesses or individuals. There is no personal income tax, gift or inheritance tax, or wealth tax. The only direct taxation of corporate income is on profits arising from the extraction of petrochemical products. There is also no value-added tax or sales tax. The only taxation revenue derived by the Government is the tax on petrochemical extraction mentioned above and customs and import duties.

 

Corporate Income Tax

The only instance of corporate income taxation in Bahrain is on profits derived from the extraction of petrochemical products.

 

Withholding Taxes

There are no withholding taxes on the repatriation of profits or dividends, royalties, license fees or group charges. However, if the investor operates in other countries in the region, the withholding-tax rules in those countries will need to be taken into account in the regional business structure.

 

Taxes on Individuals

There is no personal taxation system for income, capital gains, gifts or inheritances in

Bahrain and, furthermore, no requirements to file any form of tax return.

 

Double Taxation Agreements

Bahrain has double taxation agreements with more than thirty countries

About the author


Top