Bahrain; the Small Island with Big Potential
Bahrain is a small island, but a beautiful one that also has big potential. An archipelago situated in the Arabic Gulf, the Kingdom of Bahrain is equidistant between Saudi Arabia and Qatar, and is connected to the Eastern Province of Saudi Arabia by the 24 km-long King Fahd Causeway bridge.
Bahrain has an open, investor-friendly economy where the government pays close attention to the needs of the private sector in the formulation of laws and regulations. As such, Bahrain continues to attract investors as both a place to establish a business, and as a gateway through which to enter the markets of the broader Gulf Cooperation Council (GCC) and Middle East and North Africa (MENA) regions.
So, Why Incorporate in Bahrain?
Bahrain permits 100% foreign ownership for Onshore companies in most sectors without the need for local sponsors or partners. The number of sectors open to 100% foreign business ownership was expanded in 2017, while further relaxation in 2019 saw foreigners even permitted 100% ownership of firms engaged in oil and gas activities, subject to certain conditions. There are also a number of special economic zones, industrial zones and trade zones throughout Bahrain that offer a range of rates and incentives to investors.
Bahrain has responded to issues raised by investors by working to increase the efficiency and ease of completing commercial procedures, accelerating the issuance of licences and updating laws and regulations to further improve the ease of doing business in Bahrain. Companies are required to have local commercial registration to bid on government tenders.
It is worth noting that, because a Bahrain company is an onshore company, opening a bank account for the new entity is straightforward and is simply part of the incorporation process in Bahrain. You can open this account in local and foreign currencies.
There are no taxes in Bahrain on income (corporate or personal), sales, capital gains or estates, with the exception, in limited circumstances, to businesses operating in the oil and gas sector in Bahrain. So, whatever you or your business earns, it’s yours. There’s also no tax on dividends or capital gains. So, if you have a subsidiary in Bahrain, the profits and dividends are tax-free.
Bahrain is to introduce a domestic minimum top-up tax for multinational enterprises (MNEs), effective 1 January 2025, to ensure a minimum 15% tax rate on profits for companies with global revenues exceeding €750 million. The regime will be fully compliant with the OECD’s new global framework and reaffirms the country’s dedication to fostering global economic equity and transparency.
VAT applies at a standard rate of 10% to goods and services, with a number of exceptions where certain goods and services may be subject to a 0% rate or are exempt.
Another attractive factor for foreign investors is the Kingdom’s free trade agreements with 22 countries. Bahrain also has double taxation agreements (DTAs) with 41 countries and investment protection and promotion agreements (IPPAs) with 34 countries.
Bahrain Economic Vision 2030
Bahrain Economic Vision 2030 was launched in 2008 with the aim of diversifying the economy away from hydrocarbons through the development of high-productivity, high-value sectors, based on three guiding principles – sustainability, fairness and competitiveness. As a result, Bahrain has increased digital integration across the board, with advanced technologies harnessed to raise efficiency and facilitate high-income job creation.
Bahrain’s nominal GDP increased from around USD11 billion in 2003 to over USD43 billion in 2023, marking an average annual growth of 7%. In addition to securing healthy economic growth, Bahrain’s economy has diversified, with the financial services sector overtaking the oil sector as the highest contributor to real GDP in 2023, standing at 17.8%.
Increasing inflows of foreign investment and capital reflect the kingdom’s overall dynamism as a destination for business. Bahrain attracted a record-breaking USD 6.8 billion in Foreign Direct Investment (FDI) inflows in 2023, according to the United Nations Conference of Trade and Development (UNCTAD) in its latest World Investment Report 2024.
In 2021, Bahrain signed a memorandum of understanding with the US to establish a US trade zone in Bahrain to act as a regional platform for commerce, manufacturing, logistics and distribution. Construction of the 1.1 million sq m, USD200 million zone got underway in Salman Industrial City in February 2022, and it is expected to become operational by 2025.
Bahrain Golden Licence
The Bahraini government introduced the Golden Licence programme in April 2023 to encourage increased regional and international investments. The Golden Licence grants incentives and streamlines services for local and foreign investors that back projects with a minimum value of USD50 million or create more than 500 local jobs. It has already secured a total of USD2.4 billion in investments from nine major projects that are set to generate 3,000 job opportunities.
Spanning various sectors, the latest projects awarded a Golden Licence in 2024 include Bahrain Titanium, the first facility of its kind in the region set to be established by Interlink Metals & Chemicals, the construction of the first greenfield head office of National Bank of Kuwait (NBK) outside of Kuwait, the development of a data centre facility and international submarine cable by Beyon, and the development of Bahrain Marina.
Bahrain Commercial Registration Certificate
The set-up process in Bahrain is simple. Every foreign investor must obtain a pre-approval from the General Directorate of Criminal Investigation (CID). Once approved, the investor is eligible to obtain a Commercial Registration certificate (CR), which is a legal document issued to investors by the Ministry of Industry and Commerce upon registering their establishment in the Kingdom of Bahrain.
The most frequently used vehicle for setting up a corporate entity in Bahrain is the With Limited Liability (WLL) company, which is similar to a Limited Liability Company (LLC) in other GCC jurisdictions.
Investors who set up a company in Bahrain can enjoy 100% foreign ownership, regardless of whether the company is a WLL, a partnership, a branch or a representative office. Exceptions to 100% foreign ownership are companies that engage in reserved business activities and public shareholding companies in which foreign investors are restricted to a maximum 99% stake.
The CR certificate provides the:
- Commercial Registration number and establishment date.
- Name of the legal representative of the establishment.
- The Legal form of the establishment.
- Commercial name of the establishment (if provided).
- Registration expiry date.
Obtaining a provisional CR certificate before securing the licences for specific business activities can make it easier and faster to set up a business because the CR allows you to get on with initial tasks, such as leasing commercial space, approaching banks, engaging with vendors or securing a commercial name.
The CR without licence is valid for one year and you can then apply for a business licence for the desired activity(ies). The CID and CR approval process takes about 10 days, and the application fee is USD1,000.
Obtaining Business Licences
The next stage is obtaining the necessary approvals and licences to practice your intended business activity, which takes another 21 days. The cost for this stage is around USD14,000, inclusive of governmental fees and one year’s commercial address. If the business is a regulated activity, such as financial services, this process could take up to six months, with fees also increasing.
CR business activities in Bahrain are based on the International Standard Industrial Classification of All Economic Activities (ISIC), which are further categorised according to ownership and registration type. The information and documentary requirements to obtain a business licence will depend on the activity(ies) selected.
During this process, the investor should also open a bank account, which requires a recommended working capital deposit of BHD5,000 (c. USD13,000). Once the capital is deposited, the bank will issue a Capital Certificate then a final CR certificate from the Ministry of Commerce, allowing the client to begin to operate commercially.
Both local and foreign investors are permitted to set up special purpose vehicle (SPV) companies in Bahrain. The registration requirements for an SPV company are the same as for any other legal entity in Bahrain, but SPVs that fall under the category of finance businesses must apply for specialised licenses and are required to register with the Central Bank of Bahrain and obtain a business permit.
Bahrain Residency Permits
Foreign nationals wishing to work and live in Bahrain will require both a residency visa and a work permit. The fastest and easiest way to get a visa to the Kingdom of Bahrain is to apply for a Bahrain investor work permit. This is a two-year permit is made available to shareholders in a local company.
Having obtained the investor work permit, the investor will obtain a residency permit from the General Directorate of Nationality, Passports & Residency Affairs (NPRA). The investor work permit also allows the holder to act as the sponsor for residency visas for family members.
An investor or work permit total costs USD2,000 and is valid for two years, while a family permit total costs USD1,300. A residency holder does not need to visit Bahrain every six months to maintain his/her residency in good standing.
In 2022, the Bahraini government introduced a long-term Golden Residency Visa to attract international talent to the kingdom and strengthen the local skill base. This Visa grants qualifying investors, retirees and highly talented individuals with a 10-year renewable residence permit, as well as the ability to sponsor residence permits for immediate family members. Previously, most foreign nationals in Bahrain were limited to two-year renewable residency terms.
The Golden Visa gives holders the right to work in Bahrain and allows them multiple entry and exit from the kingdom. Holders can have their visas renewed indefinitely, provided they continue to meet the eligibility criteria, and are only required to spend 90 days a year in Bahrain. This gives the individual more flexibility for travel throughout the year and makes the Visa easier to maintain. Other benefits include Bahrain’s warm climate, good lifestyle, access to world-class education and healthcare, tax-free salaries and other employee benefits.
In addition to our corporate and bank account services, Sovereign can assist with work permit and visa processing, Bahrain ID card and driving licence processing. Our PRO team can also assist with any local approvals or documentation involving local government bodies where translations and notarisation may be required.
If your client is interested in an SPV (special purpose vehicle), they can set up a holding company or another non-trading entity, which is allowed 100% foreign ownership without needing a local partner. However, for trading activities, they will need a Bahraini partner.
The Sovereign Business Hub
The Sovereign Business Hub is a business incubator and business accelerator that is designed to increase the successful business set-up, development of new businesses, job creation and employment in specific sectors that are aligned with the Kingdom of Bahrain’s areas of opportunity.
As part of our set-up packages, the Sovereign business hub is a fully equipped workspace in the heart of Manama where clients can work or hold meetings. All-inclusive packages start from BHD250 per month for an office space, with options for day passes, hot desks or meeting room access.
Clients can also upgrade to a physical office if they want to expand their operation. These offices start from around USD600 a month, inclusive of all utilities, 24/7 access and advanced Information and Communications Technology (ICT).
This service helps to ensure that a company can meet economic substance regulations, and we take care of renewals and other administrative tasks throughout the year.
