Corporate Structuring
Throughout its history, Bahrain’s economic progress has been built on a tradition of openness – a tradition that continues into the modern day. This openness is at the heart of what helped to make Bahrain a great environment for businesses to thrive and a welcoming home to people from around the world.
Bahrain has been a regional pioneer in a number of areas ranging from trading through oil exploration to finance and education. This culture of innovation is bolstered by the rapid growth of industries such as ICT, high quality aluminium manufacturing and Islamic finance. Bahrainis are characterised by an openness to people and ideas from around the. We have a long track record of investment in education and training – we were the first country in the region to establish public education for boys and girls nearly 100 years ago. This has enabled Bahraini nationals to account for the majority of the workforce in a number of key sectors, working at all levels and playing a central role in the development of the businesses based here.
Bahrain is a member of the Gulf Cooperation Council (“GCC”), together with Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates.
Bahrain offers a unique opportunity for business in the region. The Kingdom is recognised as one of the most liberal business environments in the Middle East, with some of the lowest regional operating costs as well as a highly skilled, bilingual local workforce. With excellent transport infrastructure and a strategic geographical location at the heart of the GCC, Bahrain is positioned as the natural gateway to access this [USD $1.6 trillion] market, and the government is committed to sustaining and strengthening the country’s core business fundamentals to underpin future growth.
Bahrain was the first GCC country to sign a Free Trade Agreement with the United States of America, which came into effect in 2006 (“FTA”). The FTA between the Kingdom and the US is an international agreement that seeks to promote increased trade between both countries. The FTA provides for the immediate or staged elimination of duties and barriers to bilateral trade, in goods and services originating in either Bahrain or the US.
The FTA also allows a duty-free access to the US market, consequently making Bahraini goods and services more cost competitive.
The FTA contains reciprocal commitments, cooperative agreements and rules and processes applying to customs. The goods traded must fit the definition of originating goods to be exempted from customs duty.
Under the FTA, nationals of the United States are given GCC recognition for investment purposes in Bahrain, allowing them to invest in business activities that might otherwise be restricted for non GCC nationals.
Bahrain has bilateral trade and economic agreements with over 40 countries, including: China, Singapore, Germany, France, India and the United Kingdom.
Bahrain has been recognised as a desirable business location by a number of international rankings:
Ranked 7th globally in Flexibility of the Labour Market according to the Global Competitiveness Index 2020.
Ranked 1st in Technological Readiness in the GCC according to the Global Competitiveness Index 2017-2018.
Voted number 1 destination in the GCC for expatriates by the InterNations Expat Insider Survey Index 2021.
Ranked 3rd globally for Islamic finance according to the 2020 Thomson Reuters Islamic Finance Development Report.
Ranked 5th globally for Business Fundamentals according to the 2022 Agility Emerging Markets Index.
Ranked 1st in the Middle East and North Africa for ICT Development according to the 2021 ICT Development Index.
The process for registering a business and launching operations in Bahrain is simple. Over the years, government organisations and private institutions have put in place a dedicated support infrastructure for businesses setting up.
We can assist with legal and regulatory procedures and follow up on registration, by using the Bahrain Investors Centre, which is an efficient one-stop-shop for setting up a business. Businesses are assigned a relationship manager who may liaise with the relevant government ministries on your behalf. The Bahrain Ministry of Industry and Commerce, is responsible for registering and licensing all foreign businesses in the Kingdom of Bahrain, and your relationship manager can assist with this process.
Almost 100 years ago, Bahrain was the first among the current member states of the GCC to introduce formal education. The adult literacy rate is among the highest in the region and the Government continues to prioritise education and vocational training in its reforms.
As a result, Bahrain has a highly-skilled and motivated bilingual workforce, 60% of whom are employed in the private sector. In areas such as the financial sector, almost two thirds of employees are Bahrainis, of whom nearly 40% are women. More than 70% of the workforce in telecommunications are Bahraini.
Bahrain’s business-friendly approach has helped persuade international businesses to work out of Bahrain where they have access to a talent pool of educated and trained nationals.
Bahrain’s proximity to Saudi Arabia provides access to the region’s single largest market and economy. At the same time, the proximity to the eastern province of Saudi Arabia provides companies with the option to establish an operational base in Bahrain, which is considered to be one of the most open and liberal places to live in the Middle East. Residents of Bahrain already enjoy direct motorway access to Saudi Arabia via the 25 kilometre Saudi-Bahrain King Fahd Causeway. A rail transport causeway is also planned between Bahrain and Saudi Arabia which will enhance transport links between the two countries and will connect Bahrain to the planned GCC wide railway network.
The legal system of Bahrain is a hybrid system deriving from a number of jurisprudential traditions including Islamic Sharia, Egyptian civil, criminal and commercial law (the Egyptian system itself is derived from the French Napoleonic code, local tradition and custom).
Bahrain has a well-developed legal framework as compared to some of its neighbours. Bahrain’s court system comprises of Civil Courts and Sharia Courts. The Court of Cassation is the highest court. As a civil law jurisdiction, the decisions of higher courts are not binding on the decisions of the lower courts yet decisions of the Court of Cassation are authoritative but not binding on the lower courts. The Sharia Courts are generally responsible for Family Law and inheritance matters.
The Bahrain Chamber of Dispute Resolution (“BCDR”), which comes within the jurisdiction of the courts of Bahrain, enjoys mandatory jurisdiction over any claim exceeding BHD 500,000 (approximately USD $1.3 million) and involves either an international commercial dispute or a party licensed by the Central Bank of Bahrain (“CBB”). Disputes will also fall within the scope of the BCDR if parties have agreed in writing to refer the dispute to resolution by arbitration or mediation under the BCDR Rules, which conform to the American Arbitration Association (“AAA”) to ensure that international investors are provided with swift, effective and definitive dispute resolution.
In October 2021, a new decree was issued granting the BCDR the jurisdiction over certain additional categories of legal claims as well as amending certain existing procedural provisions. As a result, the BCDR now also have jurisdiction to administer cases the value of which exceed BHD 500,000 (approximately USD $1.3 million) between companies incorporated with reference to the Bahrain Commercial Companies Law and that involve disputes of a commercial nature. A dispute is to be considered of a commercial nature when its subject revolves about the respective commercial commitments of the parties. The new amendment also restricts the BCDR from a adjudicating in cases related to bankruptcy and/or the restructuring of entities.
The BCDR came out with new rules in 2017 to reflect global best practices. Some of the significant changes include provisions that simplify and improve filing requirements, appointment of arbitrators and arbitrator fees. To prevent unnecessary expenses and wastage of time due to claimants with no jurisdiction, a new provision was introduced to deal with prima facie jurisdiction and allows the BCDR to reject a request for arbitration filed pursuant to a clause with no effective reference to the BCDR. The 2017 Rules also require the party intending to challenge an arbitrator to send the written notice of challenge to the BCDR, to the arbitral tribunal and to all other parties involved in the dispute to ensure transparency.
In the interest of reducing time and costs associated with arbitrations, the BCDR may now determine applications for summary disposal of all or part of claims and defences without legal merit or outside the tribunal’s jurisdiction.
An arbitration award in an international dispute heard at the BCDR-AAA will not be subject to challenge in Bahrain if the parties have agreed beforehand to be bound by such an award.
The BCDR Rules also provide a mechanism for an emergency arbitrator to issue interim awards on urgent applications prior to the constitution of the tribunal but they also permit parties to apply to a judicial authority for these purposes. Once the tribunal has been constituted, it may grant such interim measures as it deems necessary, including attachment orders and travel ban orders, at the request of any party.
Bahrain is a signatory to the New York Convention on the Enforcement of Foreign Arbitration Awards. Therefore, all relevant arbitral awards from a signatory seat would be recognised and enforced by the Bahraini courts subject to satisfying certain requirements. Bahrain is also a signatory to the Riyadh Convention for the Execution of Judgments, Delegations and Judicial Notification which authorises the execution of judgments issued by courts of the GCC member countries.
Whilst Arabic is the official language of the court system in Bahrain, Bahrain now also permits the use of English in court proceedings. (previously, the position in Bahrain was that all court proceedings must be in Arabic, although litigants or witnesses who did not speak Arabic would be permitted to provide evidence in another language, via the use of a licensed interpreter). The same decree also permits for the appointment of non-Bahraini judges, including non-Bahraini nationals who do not speak Arabic (previously, all judges in Bahrain were required to be either Bahraini Nationals or judges from countries where Arabic represents the first language of the country).
Litigants may appoint an expert, both prior to issuing a claim or during the proceedings, to provide an expert report in support of their claim. Previously, only judges had the authority to appoint experts during the trial, either upon the request of a party to the claim, or based on the judge’s discretion. Experts appointed by the parties must be impartial and independent, and must not have any conflict of interests in the claim. The party appointing the expert is responsible for the expert fees; or, in the event that the parties have agreed to appoint the same expert, then both of the parties will share the expenses of such appointment. The parties may submit the expert opinion attached to their statement of claim, or during the trial.
The Bahrain International Investment Park (“BIIP”)
BIIP is a 247 hectare business park strategically located beside the Shaikh Khalifa bin Salman Port, Muharraq and is only 5 kilometres from the Bahrain International Airport. BIIP is designed to attract high value-added projects which will help create local employment and wealth in a world-class physical environment. Investment in BIIP is primarily open to those in internationally-traded manufacturing and specific service sectors.
The BIIP offers unique incentives including 100% foreign ownership of companies; 0% tax with a 10 year guarantee; special customs services; wide duty-free access to GAFTA, USA, Singapore; no recruitment restrictions for the first 5 years and dedicated assistance with all corporate and human resource formalities. Quality facilities, offices and factory units are offered with long leases and competitive land rentals that are significantly cheaper than the GCC average in an environment that is professionally zoned, landscaped and managed.
As compared to products manufactured in GCC Free Zones which are subject to 5% customs duties when sold into the GCC and other Arab markets, products manufactured in the BIIP are free of import duties in other GCC countries, because the BIIP is not considered a Free Zone but rather an integral part of the GCC, thus, providing a 5% margin against Free Zone locations elsewhere in the GCC region.
The BIIP has set up a ‘one-stop-shop’ to facilitate investors by assisting them through the application process, providing guidance on all of the legal requirements, and to interface with the authorities on the investors’ behalf. The BIIP also offer an on-site education and training centre to assist in training employees as well as providing access to government financial grants.
Projects from a wide range of sectors are approved for the BIIP including those relating to food products, medical technology, household products, electronic devices, packaging, pharmaceutical and chemical materials, and electrical switchgear manufacturing.
The BIIP has attracted some major multinational companies like Siemens, Armacell, Honeywell, BASF and Mondelez International.
A commercial company established in accordance with the Commercial Companies Law No. 21 of 2001 (as amended) is the most common form of business vehicle used in the Kingdom.
The vast majority of commercial activities can be practised in Bahrain without foreign ownership limitations with foreign investors able to own 100% legal interest in certain Bahraini business vehicles, but there remain certain limited sector-related restrictions which may apply.
Some sectors and activities are only allowed to be carried out by Bahrainis or entities fully owned by Bahrainis or GCC or US nationals. Further, some business activities may require a minimum Bahraini or GCC investment, such as 1% or 51%.
The sectors in which a business vehicle cannot be 100% foreign owned generally include construction (more details about construction companies under section titled The Council of Regulating the Practice of Engineering Professions (“CRPEP”)), press, publishing and distribution, car and motorbike rental, fishing, foreign manpower supply, land transportation of goods and passengers, trading, foreign manpower, commercial agencies, certain real estate services, gas bottling and distribution and gas cylinder distribution.
Foreign ownership restrictions will apply in relation to companies that are engaged in trading activities (i.e. export, import and sale); the applicable restrictions differ depending on whether or not there is a GCC or US shareholding element in the corporate vehicle. The restrictions are as follows:
Companies that include a GCC or US shareholder(s), excluding a Bahraini national, may be owned 100% by the GCC or US shareholder(s);
Companies that include a foreign non-GCC or US shareholder(s), must also include a Bahraini (or national of any other GCC state) shareholder holding a minimum percentage of the shares (e.g. 1 share);
Companies that include a foreign non-GCC or US shareholder(s), must also include a Bahraini (or national of any other GCC state) shareholder holding a minimum of 51%; and
Please note that where the intention is to satisfy the minimum percentage GCC requirement or 51% GCC requirement by utilising a corporate shareholder which is GCC owned, then (i) the corporate shareholder must itself be 100% owned by GCC nationals; and (ii) the corporate shareholder must itself be established in a GCC jurisdiction.
Despite these restrictions, it is possible for the Minister in charge of Trade Affairs, (subject to the Minister obtaining the approval of the Council of Ministers), to grant exemptions in order to allow foreign investment into restricted sectors if the Minister considers that such investment will benefit the country and development of the economy as a whole. Notwithstanding the above, there are many industry sectors which allow for 100% foreign investment such as but not limited to, consultancies, technology, and manufacturing, which might however require further consideration and may be subject to other restrictions.
The business vehicles that are commonly used in Bahrain are considered below. However, businesses looking to engage in banking and insurance activities in Bahrain can generally only do so through Public and Closed Joint Stock Companies and Foreign Branches. Such business vehicles are also subject to approvals and the regulations of the Central Bank of Bahrain, which has developed comprehensive regulations in order to ensure confidence in the financial services sector.
The key features of Bahrain’s business friendly approach:
No restrictions on the repatriation or remittance of profits or capital.
No restrictions on the import/export of local and foreign currencies.
No tax on income, capital gains, estate interest, dividends or royalties.
Permits 100% foreign ownership of businesses in the vast majority of business activities.
Easy access to the rest of the region - it takes less than one hour to get to Saudi Arabia and the UAE.
Most educated and skilled workforce in the Gulf.
Some of the most flexible visa policies in the region.
Availability of a wide variety of state funded incentives from Tamkeen, which include training, consulting, financing, entrepreneurship support and others.
Bahrain has actively sought to promote itself as a business friendly environment, specifically targeting foreign direct investments. In recent years the Government has taken steps to amend the Commercial Companies Law in Bahrain.
The Commercial Companies Law has also introduced and approved the setting up of new forms of companies, named as Protected Cell Companies and Investment Limited Partnerships.
The Ministry of Industry and Commerce in Bahrain (“MOIC”) is the main organ of Government responsible for the registration and supervision of businesses in Bahrain and is responsible for a diverse range of activities which make up the commercial environment in Bahrain, including inter alia the registration of all forms of commercial business, commercial agencies, industrial property, standards and metrology, foreign trade as well as a number of other related activities. The MOIC’s aim is to ensure the maintenance of an open, transparent and market driven commercial environment so as develop Bahrain's economic competitiveness and to encourage inward investment, at the same time promoting employment for the local population.
When looking to incorporate an entity in Bahrain with the MOIC, relevant commercial activities need to be selected. Depending on the types of commercial activities selected, certain conditions may apply or approvals required. Bahrain has adopted the International Standard Industrial Classification of All Economic Activities (“ISIC”) Rev. 4. These standards have been developed by the Department of Economic and Social Affairs of the United Nations Secretariat. More information in relation to the commercial activities can be found on MOIC’s online database at www.sijilat.bh.
Incorporating an entity in Bahrain involves a two stage process:
Stage one involves the submission of an electronic application to the MOIC with specific details of the new entity, including the legal form, commercial name (for approval), share capital, and details of the shareholder(s). All relevant supporting documentation will be uploaded to the MOIC system at this stage. The MOIC then verifies the uploaded details. Upon verification of all uploaded details by the MOIC, a provisional inactive Commercial Registration (CR) is issued. This means that the entity is incorporated, albeit remains inactive. A provisional inactive Commercial Registration (CR) is valid for one (1) year from the date of issuance.
Stage two involves satisfying the MOIC that all approvals, consents and/or licences, as may be required have been issued by the relevant government authorities in Bahrain, and culminating in the issuance of the final Commercial Registration (CR), rendering the entity legally operational. The nature and extent of such approvals, consents and/or licences will vary depending on a number of factors, including the proposed commercial activities of the entity. Upon completion of this stage two, a final active Commercial Registration (CR) is issued. This means that the entity is incorporated and can commence operations.
Businesses are generally carried out in Bahrain through an agency or distributorship arrangement with a local partner in Bahrain or through establishing a Bahrain registered corporate vehicle. Restrictions on foreign ownership depend on the type of licensed commercial activities which the entity will engage in, rather than the form of legal structure utilised.
The following table provides an overview of some of the corporate vehicles available in Bahrain:
Corporate Forms
Structure of Partners/Shareholders
Minimum Issued Share Capital
With Limited Liability Company (“WLL”)
Comprising of 1 shareholder, where their respective liabilities for the company’s debts and obligations are limited to the extent of the value of their respective shareholding.
None
General Partnership
2 or more partners who assume joint responsibility in the partnership to the extent of their entire personal assets for the partnership’s debts and liabilities.
Bahrain Shareholding Company (“BSC”)
A public listed company comprising of 2 or more shareholders where their respective liabilities for the company’s debts and obligations are limited to the extent of the value of their respective shareholding.
BHD 1 Million
Closed Joint Stock Company (“BSC(c)”)
Comprising of 2 or more shareholders where their respective liabilities for the company’s debts and obligations are limited to the extent of the value of their respective shareholding.
The minimum capital requirements of a BSC(c) company undertaking financial related activities will depend on the requirements of the Central Bank of Bahrain, and will vary depending on the type of regulated activity the entity will engage in. A BSC (c) undertaking non-financial related activities has a minimum issued share capital of BHD 250,000.
Foreign Company Branch
The parent company must guarantee the liability of its branch in Bahrain.
Protected Cell Companies (“PCC”)
A PCC is a single legal entity made up of a core and one or more parts called ‘cells’. Once incorporated a PCC can have unlimited cells.
To be determined by the Central Bank of Bahrain on a case by case basis.
Investment Limited Partnerships (“ILP”)
The limited partnership is the vehicle of choice worldwide for closed-ended investment funds.
An individual establishment is a simple business arrangement whereby an individual trades on his/her own account pursuant to a trade license issued in his/her own name. This form of business entity is referred to as an ‘establishment’ rather than a company and the individual is personally liable for the business to the full extent of his/her personal assets. The establishment does not have an independent legal form from that of the owner. The establishment must be owned by a maximum of one (1) Bahraini individual.
WLL is comparable to a Limited Liability Company in other countries of the GCC and is the most common form of business vehicle. WLLs must consist of a minimum of one (1) and a maximum of fifty (50) shareholders who can be natural persons or corporate legal entities. The shareholders are responsible for the company’s debts and obligations only to the extent of their respective shares in the capital. There is no minimum share capital prescribed by the Commercial Companies Law. Instead, the WLL must more generally have a level of capital sufficient for it to carry out its objectives. WLLs are required to appoint at least one general manager who has the same obligations, duties and responsibilities as a director in a Joint Stock Company (see below). The company cannot issue shares to the public, and can be 100% foreign-owned, again depending on the business activity of the WLL.
Various documents are required to incorporate a WLL company which includes but is not limited to, a deed of association, capital deposit certificate and a lease agreement in the name of the WLL.
Additional documents may be required where the party looking to incorporate a WLL is a corporate body. Such documents may include, but are not limited to, a copy of the registration certificate of the corporate body, constitutional documents of the corporate body and a resolution from the corporate body’s board of directors/general assembly approving the incorporation of a WLL in Bahrain.
A general partnership is formed between two or more natural or corporate persons. All partners assume joint responsibility to the extent of their entire personal assets for the partnership’s debts and liabilities. There is no requirement of a minimum share capital, there must be at least one manager and again, depending on the relevant business activity, they can be 100% foreign-owned.
A Bahrain Shareholding Company (“BSC”) also referred to as a Public Joint-Stock Company is typically listed on the Bahrain Bourse. The company consists of a minimum of two shareholders and the shareholders are liable for the company’s debts and obligations only to the extent of the value of their shares. The minimum share capital required is BHD 1 million and there must be a minimum of five directors. The board of directors must comprise a number of independent and non-executive directors. The shares can be offered to the public and any offering of shares to the public must be subject to approval from the Central Bank of Bahrain and in compliance with the CBB’s Offering of Securities Module (Volume 6 of the CBB Rulebook) and subject to approval of the Ministry of Industry and Commerce.
The recent amendments to the Commercial Companies Law 2001 allow for the incorporation of public joint stock companies with the participation of foreign capital and expertise, by removing the previous requirement for all shareholders in a public joint stock company to be of Bahraini nationality.
All restrictions relating to trading in stocks and shares representing foreign capital in a public joint-stock company have been removed, thus indicating the efforts by Bahrain’s government to encourage direct foreign investment in the Kingdom.
Public Joint Stock Companies must adhere to the Corporate Governance Code issued by the MOIC. There are further regulatory requirements on companies licensed or regulated by the Central Bank of Bahrain which may, amongst other things, increase the minimum share capital requirement and board composition.
Commonly known as a Closed Joint Stock Company (“BSC(c)”) and consisting of a minimum of two (2) shareholders. Shares in such companies cannot be offered for sale to the public. As is the case with public shareholding companies, shareholders are liable for the company’s debts and obligations only to the extent of the value of their shares. The minimum share capital required is BHD 250,000 and there must be a minimum of three directors. The board of directors must comprise a number of independent and non-executive directors. A BSC(c) company can be 100% foreign owned but this is dependent on the business activity of the company.
BSC(c) companies must adhere to the Corporate Governance Code issued by the MOIC. There are further regulatory requirements on companies licensed or regulated by the Central Bank of Bahrain which may, amongst other things, increase the minimum share capital requirement and board composition.
The minimum capital requirements of a BSC(c) company undertaking financial related commercial activities will depend on the requirements of the Central Bank of Bahrain, and will vary depending on the type of regulated activity the entity will engage in. A BSC (c) undertaking non-financial related commercial activities has a minimum issued share capital of BHD 250,000.
Foreign companies may establish branches in Bahrain, without the need for a local partner, if the commercial activities that will be undertaken are open to foreign ownership.
Branches of foreign companies may be subject to obtaining further approvals in Bahrain depending on their commercial activities. For example, companies looking to engage in banking and insurance activities must obtain a licence from the Central Bank of Bahrain.
Please note that where a branch is set up to engage in commercial activities in Bahrain which necessitate a minimum percentage of Bahraini or GCC ownership, then the following requirements are generally imposed with respect to the foreign parent company:
The foreign parent company must have been in existence for at least three (3) full years;
The foreign parent company must be 100% by GCC nationals; and
The foreign parent company itself must be established in a GCC jurisdiction.
The liabilities of the branch are guaranteed by the parent company, and it is a requirement under the Commercial Companies Law that the parent company provides a guarantee in relation to its’ branch, and appoints a branch manager.
A PCC is a single legal entity made up of a core and one or more parts called ‘cells’. Once incorporated a PCC can have unlimited cells. The cells do not have their own legal personality but do offer ring-fencing of assets and liabilities. A PCC has one board of directors that manages the affairs of the PCC as a whole. PCCs are regulated by the Central Bank of Bahrain.
A PCC may either be a newly incorporated entity, or alternatively, an existing company may be converted to a PCC subject to the Central Bank of Bahrain’s approval. There is no minimum capital requirement for the core or any cell; however, the Central Bank of Bahrain will determine the minimum capital requirement in each case.
The purpose of a PCC is to provide a vehicle which may create cells to separate parts within which assets and liabilities may be segregated. This concept of ‘ring-fencing’ is fundamental to PCCs. The key principle is that the assets of a cell are only available to the creditors and shareholders of that particular cell.
On an international level, Investment Limited Partnerships are generally used to structure closed ended funds; and the ILP structure is understood by international fund investors. ILPs allow clear legislative backing to popular fund structure choice internationally. They also provides an additional option to fund promoters. The introduction of ILPs in Bahrain catches up with neighbouring GCC jurisdictions namely Dubai, Abu Dhabi and Qatar. Another advantage of ILPs is that they provide investors with options vis-à-vis their respective rights and liabilities.
An ILP clearly designates a responsible entity for fund management and control. It allows flexibility for division of profits from a fund, and avoids corporate requirements for capital maintenance. Further, it places clear fiduciary responsibilities on the general partner.
The documents include (but are not limited to):
Powers of Attorney issued by the proposed shareholders in favour of the attorneys / representatives of the shareholders;
Resolutions issued by the any proposed corporate shareholders;
Commercial licenses of any corporate shareholders;
Articles of association of any corporate shareholders;
Passport copies of directors, authorised signatories, individual shareholders and Ultimate Beneficial Owners;
A lease agreement over suitable premises in Bahrain;
An Electricity and Water Authority and Municipality account; and
A capital deposit certificate confirmation that an ‘under formation’ bank account has been opened with a commercial bank in Bahrain, in which the share capital has been deposited.
What amendments have been made to Bahrain companies law? Several amendments have been made to the Commercial Companies Law over the past years, however Resolution No. 28 of 2020 amending certain provisions of Law No. 21 of 2001 concerning the Commercial Companies Law introduced a range of significant amendments to the Commercial Companies Law, including the merging of Single Person Companies with With Limited Liability Companies, new methods of capital increase in Joint Stock Companies and other changes made to the Commercial Companies Law.
Before the merge, very little would differentiate between SPCs and WLLs as both types of companies had limited liability, but only one shareholder would own SPCs, whereas two or more would own WLLs. The most evident differences were the ending of the commercial names, and the type of constitutional document – SPCs had “Articles of Association and Founder’s Declaration” whereby WLLs have a “Memorandum of Association”.
As a result of the merge, all SPCs (WLLs owned by one shareholder) commercial names shall now be followed with “WLL” instead of “SPC”. This should be reflected on the company’s papers and office signboard. Additionally, SPCs (WLLs owned by one shareholder) were required to change their constitutional documents from “Articles of Association and Founder’s Declaration” to “Deed of Association”.
The provisions in the Commercial Companies Law that covered SPCs have been repealed. In terms of changes to the provisions covering WLLs, this includes the removal of a minimum or maximum number of shareholders. Moreover, there are no longer a minimum capital requirement for WLLs (with the exception of certain commercial activities). Instead, a WLL company must more generally have a level of capital sufficient enough for it to achieve its objectives.
One of the main changes to the Commercial Companies Law is the introduction to different methods of capital increase in Joint Stock Companies. The purpose of this is to incentivise investors to invest in companies in Bahrain. These rules make it easier and faster for Joint Stock Companies to raise capital. Companies can choose from different options to raise finance or increase capital. For example, companies can issue preference shares or convertible notes to get finance and increase capital. Convertible notes allow companies to obtain finance from investors in the form of a loan which can be either repaid with interest or converted into shares equivalent to the amount of the loan plus interest. This benefits investors as it provides a degree of protection whereby the note holder has priority over the rights of shareholders.
Additionally, the rules related to in-kind assets have been amended. Based on the amendment to the Commercial Companies Law and its Implementing Regulations, the valuation of in-kind assets can be carried out by experts or audit firms. The valuation will then need to be approved by the MOIC. Previously, the valuation was carried out by a committee formed by the MOIC.
Companies can also now issue new preferred shares that have rights and privileges with respect to voting and/or profits, or other rights and privileges. Moreover, a company can increase its capital for the entry of a new strategic partner, after conducting a detailed study outlining the need for this and the added value that will result upon the entry of the new strategic partner.
Limited Partnerships can now have a standalone commercial name, rather than a commercial name that incorporates the names of the partners only.
Not-for-profit Companies: a new section has been added to the Commercial Companies Law introducing a new form of company called the not-for-profit company.
Subject to rules of the Central Bank of Bahrain, a company’s statutory reserve can be used to increase its capital in order to cover any losses.
Employee share schemes and pre-emption rights: T&Cs of employee share schemes must be fully disclosed to employees. Additionally, pre-emption rights in respect of shares issued under such employee share schemes or issued to a strategic shareholder have been waived.
A Joint Stock Company’s board report must include details of the board’s remuneration, bonuses, shareholdings and benefits.
.
Resolution No. 40 of 2021 concerning the commercial activities for which licenses may be granted to foreign companies.
Further liberalisation of foreign ownership restrictions with reference to a host of commercial activities has been facilitated by the MOIC’s recent implementation of Resolution No. 40 of 2021 – as a result, various commercial activities which previously necessitated a minimum of 51% GCC ownership (meaning that any Bahrain company proposing to practice such commercial activities would need to be owned 51% by GCC nationals or an entity set up in a ‘onshore’ GCC jurisdiction (which is in turn owned 100% by GCC nationals) may, depending on the commercial activity in question, be practiced by:
Any entity incorporated in Bahrain which is 100% foreign owned, provided that certain capitilisation requirements are met (a total of 178 different commercial activities have been amended to fall within this category); or
Any entity incorporated in Bahrain that is at least 1% owned by GCC nationals or an entity set up in an ‘onshore’ GCC jurisdiction (which is in turn owned 100% by GCC nationals).
Any natural person or persons who satisfy any of the following factors will be deemed to qualify as a UBO with respect to a Bahrain company:
Owning or controlling, directly or indirectly, 10% or more of the Bahrain company’s capital or voting rights;
Having the ability to make or influence decisions of the Bahrain company either directly or through other means such as personal communications or through participation in the financing of the project, a family relationship, any contract, arrangement or understandings, or through a hierarchical entity (in the ownership chain of legal entities);
Contributing towards the financing of the business of the Bahrain company or its assets or benefiting from the Bahrain company’s transactions;
Having effective ultimate control of the Bahrain company through a series of ownership or other control instruments other than direct control;
Having direct or indirect control over the operations of the Bahrain company, whether through a management agreement, power of attorney or similar instrument;
Where the Bahrain company is an entity owned by another entity, then the UBO is the natural person who is the ultimate owner of the ownership chain or who has effective control over it; and / or
Exercising control through management positions within the Bahrain company in such a way as affects the strategic decisions or influences the general direction of the Bahrain company.
Where the application of the above factors results in there being multiple UBOs for a Bahrain company, then the relevant information and documents must be submitted to the MOIC with respect to each of the UBOs.
Resolution No, 83 of 2020 concerning the standards, requirements and rules to determine the Ultimate Beneficiaries: with the exception of entities licensed and regulated by the Central Bank of Bahrain, Bahrain’s UBO rules apply to all companies registered with the MOIC (“Registered Person(s)”). Amongst other obligations, the Registered Person must provide the MOIC with all prescribed information relating to its UBO(s), and has a continuing obligation to update such information and documents immediately (if applicable) upon a change of UBO(s) or their details.
The UBO Resolution defines a UBO as any natural person or persons who satisfy any one of 7 factors below:
Owning or controlling, directly or indirectly, 10% or more of the Registered Person’s capital or voting rights;
Having the ability to make or influence decisions of the Registered Person either directly or through other means such as personal communications or through participation in the financing of the project, a family relationship, any contract, arrangement or understandings, or through a hierarchical entity (in the ownership chain of legal entities);
Contributing towards the financing of the business of the Registered Entity or its assets or benefiting from the Registered Person’s transactions;
Having effective ultimate control of the Registered Person through a series of ownership or other control instruments other than direct control;
Having direct or indirect control over the operations of the Registered Person, whether through a management agreement, power of attorney or similar instrument;
Where the Registered Person is an entity owned by another entity, then the UBO is the natural person who is the ultimate owner of the ownership chain or who has effective control over it; or
Exercising control through management positions within the Registered Person in such a way as affects the strategic decisions or influences the general direction of the Registered Person.
In terms of timeline for registration of the UBO, the information and documents should now be submitted to the MOIC without delay. Where a Registered Person has not submitted such details, it will be barred from submitting any other applications on the MOIC’s online portal. Penalties for non-compliance include violations placed on the CR, suspension of the CR for a period of up to six months, cancellation of the CR and imposition of financial penalties.
Public listed companies and closed joint stock companies and those generally licensed by the Central Bank of Bahrain are subject to Corporate Governance principles, which sets out minimum standards for corporate governance. These principles adopt a “comply or explain” approach which means that companies are expected to comply with the code or provide reasons for non-compliance. The Commercial Companies Law also contemplates the promulgation of a charter relating to Corporate Management and Governance which will apply to all companies except for public companies and any CBB licensed companies which are subject to corporate governance principles issues by the Central Bank of Bahrain.
In relation to responsibilities of directors of a company, generally:
Directors owe fiduciary duties to their companies to act bona fide in what they consider to be the best interests of the company, to exercise their powers for the purposes for which they are conferred and not to place themselves in a position where there is a conflict between their personal interests and their duty to the Company.
A director must exercise his powers independently, without subordinating those powers to the will of others, except to the extent that they have properly delegated their powers. The nature and scope of this duty can only be determined by reference to the actual circumstances of each case.
Directors have, both collectively and individually, a continuing duty to acquire and maintain a sufficient knowledge and understanding of the company’s business to enable them to properly discharge their duties as Directors.
Whilst directors are entitled (subject to the constitutional documents of the Company) to delegate particular functions to those below them in the management chain, and to trust their competence and integrity to a reasonable extent, the exercise of the power delegation does not absolve a Director from the duty to supervise the discharge of the delegated functions.
No rule of universal application can be formulated as to the duty referred to in (ii) above. The extent of the duty, and the question whether it has been discharge, must depend on the facts of each particular case, including the Director’s role in the management of the Company.
The Directors’ duty to exercise reasonable care, prudence, skill and diligence comprises both and objective and subjective element:
Objective: they must exercise the care, skill and diligence that would be exercised by a reasonably diligent person having the general knowledge, skill and experience reasonably expected of a person acting as a Director of such a Company (guidance may be sought from the ‘Code of Corporate Governance’). They are expected to perform a high level supervisory role i.e. they need to satisfy themselves, on a continuing basis, that the various professional service providers are performing their functions in accordance with the terms of their respective contracts and that no managerial and/or administrative functions which ought to be performed are being left undone. They are expected to act in a professional, business manner.
Subjective: Directors are required to exercise the knowledge, skill and experience which they actually possess.
Directors have a duty to exercise an independent judgment. Each Director owes duties to the Company to inform himself/herself about its affairs and to join his/her co-Directors in supervising and controlling them. A proper degree of delegation and division of responsibility is permissible, and often necessary, but, total abrogation of responsibility is not. A board of Directors must not permit one individual to dominate them and use them.
Directors must apply their minds and exercise an independent judgment, in the ordinary course of business, in respect of all the matters falling within the scope of their supervisory responsibilities. They are not entitled to simply rely on others and sign off on matters put before them without making enquiry or applying their minds to the matter in issue.
If a director (or partner or founder or board member as the case may be) does not comply with the duties listed above, and if the provisions of the company’s constitutional documents are violated, whether in a BSC (public or closed), WLL or SPC, the director will be personally liable for any damages the company, partners, shareholders or any third party affected.
Depending on the proposed commercial activities to be undertaken in Bahrain, licenses or approvals may be required from the relevant competent regulator. These include the regulators detailed below.
Central Bank of Bahrain: The Central Bank of Bahrain is the primary regulator for the financial services industry and also has oversight in relation to listed companies on the Bahrain Bourse. Any business looking to carry out financial activities in Bahrain needs to be licensed by the Central Bank of Bahrain.
CRPEP: All project management and engineering activities require an engineering license and are regulated by the CRPEP. CRPEP imposes stringent residency, qualification, and experience requirements on individuals and firms wishing to undertake such commercial activities in Bahrain. A local engineering licence is issued to a qualified Engineer in his personal capacity. That means that the owner of the Local Engineering Office, must be a Bahraini, GCC or US national and must be an accredited Engineer by training and profession. The appointment of a manager or a director recognised and categorised by CRPEP to undertake engineering related commercial activities on behalf of an owner who does not have the required engineering qualifications is insufficient. The owner must apply for a personal Bahrain licence and a local engineering office. A foreign branch may carry out engineering commercial activities so long as the foreign branch meets the following conditions:
the foreign branch has been established for a period of 15 years;
the foreign branch has the required experience, and technical calibre that is not found in Bahrain; and
the foreign branch has obtained professional liability insurance.
Ministry of Health: Certain commercial activities require the approval of the Ministry of Health. Such commercial activities include and are not limited to the import/export of cosmetics, manufacturing food products, the sale of foods and beverages.
National Health Regulatory Authority (“NHRA”): NHRA is the regulatory body responsible for regulating healthcare services and licensing of healthcare professionals, facilities and equipment, medicines and drugs in the Kingdom of Bahrain. The NHRA law has been amended to replace the NHRA Board with the Supreme Health Council which is established by Decree No. 5 of 2013. The Supreme Health Council undertakes all of the powers previously performed by the NHRA Board under the NHRA Law including issuing the relevant NHRA decisions.
Ministry of Education: The Ministry of Education is the body responsible for the regulation of all education related commercial activities in Bahrain. It achieves this through drawing up development plans, overseeing their implementation and finally, carrying out an evaluation to ensure that the quality and effectiveness of the Kingdom’s education system falls in line with international standards.
There are various education related commercial activities that may be undertaken in Bahrain. For instance, within the private education sphere, founders may choose to incorporate as a National Private School (which teaches up to secondary school) or a National Educational institute. There are certain requirements to be met in order to set up a private institution. In addition to set building specifications, there are certain minimum capitalisation requirements.
The Real Estate Regulatory Agency (RERA) was established in 2017 and became operational in March 2018. RERA’s role is to act as regulator for the real estate sector in Bahrain. Since its incorporation RERA has played a pivotal role in developing the legal sector in Bahrain, by issuing its National Real-estate Sector Vision.
RERA has also assisted in implementing several key regulations, including regulations for combating and preventing money laundering and terrorism financing in the Real Estate Sector; decisions regulating the role of Owner Associations; and has further assisted in the easement of stalled projects by playing an advisory role to the Court Committee Responsible for Stalled Projects.
The Tender law and its Implementing Regulations apply to all ministries, organisations, public institutions, municipalities and government authorities that have an independent or supplementary budget, and companies that are fully owned by the government, Consultative Council and House of Representatives. The laws do not apply to the Bahrain Defence Force, Public Security forces and the National Guard with respect to the purchase of goods, services of a military, security or confidential nature. Any procurement of goods or services above BHD 25,000 shall be carried through the Tender Board.
A public tender may take the following forms:
a local tender: limited to companies and organisations registered in the Bahrain; or
an international tender: allows the participation of local and international companies and firms that are registered or unregistered in the Kingdom of Bahrain, provided that the unregistered international companies and firms shall register according to the applicable regulations in the Kingdom within 30 days from the date said company is awarded the tender.
The Tender law has set out four methods of entering into a contract between bidders and public authorities in Bahrain:
Two Phase Tender: A contract may be entered into by a two-phase tender in the event that it is feasible to draft detailed specifications or in the event that the purchasing authority is willing determine the characteristics of services to obtain the best solutions and maintains a sufficient time-window to conduct such a process through a two-phased tender.
Limited Tender: contracts may be entered into by way of a limited tender in in certain limited cases, including where the goods or services are deemed to be unavailable due to their sensitive nature except with a limited number of suppliers.
Competitive Negotiation: contracts may be entered into by way of competitive negotiation in certain cases, including where the goods cannot be identified by precise specifications or the technical works of the service shall be conducted by a limited number of technical personnel, specialists or appointed experts or in the event where urgent necessity does arise (i.e. disasters) to which a full procurement process would be deemed unreasonable to conduct.
Direct Purchase (From a Single Source): contracts may be entered into by way of direct purchase in the event that the goods or services are not available except with certain suppliers or contractor and there is no appropriate substitute, emergency cases that limit the initiation of the abovementioned tendering processes or if procurement shall be concluded for the purposes of research and experimentation.
Law No. 22 of 2018 concerning the Restructuring and Insolvency Law Bahrain introduced the insolvency regime in Bahrain to promote efficiency in the insolvency process. This legislation was amended in 2020 by virtue of Resolution No. 25 of 2020. The legislation applies to:
Commercial companies established in Bahrain (including those established by virtue of law or decree);
Natural person traders who either do business or have their headquarters in Bahrain.
The legislation will not govern insolvency of entities regulated by the Central Bank of Bahrain.
Commencing Insolvency ProceedingsBoth debtor(s) & creditor(s) may commence insolvency proceedings upon the satisfaction of the insolvency test. A debtor is deemed to have satisfied the insolvency test if:
he/she is unable to pay its debts on the maturity dates or fails to pay such debts within thirty (30) days of their maturity or from date of creditors’ notice to pay; or
the value of the debtor’s financial obligations exceed the value of his/her assets.
The High Civil Court, before accepting an action by either party to commence insolvency proceedings, will verify whether the conditions stipulated above are satisfied and will provide the debtor (where a creditor institutes an action) or a creditor (where a debtor institutes an action) the opportunity to object to such action.
The Insolvency Trustee (alternatively referred to as a Restructuring Trustee or Liquidator where relevant) is appointed by the High Civil Court to perform the duties and tasks in liquidation or restructuring proceedings.
Insolvency assetsAssets that are subject to the insolvency proceedings include:
Debtor’s movable and immovable properties located in Bahrain and/or abroad;
Properties acquired after commencement;
Debtor’s rights in properties owned by third parties;
Funds and proceeds generated by the continuation of the debtor’s business operations;
Proceeds from the insolvency assets of all kind and nature; and
Funds recovered through avoidance proceedings.
Stay of Proceedings and Moratoria The commencement of insolvency proceedings automatically causes stay of any other judicial proceedings or execution procedures on the insolvency assets such as any debt enforcement procedures against the debtor’s insolvency assets, any attachment or enforcement on encumbered properties of debtor or any acquisition over any insolvency asset.
Doing Business Commencement of proceedings does not prevent the debtor from continuation of business and utilisation of properties for necessary transactions if carried out in the ordinary course of business.
In case of a restructuring, the insolvency trustee may, with due authorisation manage the debtor's business & execute unperformed contracts concluded by the debtor in the ordinary course of business. Whereas on a liquidator’s request, the High Civil Court may approve the operation of the debtor's business for a limited period if doing so maximizes the value of assets.
Cross-border insolvency A feature of the legislation that stands out is the inclusion of a mechanism for cooperation between courts and competent authorities in foreign countries and Bahrain involved in cross-border proceedings.
The cross-border insolvency provisions apply to:
Assistance applications submitted by a foreign court or representative in connection with any foreign proceedings;
Assistance applications submitted in a foreign country in connection with insolvency proceedings;
Any foreign proceedings initiated against a debtor at the same time as proceedings initiated with respect to the same debtor; and
Applications submitted by a creditor or any foreign stakeholder for initiation of or participation in insolvency proceedings against a debtor.
Foreign creditors are accorded equal rights and treatment with creditors in Bahrain with respect to the commencement and participation in insolvency proceedings. The provisions governing cross-border insolvency will be interpreted in accordance with the guidelines of the UNCITRAL Model Law on Cross-Border Insolvency.
Law No. 31 of 2018 concerning Competition Promotion and Protection is the main antitrust legislation in Bahrain (“Competition Law”)
The Consumer Protection Directorate of the MOIC has provisionally assumed the duties and responsibilities of the Competition Promotion and Protection Authority, which is responsible for governing and enforcing the provisions of Competition Law. The law governs all entities engaging in any economic activities in any form within Bahrain. The law also extends to activities taking place outside Bahrain that affect competition within the country.
Any economical arrangement that are intended to result in the following is prohibited:
Causing an effect on the prices of domestic as well as imported goods and services by increasing, reducing or fixing the price or through the fictitious or imaginary transactions or in any other form;
Limiting or controlling the production, marketing, technical development or investment;
Sharing the markets or sources of supply;
Disseminating, with knowledge, incorrect information about goods and services and their prices;
Colluding in bids or proposals submitted in the auctions, tenders or practices, and causing an effect on the price of offers for sale and purchase of goods and services;
Fabricating sudden abundance of goods and services leading to exchanging these goods and services at a false price that does not affect the other competitors; and
Doing a collusive practice by refusing to buy, sell or supply from a particular facility in order to prevent or impede the exercise of its activities.
There are however grounds for exceptions where it can be proven that such exception is in the public interest or if it satisfies specified conditions set out in the legislation. Entities that qualify as micro and small businesses are also able to request a three-year exemption from the above-mentioned anti-competitive arrangements.
The concept of “dominant position” has been introduced and an entity is considered to be in one if it has the economic power to prevent an effective competition in the market and enjoys significant independence than any of its competitors. An entity is in a dominant position if its share in the relevant market exceeds 40% (and in cases where a group of entities are involved the threshold is 60%). The law identifies instances which constitute abuse of dominant position which include (but are not limited to):
The direct or indirect imposition of sale or purchase prices or other trading terms;
Reduction of production, markets or technological development, to the detriment of consumers;
Discrimination in agreements or contracts, whatever their kind, concluded with the suppliers or the customers if their contractual positions are similar, whether it is a discrimination in terms of price, product quality or other dealing conditions.
An “economic concentration”, which can be carried out only with the approval of the Competition Promotion and Protection Authority arises if there is a change in the control of an entity as a result of any of the following:
The merger of two or more entities, in whole or in part, if those facilities are independent of each other before the merger.
“Direct or indirect control over an entity or a part thereof, by any of the following: (1) one or more natural persons having the control over one or more entities, (2) another entity or more.
Establishment of a joint venture whose all functions are carried out by an autonomous entity.
The new legislation also imposes a significant financial liability (in the form of fines) as well as criminal liability (in the form imprisonment) for violations of its provisions.
Bahrain’s laws allow for contractual joint ventures to be established between parties, which are usually governed by a joint venture agreement. Such agreements typically set out the parties’ rights and obligations, provide for how a company is to be operated and deal with the division of profits and losses of the company.
The business vehicle for such a company will most likely take the form of one of the vehicles discussed above (most typically, a WLL Company), or may be carried out on the basis of an unincorporated contractual joint venture between distinct corporate entities. Typically, the parties’ relationship is governed by the constitutional documents of the company and a joint venture agreement. Agreements such as the joint venture agreement are generally recognised in Bahrain so long as they are not contrary to the laws of Bahrain.
Bahrain introduced a new trusts law, Law No. 23 of 2016 (the “Trusts Law”)replacing the Bahrain Financial Trusts Law 2006, which was also the first attempt by any country in the GCC region to introduce a law to govern trust formation and related commercial activities.
The Trusts Law defines a trust as a legal relationship created by a settlor, in his lifetime or upon his death, whereby business and/or personal assets are placed under the control of a trustee (or in the name of a third party on behalf of the trustee) either for the benefit of a beneficiary (or group of beneficiaries), or for a specified charitable/non-charitable purpose. A trust instrument must:
be in writing (trust deed);
identify the settlor and the trustee(s);
identify the purpose of the trust or the beneficiary;
identify the trust property;
specify the duration of the trust, the maximum term being 100 years; and
identify duties and powers of trustee.Generally, any form of property or any financial right relating to an intangible asset can be included in a trust. The object and purpose of the trust must be defined, be feasible and must not violate the law, or public policy. The Trusts Law formally recognises foreign governing law for trusts, thereby allowing parties to choose a foreign law to govern the manner in which trustees may be appointed, resigned and removed. The law also allows parties to choose different governing laws in respect to severable aspects of the trust. It covers all forms of trust structures and is designed to facilitate a range of transactions across a number of sectors, including estate planning, charitable activities and financial activities.
The Trusts Law also follows the footprint of Article 7 of the Hague Trust Convention and sets out a fall-back conflicts rule applicable in the cases where the applicable law is not explicitly or implicitly expressed in the terms of the trust instrument. In such a scenario, the governing law will be that with which the trust is most closely connected.
Trusts must be registered in the Register of Financial Trusts maintained by the Central Bank of Bahrain and such trusts must fulfil certain characteristics in order to be valid.
All documents prepared or assembled outside Bahrain and which are used for incorporating an entity in Bahrain or seeking a license to carry out business must be:
notarised by a notary public in their country of origin;
stamped by the Ministry of Foreign Affairs and the Embassy of Bahrain (or designated Bahraini Consulate in the region) at the country of origin; and
further be stamped by the Ministry of Foreign Affairs in Bahrain.
Bahrain is a signatory to the Hague Apostille Convention. Therefore, if the documents were issued from another signatory country, there is no need to go through the legalisation process under paragraphs (2) and (3) above after obtaining the Apostille stamp.
Upon their receipt in Bahrain, if the documents are not in Arabic, they may need to be translated into Arabic by a recognised translation firm in Bahrain.
Bahrain’s implementation of the Anti-Money Laundering Law in 2001, as amended and its membership in the Financial Action Task Force (“FATF”) puts it in a strong position to counter the financing of terrorism and prevention of money laundering. A person who commits any of the following acts shall have committed an offence related to money laundering:
failure to disclose to the Enforcement Unit any information or suspicion acquired in the course of that person’s trade, business, profession, employment or otherwise regarding the offence of money laundering;
failure or refusal to follow or obstruction or hindering of any order issued by the Enforcement Unit or issued at its request by the Investigation Magistrate pursuant to investigation of the offence of money laundering; and
disclosure of any information or suspicion acquired in the course of that person’s trade, business, profession, employment or otherwise regarding the issue of an investigation order or attachment order in a money laundering offence, where such disclosure is likely to prejudice the investigation.
In June 2017 the CBB introduced a regulatory sandbox aimed at enabling firms to test and develop their products in a virtual space. Bahrain was the second state within the Gulf Cooperation Council to implement such a framework.
The regulatory sandbox is a framework and process that facilitates and encourages the development of the financial technology (FinTech) sector in a safe, measured and pragmatic manner, consisting of a virtual space and safe area in which FinTech businesses (both established and start-ups) can test and refine their technology based innovative products, services and platforms without being immediately burdened by the usual regulatory and financial requirements which would otherwise apply to their activities. The effect is that FinTech firms are able to experiment with their products and services for a specified timeframe within a partially deregulated environment where the firms are able to offer their products and services to customers, but where risks to customers (and to the wider financial system as a whole) are mitigated none the less.
Since its establishment, a variety of entities have entered and graduated successfully from the CBB Sandbox, including Rain (the first regulated digital currency exchange in the region) and Tarabut Gateway, one of the MENA region’s largest open banking platform.
The CBB also has a dedicated FinTech Unit within the CBB with the mandate of ensuring the provision of the best services to individual and corporate licensees in the financial sector. The FinTech Unit is responsible for the approval process to participate in the regulatory sandbox, as well as supervision of licensed companies’ activities and operations, including cloud computing, payment and settlement systems, and monitoring technical and regulatory developments in the FinTech field.
The introduction of the new framework and the creation of a dedicated FinTech Unit within the CBB is consistent with Bahrain’s continued focus on further developing the Kingdom as the emerging FinTech and financial services hub of the Middle East region, promoting increased competitiveness and encouraging the adoption of new technologies. At the same time, the safeguards built into the scheme will assist to maintain the required level of consumer protection and regulatory oversight which have long established Bahrain as a key financial sector hubs in the region.
The CBB introduced FinHub 973 which is the region’s first cross-border, digital innovation platform that connects and facilitates collaboration between financial institutions and fintechs under the supervision of the CBB. Powered by Fintech Galaxy, FinHub 973 enables local and global fintech’s to connect seamlessly with Bahrain’s financial institutions for exploring, testing, and prototyping on a centralised digital sandbox.
FinHub973 integrates the technical testing and validation of digital solutions with the regulatory framework of the CBB. The platform also showcases qualified fintechs for collaboration, procurement, partnerships and investment within Bahrain’s ecosystem, while also interfacing with regulatory authorities to facilitate quicker and easier regulatory testing and supporting business scalability.
Some post-incorporation considerations include:
Registering trademarks in Bahrain;
Preparation of employment contracts and/or HR Policies;
Registering with the Labour Market Regulatory Authority for issuance of work permits; and
Registering with the National Bureau for Revenue for the purposes of VAT.
A normal Commercial Registration (CR) renewal (i.e. one without any special licenses from external regulatory authorities) costs BHD 50-100, in addition to Bahrain Chamber of Commerce fees that range between BHD 20 – 1,000 (depending on the share capital of the entity). In addition to the renewal of a Commercial Registration (CR), the MOIC also require the renewal of Commercial Registration (CR) activities. The MOIC charges a fixed government fee of BHD 100 where the Commercial Registration (CR) has on it between 1 and 3 commercial activities, with an additional fixed government fee of BHD 100 to apply for each additional commercial activity undertaken by the company (over and above the first 3 commercial activities). Where the company is paying activity fees to other regulatory bodies or licensing entities in the Kingdom of Bahrain, the MOIC will disregard such activity upon counting the number of activities undertaken by the company.
Can Agents by appointed in Bahrain?Where a foreign investor wants to enter the Bahrain market by introducing its products into the market without setting up an entity, it can appoint an agent, who must be a Bahraini individual or a Bahraini corporate entity (the capital of which is owned at least fifty one percent (51%) by Bahraini nationals). The parties’ relationship may be governed by the Bahrain Commercial Agencies Law (promulgated by Legislative Decree No. 10 of 1992 as amended by Legislative Decree No. 8 of 1998 and Legislative Decree No. 49 of 2002) ("Commercial Agency Law”), which allows the agent to register a sole agency for the product.
What is Commercial Agency?Commercial Agency Law defines a commercial agency as an arrangement whereby an agent represents a principal in the distribution or sale of goods and products in Bahrain, without the principal having any legal presence in Bahrain.
What are the general conditions / requirements under the Commercial Agency Law?In order for the Commercial Agency Law to be applicable to a principal and agent relationship, the agency in question must be in writing and registered with the MOIC. The commercial agency agreement shall fulfil certain conditions, which include (i) name and nationality of the parties; (ii) details of good or services which form part of the arrangement; (iii) details of the territory covered; (iv) term / duration of the arrangement; (v) domicile of both parties; (vi) brand name and trademarks covered.
If these requirements are not met and consequently or otherwise an agreement is not registered, the Commercial Agency Law will not apply to the agreement. However, non-registration will not render the agreement invalid or void as such. The agreement will remain valid however it will not fall under the commercial agency regime.
What does Commercial Agency Law say on exclusivity and non-exclusivity? The parties are free to agree on exclusive or non-exclusive commercial agency arrangement. In case of non-exclusive agency, more than one local agent can have the relevant commercial agency agreement registered before the MOIC.
What are the implications of application of the Commercial Agency Law? It must be noted that registration under the Commercial Agency Law provides protections to the local distributor in the context of termination and non-renewal of the agreement, which are leaned in favour of the local distributor. As such, the foreign principal is exposed to a potential claim for compensation should it terminate or refuse to renew the arrangement without the distributor’s consent or otherwise without having a valid reason.
There are certain disadvantages of having a registered distributor for the foreign principal, which are primarily related to the restricted ability of the foreign principal to terminate the agreement and/or refuse to renew the agreement, and have it de-registered before the ministry and exposure in the context of compensation proceedings.
What is the basic legal system in place in your jurisdiction (civil law, common law, sharia law, a mix, etc.)?
Bahrain operates under a civil law system with Civil Courts and Shari'a Courts. The Civil Courts are authorized to settle all administrative, commercial and civil cases, as well as all cases involving disputes related to personal status of non-Muslims. The Shari'a Courts hear all issues in relation to the personal status of Muslims of all nationalities.
In addition to the Civil Courts and Shari'a Courts, there is a Constitutional Court which acts as an independent judicial authority solely tasked with reviewing and ensuring that no enacted laws contradict the Constitution of Bahrain.
There is no system of binding judicial precedent. The vast majority of proceedings are conducted in Arabic and all non-Arabic documents submitted in proceedings must be translated (see recent legal frameworks for developments relating to English Language Courts).
How does the legal system in place affect business operations, particularly foreign investments? Or are there any limitations or requirements specific to foreign entities when they engage in litigation?
The legal system in Bahrain is based on civil law, which means that there is no system of binding judicial precedent and that in most instances proceedings are conducted in Arabic. This may pose some challenges for foreign investors who are not familiar with the civil law tradition or the Arabic language, and who may need to rely on local translators and experts to assist them in litigation. Moreover, the courts in Bahrain have broad jurisdiction over legal disputes, which may expose foreign investors to litigation risks based on their domicile or place of business in Bahrain.
Foreign entities may also face some limitations or requirements when they engage in litigation in Bahrain. For example, the law does not provide clear guidance on the procedure or criteria for obtaining interim relief, such as attachment of assets or travel bans, as this falls largely to the discretion of the Judge, which may affect the security and enforcement of their claims.
Furthermore, the law does not specify the timeframes for applying for or granting interim relief, nor the deadlines for the courts to issue rulings on such applications, which may create uncertainty and delay for foreign entities seeking urgent protection of their rights. Additionally, the courts in Bahrain have the discretion to award costs, including translations and lawyers' fees, to the successful party, but in practice, such awards are minimal and do not reflect the actual legal costs incurred by a party. Unless the parties submit receipts for the actual expenses incurred, the judges retain discretion to evaluate and determine the appropriate expenses. This may discourage foreign entities from pursuing or defending their claims or may increase their financial burden if they do so.
How is the litigation process initiated in commercial Disputes?
(This should include any mandatory pre-litigation processes, the filing of an initial complaint, the service of documents to the responding party, and any early-stage hearings or case management office that might be required before proceeding to full trial).
The process of litigation is broadly similar across the Bahrain courts. The litigation process in commercial disputes in Bahrain is initiated electronically by submitting an application to the online court portal in the form of a statement of claim. The claimant must pay a court fee of approximately 2% of the claim amount to the clerk of the court. Once the case is registered, all relevant parties will receive a notification along with a copy of the statement of claim and hearing timetable specifying the deadlines for the submissions and requests. In the notification, the defendant will be directed to file a defense memorandum on or before the deadline. Typically, the timeframe between the date of the summons being sent to the defendant and the parties' first appearance in court is 15 days for matters before the High Court or the High Court of Appeal.However, under the new case management system, it is required that the case be managed by the case manager within a period of two months. If necessary, this period may be extended for an additional two months. After this initial management period, the case will be referred to the competent court circuit to be overseen by a panel of judges. Further, the court may, at its own discretion, order a party to submit any additional evidence it deems relevant. The Parties are required to appoint any experts they deem necessary in the prosecution of their case. The court may also adjourn the hearings for any reason it considers appropriate.
There are no mandatory pre-litigation processes in Bahrain, such as mediation or arbitration, unless the parties have agreed to such processes in their contract or otherwise. However, it is possible for the parties to request the court to appoint a conciliator to assist them in reaching a settlement at any stage of the proceedings. Further, in order to adhere to the strict timelines set out in the hearing timetable, parties will generally appoint an expert before filing a claim.
Where urgent proceedings have been requested, the Court for Urgent Matters (a court whose jurisdiction is limited to contingent claims relating to civil matters) will usually give a 24 to 48 hour notice period for attendance unless the court believes that the matter is of such urgency that a shorter timeframe is merited.
Is it mandatory to have local legal representation in courts for businesses?
Yes, all parties are required to appoint local representation with a valid Bahrain Lawyers License in all matters filed before the courts of Bahrain. International Counsel cannot appear before the courts of Bahrain. Parties are permitted to appear in-person, except for matters before the Court of Cassation where a licensed lawyer is required.
What is the average duration for the resolution of commercial disputes through the court system in your jurisdiction from initial filing to final judgment?
The average duration for the resolution of commercial disputes through the court system in Bahrain depends on the level and complexity of the case, as well as whether experts are appointed by the Parties or not. However, some general estimates can be provided as follows:
Cases before the Court of Minor Causes, which have jurisdiction over claims not exceeding BHD 1,000 (approximately USD 2,650), will take approximately three to six months from commencement up to judgment and such judgments are final and not open to appeal.
Cases before the High Court, which have jurisdiction over claims exceeding BHD 1,000, will take approximately three to six months from commencement up to judgment.
Cases before the High Court of Appeal, which hear appeals from the lower courts, will take approximately two to four months from commencement up to judgment.
Cases before the Court of Cassation, which is the highest civil judicial authority in Bahrain and hears appeals on points of law, will take approximately 12 months from commencement up to judgment.
These timeframes assume that the issues in dispute are limited to legal and factual issues, the court has not appointed an expert, and notification of the proceedings does not become protracted.
Could you outline any factors that commonly contribute to prolonging or expediting the litigation process in Commercial Disputes?
Due to the recent developments to the court processes and the hearing timetable provided by the case manager, there are very limited instances where parties will be successful in delaying the court process.
As a result, the Bahraini court system is extremely efficient.
Is there any sector - Specific legal provisions or regulatory frameworks in your jurisdiction that could influence litigation in key areas as Banking and Finance, Real Estate, Oil and Gas?
We do not believe so.
How can a business ensure that it has a valid and enforceable choice of law and jurisdiction clause in its contracts?
A business can ensure that it has a valid and enforceable choice of law and jurisdiction clause in its contracts by following some basic steps.
First, it should carefully consider the suitability of the chosen law for determining any future dispute, taking into account the nature and subject matter of the contract, the familiarity of the parties with the law, and the risk of inconsistency or unpredictability in its application.
Second, it should decide whether to choose arbitration or litigation as a means of resolving disputes, weighing the advantages and disadvantages of each option, such as enforceability, finality, privacy, and procedural flexibility.
Third, it should select a jurisdiction that is compatible with the chosen law and the preferred dispute resolution method, and that has a connection to the contract or the parties, such as the place of performance, the place of incorporation, or the location of assets.
Fourth, it should draft the clause clearly and precisely, using standard language where possible, and avoiding ambiguity or contradiction with other provisions of the contract.
Fifth, it should seek legal advice on the implications of the clause, especially in relation to the Bahrain legal system, which may not uphold or recognize certain choices of law or jurisdiction that involve matters of public policy, mandatory law, or Bahrain sovereignty.
By following these steps, a business can reduce the likelihood of encountering legal challenges or difficulties in enforcing its choice of law and jurisdiction clause in its contracts.
How can a business use interim remedies (such as freezing orders) to secure its position or enforce its rights in litigation?
Interim remedies are legal measures that can be obtained from the courts before, during, or after a judgment to protect or enforce a party's rights or interests in litigation. In Bahrain, a business can use interim remedies such as attachment of assets or travel bans to secure its position or enforce its rights in litigation.
Attachment of assets is a type of interim relief that allows a party to obtain and maintain an attachment over the opposing party's assets, such as movable or immovable property, to prevent their dissipation or to facilitate their enforcement. A party can apply for an attachment order either before or during the course of proceedings, and the court will grant it if there are valid reasons, such as a risk of the defendant hindering or delaying the enforcement of a judgment. If the attachment order is granted before the commencement of substantive proceedings, the party must file the substantive claim within eight days of the attachment being effected, otherwise the attachment will be lifted and treated as void. The attachment order can be appealed within eight days of the notification of the order.
Travel bans are another type of interim relief that can be used to prevent an individual defendant from leaving Bahrain. A party can apply for a travel ban order before the Court of Urgent Matters, which will usually give a 24-hour notice period for attendance, unless the matter is of such urgency that a shorter timeframe is merited. The court will issue the order if it is satisfied that there is a legitimate interest in the case and that the travel ban is necessary to protect that interest. The travel ban order can also be appealed within eight days of the notification of the order.
Interim remedies can be useful tools for a business to secure its position or enforce its rights in litigation, as they can prevent the opposing party from disposing of their assets or fleeing the jurisdiction and can facilitate the execution of a judgment. However, they also entail certain risks and costs, such as the possibility of the order being challenged or lifted, the payment of court fees and expert fees, and the potential liability for damages if the order is wrongly granted. Therefore, a business should carefully consider the merits and drawbacks of seeking interim remedies before applying for them.
What are the rules and framework of proof of evidence and disclosure in your jurisdiction?
The rules and framework of proof of evidence and disclosure in Bahrain are based on the civil law system, which does not follow the principle of binding judicial precedent. The proceedings are conducted in Arabic and any non-Arabic documents must be translated by a local licensed translator. The parties are responsible for substantiating their claims using the evidence on which they wish to rely, and the court may, at its own discretion, order a party to submit any additional evidence it deems relevant.
There is no principle of disclosure similar to common law jurisdictions, and the court will not accept non-specific requests for discovery of documents or information. However, it is possible for a party to request the court to order, or the court on its own power may order, the opposing party to disclose documents that are defined in a specific request, provided that the party requesting the disclosure demonstrates that it has a legitimate interest in the documents for the purpose of the case. The submission of documents can only be requested once legal proceedings have commenced, but in practice, orders for disclosure are rare.
How can a business protect its assets before and during litigation?
One way a business can protect its assets before and during litigation in Bahrain is to seek interim relief measures from the competent courts. These measures include attachment of assets, which can prevent the opposing party from dissipating or hindering the enforcement of a judgment, and travel bans, which can prevent the opposing party from leaving the country.
On which grounds can a business appeal a judgment or challenge an arbitral award in your jurisdiction?
In general, the judgments of lower courts can be appealed as of right to a superior court. The timeframe and grounds for such appeals are found in the Civil and Commercial Procedures Law.
The general timeframe to file an appeal at each court level is 45 days from the date of the issued judgment that is being appealed, unless otherwise provided by law. Subject to a small number of exceptions, the timeframe for filing an appeal commences when the unsuccessful party has been notified of the judgment.
If the competent court issues its judgment at a hearing where all parties were present, the timeframe for an appeal begins to run on the date of that hearing.
A party loses its right to appeal if it fails to appeal a judgment within the permitted timeframe. Timeframes for appeal stages vary depending on the complexity of the case and whether the court has appointed an expert. There are no formal deadlines by which cases must proceed.
What is the legal framework in your jurisdiction that honors the enforcement of foreign judgments and Arbitral Awards? Are there also any international treaties in place that honors enforcement of foreign judgments and Arbitral Awards?
The legal framework in Bahrain that honours the enforcement of foreign judgments and arbitral awards consists of Decree-Law No. 22/2021 on the Promulgation of the Execution Law in Civil and Commercial Matters, which governs the recognition and enforcement of foreign judgments and orders, as well as the principles of Shari’a law and public policy that may affect the enforcement of such judgments and awards. In addition, Bahrain is a signatory to several international treaties that provide for the reciprocal recognition and enforcement of foreign judgments and arbitral awards, such as the Hague Convention for the Pacific Settlement of International Disputes 1907, the Convention on the Settlement of Investment Disputes between States and Nationals of other States 1965, the Riyadh Arab Agreement for Judicial Cooperation 1983, the Gulf Cooperation Council Convention for the Execution of Judgments, Delegations and Judicial Notifications 1995, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958, and various bilateral investment treaties and free trade agreements.
In addition, further steps have also been taken to ensure that the process to recognise and enforce Arbitral Awards is cost effective and efficient. In this regard, a party is entitled to apply for the recognition of an Arbitral award on notice to the court. If the value of the award is greater than US$1.3 million, then the application is immediately transferred to the Bahrain Chamber for Dispute Resolution (the “BCDR”) where a party is afforded an election either to proceed with the recognition in English before the English-speaking section of the BCDR, or to proceed before the Arabic section.
Generally, the Arbitral Award will either be recognised or refused, with reasons, within 7 – 10 days of the hearing. If the Arbitral Award is recognised, then it can immediately be taken to the enforcement court for execution. If the Arbitral Award has been refused, this decision can be appealed to the Appeal Court and thereafter to the Court of Cassation which should take approximately 2 and 3 months, respectively.
How can a business plan and budget for its litigation matters?
A business that is involved in or anticipates civil litigation in Bahrain should plan and budget for its litigation matters by considering the following factors:
The choice of court and the applicable law. Depending on the nature and subject matter of the dispute, the business may have to litigate in the Civil Courts or the Shari'a Courts, which have different procedures and rules. The business should also determine whether Bahraini law or another law governs the dispute, as this may affect the outcome and the enforcement of the judgment.
The limitation period for bringing civil claims. The business should be aware of the general limitation period of 15 years, as well as the exceptions for certain types of claims, such as insurance, construction, and employment, which have shorter limitation periods of three years, or one year. The business should act promptly to preserve its rights and avoid being time-barred from pursuing or defending a claim.
The procedural steps and timing of the litigation. The business should prepare a statement of claim or a defense memorandum, depending on its position, and submit it to the competent court within the prescribed timeframes. The business should also attend the hearings and comply with any orders or directions from the court. The business should expect the litigation to take several months or even years, depending on the complexity of the case, the level of court, and the involvement of experts.
The disclosure and discovery of evidence. The business should gather and present the evidence that supports its case, as there is no principle of disclosure similar to common law jurisdictions.
The possibility of default judgment or appeal. The business should ensure that it is properly summoned and that it appears before the court, as failure to do so may result in a default judgment against it. The business should also consider whether to appeal or to challenge any appeal from the judgment, and file the appeal within the 45-day timeframe, unless otherwise provided by law.
The interim relief proceedings and prejudgment attachments. The business should assess whether it needs to seek or to resist any interim relief measures, such as attachment of assets or travel bans, to protect its interests or to prevent the enforcement of a judgment. The business should also comply with any requirements or conditions for obtaining or lifting such measures, such as filing substantive proceedings within eight days of the attachment being effected.
The costs of litigation. The business should budget for the translation fees, court fees, and lawyers' fees that it may incur or recover in the litigation. The business should note that the court fees are calculated as a percentage of the claim amount, and that the expert fees vary on a case-by-case basis. The business should also note that the court has the discretion to award costs, including lawyers' fees, to the successful party, but that such awards are usually minimal and do not reflect the actual costs incurred.
Are there any recent legal frameworks that businesses should be aware of which might have an impact on litigation?
One recent legal framework that businesses should be aware of is the Decision No. 28 of 2023 regulating the use of English before the Courts of Bahrain.
This development introduces a significant change in the language of litigation, as parties are now mandated to litigate in English if the matter falls within a specific framework. The practical effect of this is that parties are implicitly deemed to agree on the use of English where the agreement is drafted solely in English, unless they expressly agree on the use of Arabic instead.
The mandated allocation before the English language courts will apply to the following cases (in so far as they fall within the remit of the BCDR):
Where the dispute is between two or more institutions regulated by the Central Bank of Bahrain, or between any such institution and any company;
Disputes between Companies; and
International Commercial Disputes (i.e. Commercial disputes involving a foreign element).
This will not apply to disputes arising out of agreements drafted as a dual language agreement (English and any other language), unless the parties specifically agree that English shall be treated as the prevailing language of the agreement. Nor does it apply to disputes arising out of agreements drafted solely in Arabic, which shall be litigated in Arabic, even where the parties agree to litigate such disputes in English.
What are the legal considerations for online businesses or e-commerce from a litigation standpoint in your jurisdiction?
Bahrain's courts have broad jurisdiction over legal disputes, which can be based on a party having its domicile or place of business in Bahrain. Therefore, online businesses or e-commerce should ensure that their terms and conditions specify the governing law and jurisdiction for any potential disputes, and that they comply with the relevant laws and regulations in Bahrain.
What risk management practices do you recommend to businesses to minimize litigation risks in your jurisdiction?
Some possible risk management practices to minimize litigation risks in Bahrain are:
Being aware of the applicable limitation periods for different types of claims, such as insurance, construction, and employment, which may vary from the general 15-year period for civil claims.
Seeking legal advice before importing template agreements from other regions around the GCC, particularly for entities who are branches of foreign entities as there are nuances in the local legislation, particularly in employment disputes.
Considering alternative dispute resolution methods, such as arbitration or mediation, which may offer more flexibility, confidentiality, and enforceability than litigation, especially for cross-border disputes.
Taking prompt action to protect or enforce any rights or interests that may be affected by interim relief measures, such as attachment of assets or travel bans, which can be applied for before, during, or after judgment by the competent courts.
Can Parties litigate in English in Bahrain? Bahrain has taken a significant stride in attracting foreign investment with the issuance of Decision No. (28) of 2023 regulating the use of English before the Courts of Bahrain, which has repealed Decision No. (117) of 2021, which previously governed the same.
Under the previous repealed Decision, if the contracting parties wished to litigate in English, they were required to have expressly agreed to do so in certain cases where a dispute arises.
The new Decision outlines the instances where the English language would be the default language in case a dispute arises between two contracting parties (in so far as they fall within the remit of the Bahrain Chamber for Dispute Resolution):
International Commercial Disputes (i.e., Commercial disputes involving a foreign element).
The new Decision therefore widened the scope of English usage in litigation; whereby the contracting parties are- by default- implicitly deemed to have agreed to litigate in English where the agreement out of which the dispute arises is drafted solely in English. This means that the entire legal proceedings- from submission of the claim to the submission of expert reports- would be conducted in English.
The Decision also provides a list of disputes whereby parties can agree to litigate in English where their claim value exceeds BHD 500,000, even where the conditions set out above are not met. Such disputes include:
Lawsuits in which one of the parties is a foreign company;
Lawsuits relating to stocks, bonds, and other securities;
Lawsuits related to commercial papers;
Lawsuits related to trademarks, commercial agencies, and intellectual property rights;
Claims related to arbitration or mediation in commercial contracts;
Lawsuits related to transportation contracts and maritime and air disputes; and
Lawsuits related to construction contracts.
The above is also applicable to claims for enforcement and annulment of arbitral awards where the language of arbitration was English.
This amendment has reiterated Bahrain’s commitment towards creating an investor friendly environment, enduring that they can fully understand and even take part in dispute resolution processes in their language.
Does Bahrain recognise electronic transactions? Bahrain has implemented Decree Law No. 54 of 2018 on the issuance of Electronic Communications and Transactions Law (“ECTL”) in recognition of the integral role of electronic transactions. The law, which expressly applies to all transactions and documents of all types, recognises electronic signatures as generally valid, subject to certain conditions. As of 2021, the Telecommunications Regulatory Authority (“TRA”) has been appointed as the competent authority responsible for the implementation of the ECTL.
Whilst the validity of electronic signatures across Bahrain is generally accepted, the law has imposed several requirements to ensure fairness and protection of all parties privy to the transactions. The requirements dictate that all contractual parties to a transaction must be clearly identifiable and expressly consent to the use and acceptance of electronic signatures.
The contracting parties must also demonstrate a clear intention to sign the transaction document(s).
An important aspect covered by the ECTL is the use of an acredited Trust Service Provider (“TSP”) to authenticate transactions made electronically. Supplementing the ECTL, Resolution No. 4 of 2021 was passed, setting out the standards and requirements for the accreditation of TSPs. Entities seeking to become accredited TSPs must submit an application to the TRA. Applicants will need to demonstrate, amongst other things, their financial, management and technical capability.
Depending on the TRA’s evaluation and review of the request for accreditation – the request may be approved, upon which the TRA shall register the TSP as an Accredited TSP and approve the accreditation by way of publishing a resolution in the Official Gazette to that effect.
In terms of unaccredited TSPs, the ECTL does contemplate the issuance of a decision regarding the evidential weighing of electronic signatures more generally, which is pending publication by the TRA in coordination with the Ministry of Justice, Awqaf and Islamic Affairs. Until that occurs, the evidential weight with respect to documents executed via unaccredited TSPs is unclear.
Historically, the MOIC has loosened foreign ownership restrictions for multiple commercial activities, to permit 100% foreign ownership. “Retail Sale via the Internet” is an example of an activity that previously required a minimum 51% Bahraini or GCC ownership, but now permits 100% foreign ownership provided that the invested capital of the company in Bahrain is not less than 50,000 (fifty thousand) Bahraini Dinars in the first year.
Any person or entity that operates and provides commercial services in Bahrain is required to have a suitable legal presence in Bahrain, involving duly registering with the MOIC pursuant to the Commercial Registry Law 27 of 2015. Although Bahrain does not have a specific law on E-Commerce Transactions as such, the MOIC has published guidelines on their website that entities willing to engage in e-commerce activities are required to include the following commercial activity into their commercial license: “Retail sale via the Internet”.
Under Resolution No. 6 of 2021, the restrictions on foreign ownership of this activity have eased, meaning that any non-Bahraini individual or entity can now fully own a company that undertakes this eCommerce activity without the need for a local partner. The Resolution provides that if a foreign entity or individual owns a company in Bahrain practicing this commercial activity, then the share capital of the Bahrain company must not be less than 50,000 (fifty thousand) Bahraini Dinars in its first year.
The Kingdom of Bahrain has introduced economic substance requirements on entities that carry on geographically mobile business activities. The MOIC and Central Bank of Bahrain have issued Ministerial Order number 106 of 2018 regarding the requirements of validating the actual economic substance of entities’ activities in the Kingdom of Bahrain, and Directive OG/499/2018 respectively, providing initial guidance on demonstrating Economic Substance. Following the issuance of Ministerial Order, the MOIC published detailed guidance notes that serve as a preliminary guide to relevant entities on the scope and application of the economic substance rules.
The economic substance rules apply to commercial entities in the Kingdom of Bahrain that engage in the following categories of commercial activities: distribution and service centre activities, headquarters activities, holding company activities, leasing activities, shipping activities, and intellectual property activities. Amongst other obligations, all Relevant Entities are required to file an Economic Substance Rules Annual Return Form annually with the MOIC within three months of the Relevant Entity’s financial year end. This annual return includes details such as details of the Core Income Generating Activities (CIGA) of Relevant Entities, board details, strategic decisions, employee details, physical address and offices of the company, details of the company’s internal policies and books of account, details of outsourced activities and ultimate beneficial owner details.
Penalties for non-compliance with the Economic Substance Rules include a written order requiring that the company cease its failure to adhere to the Ministerial Order within a designated timeframe; suspension of the Commercial Registration (CR) for a period of up to six months; the imposition of a fine of up to 100,000 Bahraini Dinarsl and cancellation of the Commercial Registration (CR).
Only entities that undertake a ‘relevant activity’ are subject to the Economic Substance Rules. Such relevant entities are specified under the Economic Substance Rules introduced by Resolution No. (106) of 2018. Such entities are required to submit an Economic Substance Rules annual return form to the MOIC on an annual basis. Briefly, the relevant activities include the below:
Distribution and service centre activities;
Headquarters activities;
Holding company activities;
Leasing activities (other than those activities undertaken by licensees of the Central Bank of Bahrain);
Shipping activities; and / or
Intellectual property activities.
The MOIC have published a list of more specific activities (that would appear on Commercial Registrations (CRs)) that are subject to Economic Substance Rules.
Tamkeen Tamkeen is a public authority seeking to promote a digitised, sustainable, and globally competitive economy. It supports the growth of enterprises and enhances productivity and knowledge of the national labour force.
One of the programs offered by Tamkeen is financial support in training and wages. Employees may be trained by Tamkeen to improve necessary skills in their industry to maximize productivity. Alternatively, Tamkeen may increase the employee wages of fresh graduates for a period of 18 months. This would ‘pay out’ as 50% of such employees’ salaries for the first twelve months of employment, then 30% for six months (capped at BHD 500 respectively). To apply on behalf of their Bahraini employees, SME’s must have an active Commercial Registration (“CR”) issued in Bahrain and meet certain minimum wage criteria.
Secondly, Tamkeen offers a Business Development Program, covering up to 50% of expenses for approved services or items, based on the grant allocated to the enterprise. Support schemes offered in relation to this program range from ICT to accounting and auditing, amongst other things. Similarly to the above program, this requires SME’s to have an active CR issued in Bahrain.
The Mentorship Program forms part of Tamkeens advisory services to develop key professional skills and enhance the knowledge of Bahraini entrepreneurs. Mentee’s gain skills as planners and learners, to retain sharper focus on requirements for professional growth as well as learning new methods to acquire new skills. Beyond this, mentees are enabled to secure a mentor who can coach , providing honest feedback and helping to guide their growth.
Finally, Tamkeen’s Minimum Viable Product (“MVP”) Scheme allows start-ups to benefit from a grant towards development, design and testing of a first product. Entrepreneurs keen to avail of this initiative should ensure they are familiar with the criteria listed on Tamkeens website. By way of a key example, an SME must be adjudged to have high potential for scalability and growth amongst other factors.
Export Bahrain (“EB”) EB is a key initiative on the Kingdom’s SME Development Board, offering national exporters updates on international market conditions and assisting them in identifying, locating and obtaining international trade opportunities based on EB’s performance indicators.
Two key solutions for the exporting industry are presented by EB in the form of Export financing and Export credit insurance. The former provides short term financing for SME’s to capitalise on international opportunities and global growth – Export financing will cover the exporters requirements and provide liquidity for any operational costs of the business activity up to an extent. EB may further support 50% of management fees and 50% of the guarantee capped at BHD 125,000.
United Nations Industrial Development Organization Investment & Technology Promotion Office (UNIDO ITPO Bahrain) UNIDO ITPO established two projects to create job opportunities for youth; the Arab International Center for Entrepreneurship & Investment (“AICEI”) and Enterprise Development & Investment Promotion Program (“EDIP”).
The former’s mission entails seven objectives. To contribute to the economic empowerment of women and youth; encourage entrepreneurship through awareness and support programs for women and youth; assist in developing eco-systems for MSME’s; local support organizations sharing best practices for value added services; business counseling and mentoring programs facilitating growth; developing linkages between financial bodies and entrepreneurship programs and establish business incubator systems helping MSME’s grow.
EDIP assists individuals to hone in on their strengths and entrepreneurial competence. This program is suited to those in the preliminary stages of establishing their own SME, enabling entrepreneurs to transform ideas into profitable businesses by supporting through capacity development, developing business plans, counselling, guidance, and teaching skills in the management of investment or commercial projects. Comprising of a series of teaching methods and exercises in Arabic and English EDIP serves as a strong foundation for any forward-thinker looking to establish their own SME.
Build For Bahrain Bahrain Fintech Bay (“BFB”) (a leading FinTech hub in the MENA region) has teamed up with the US State Department’s Middle East Partnership Initiative (“MEPI”) to launch ‘build for Bahrain’. This virtual acceleration programme aims to enable local start-ups to ideate and conceptualise innovative solutions to challenges in the health and business continuity sector(s) in an attempt to incorporate ‘durable’ business models operating through the cloud; thereby forfending such business form logistic interruptions in the wake of COVID-19.
Women in Tech Following a rigorous pitch contest, 5 participants will be offered funding of USD $50,000 each in addition to complementary 3-month residency at Bahrain FinTech Bay. It is worth noting here that all applications, networking, training, and mentoring will take place over the cloud, in a move confirming the initiatives aims to encourage the embracing the benefits of burgeoning technological advances.
The Hope Fund The Hope Fund was established pursuant to Decree No. 64 of 2020, with the stated aim of investing and supporting youth projects and initiatives in Bahrain.
To date, the Hope Fund has launched the following programs:
Wujha: an entrepreneurship training program tailored for early-stage businesses that have taken the first steps of launching their concepts using online and social media channels. This program aims to put these businesses on the path towards growth, expansion, and achieving a sustainable business model. During this program, the founders will get access to knowledge, resources and expertise that will help them refine or pivot their concepts.
Bidaya: an entrepreneurship training program designed to empower dedicated Bahrainis to take their business concepts from the ideation stage to creating a minimum viable product (MVP), and pitching their business concepts for potential funding opportunities. The program also provides them with the knowledge required to refine their business concepts and develop their business plans.
Brinc Hardware & IoT Accelerator Program Brinc Batelco IoT Hub is open to both national and international entrepreneurs and offers up to $60,000 USD in exchange for 8 – 14% equity of each participating start-up. Selected cohorts are required to be present in Bahrain for 7 weeks of the program for on-site training. The remaining 9 weeks of the program can be done remotely.
In addition to funding, Brinc further provides mentorship, investor networking, a customized curriculum, technical onsite training, market connections, business development meetings and more.
Brinc is currently active in the following investment verticals:
Investment Verticals
Agriculture
Consumer
EnergyTech
GovTech
HealthTech
Industry 4.0
Inspection
Logistics
Manufacturing
MedTech
PropTech
Robotics
Smart City
