A WLL is the business entity most used by foreign entrepreneurs looking to do business in Bahrain

Society Constitution
offshore in Bahrain

Country analysis: legal structures

Everything you need to know to set up an operating company with a bank account.

1. Exchange of banking information

β€’ There are prison terms for disclosing customer bank details to third parties (and possibly fines).

β€’ Banks are largely subject to strict customer due diligence regulations (old FATF recommendation 5 / new FATF recommendation 10).

β€’ Banks are fully obligated to maintain sufficient records of customer and transaction data for law enforcement (old FATF recommendation 10 / new FATF recommendation 11).

β€’ Banks and / or other covered entities are NOT required to report large transactions in currency or other monetary instruments to designated authorities.

β€’ The national administration has sufficient powers to obtain and provide bank information upon request, but without qualifications.

β€’ There are undue notification and appeal rights against the exchange of bank information on demand without qualifications.

2. Legal forms

Bahrain Limited Liability Company (WLL)

The basic requirements for establishing a WLL entity are:

  • i) a minimum paid-up share capital of at least US $ 2660
  • ii) two company directors
  • iii) two shareholders who can be of any nationality, except in industries where majority foreign ownership is restricted.

A Limited Liability Company It can also be established by a single entrepreneur, this type of entity is simply known as a β€œOne Person Company” (SPC). Both WLL entities and SCPs must designate at least one administrator resident in Bahrain.

Business enterprises in certain sectors require a mandatory 51% Bahraini local shareholder to be able to do business legally.

A WLL is the most widely used business entity in Bahrain, particularly by foreign entrepreneurs seeking to pursue business prospects in Bahrain. This entity provides a good commercial platform to reduce international tax obligations, thus maximizing the profits obtained both locally and internationally.

Companies engaged in exploration, extraction, production and refining within the oil and gas industry are subject to a 46% corporate tax rate.

Best Uses:
A WLL is the business entity most used by foreign entrepreneurs looking to do business in Bahrain. This entity will allow our Clients to maximize their profits while legally minimizing international tax obligations.

The Bahrain Free Zone Company (FZC):

To establish a company in a free zone, both foreign and local companies must obtain an operating permit from the Free Zone Authority before they can start commercial activities.

β€’ Organizations operating within the import / export industry can register their entities within Free Zones to provide their companies with an office in Bahrain.

β€’ There are various benefits and incentives for companies operating within Free Zones, such as zero customs duties on imports / exports, as well as government rebates on electricity and land.

The Bahrain Branch

β€’ The Business Companies Law allows the registration of a branch in Bahrain of a foreign company wishing to do business in the country. However, this entity can only be 100% foreign owned, if its intended business is not among the reserved activities list.

β€’ To establish a Branch entity, the parent must issue a bank guarantee of at least US $ 133.000 to the Ministry of Finance and National Economy.

β€’ A branch can perform similarly to an LLC in that it can insure business facilities, invoice Bahraini customers, sign local sales contracts, and receive income from customers both locally and internationally. A local Bahrain resident agent or distributor must also be appointed to sponsor visas and certain operating licenses.

β€’ The documentation required to register a branch includes:

  • i) Audited financial statements.
  • ii) Resolution of the Board of Directors authorizing the opening of the branch.
  • iii) Power of attorney issued in favor of the general manager.
  • iv) Memorandum of Association and incorporation certificate.

β€’ All these documents must be translated into Arabic and legalized.

Best Uses:
This entity is only recommended to our Clients when they operate within the industries of
engineering and financial services and seek to establish a regional headquarters in Bahrain.

The Bahrain Representative Office

β€’ The Business Companies Law also allows the establishment of representative offices of foreign entities in Bahrain. A representative office is not authorized to carry out any lucrative activity in Bahrain.

β€’ It is mandatory for a local Bahraini agent or distributor to be appointed to represent a foreign company in the country

Best Uses:
A representative office is best used for the promotion and marketing of the business of the parent company and to carry out local or regional market studies.

REMEMBER

Nor a Director resident in Bahrain is required and corporate directors are allowed. Holding companies are not available in Bahrain.

OFFICES

Foster Swiss helps our Clients secure offices or we provide an office address. Most emerging markets require our Clients to have a 12-month office lease before company registration is approved.

We help our Clients overcome this challenge in the following ways:

Virtual office service

DDepending on the country and city, the rates range from US $ 900 to US $ 2000 and the annual active virtual office services range from US $ 1500 to US $ 4000).

Shared office space

LThe one-time fee is US $ 850. Thereafter, our Client pays the monthly rent directly to the owner).

Permanent office space

D Depending on the country and the city, the rates range from US $ 5.000 to US $ 8.000).

Tax

TAX ASPECTS

LBahrain companies are completely exempt from tax, except for companies operating in the oil, gas and oil exploration, extraction, production or refining industries, in which case companies pay a 46 percent tax.

Since January 1, 2019, the Bahraini government has imposed a value added tax (VAT) at a standard rate of 5%. Basic food products, private education, as well as oil and gas industries operating in exploitation and exploration, are exempt from VAT. The financial services, life insurance and real estate sectors are also exempt from VAT (with certain exceptions).

There is a 10% municipal tax on expatriate-occupied commercial and residential property.

A stamp duty of 2% is applied to all:

  • i) sales
  • ii) real estate registration.

A customs duty of 5% is applied on the cost of imported goods. A higher rate of 125% and 100% applies to alcohol and cigarettes, respectively.

Bahrain has no capital gains taxes, payroll taxes, or withholding taxes.

ADDITIONAL TAX MATTERS

LBahraini companies must file tax returns on a quarterly basis by the last day of the month following the end of the tax period.

All companies are also required to submit audited financial statements to the authorities within 6 months after the close of the company's financial year, as required by Law 26 of the Bahrain Business Companies Act 1996.

All goods imported into Bahrain require customs clearance through the Directorate General of Customs, which can only be obtained by paying the relevant customs duties. If an importer does not clear the duty, Bahrain customs are authorized to sell the goods to recover the amount owed.

Bahrain has agreements for avoid double taxation (DTA) with more than 40 countries, including:

  • i) China
  • ii) India
  • iii) Canada
  • iv) Germany
  • v) Ireland

In addition to a free trade agreement signed with the US.

Legal and Compliance

CORPORATE

β€’ The Business Companies Law covers the establishment, structure and governance of private companies in Bahrain.

β€’ Each Bahrain company must appoint a manager, the manager does not need to be a Bahraini resident. The manager must be appointed:

  • i) Indicating the manager in the memorandum of association (MA)
  • ii) employing the manager in a separate management contract. Unless otherwise established in the MA, the manager of the company will enjoy full administrative powers, and his acts will be binding on the company, provided that it is supported by the capacity he enjoys.
BUSINESS MATTERS

β€’ The Business Companies Law covers the establishment, structure and governance of private companies in Bahrain.

β€’ Each Bahrain company must appoint a manager, the manager does not need to be a Bahraini resident. The manager must be appointed:

  • i) Indicating the manager in the memorandum of association (MA)
  • ii) employing the manager in a separate management contract. Unless otherwise established in the MA, the manager of the company will enjoy full administrative powers, and his acts will be binding on the company, provided that it is supported by the capacity he enjoys.

1. Foreign countries can only conduct business in Bahrain after the Ministry of Industry and Commerce (MOIC) authorizes it. All business entities in Bahrain must apply for one of the following licenses:

  1. A. A business license for the purchase and sale of goods, including wholesale or retail businesses, contractors, hotels, transportation and storage establishments, etc.
  2. B. An industrial license to discover natural resources or transform raw materials into manufactured products.
  3. C. A business or professional license to practice any profession, such as engineering consulting, auditing and accounting, business creation, medical and educational services.

2. All business activities conducted in Bahrain must first receive government approvals, permits and licenses. There is an obligation to register particular products with the government, including:

  1. i) food
  2. ii) medical equipment
  3. iii) cosmetics
  4. iv) medications.

Other considerations:

The Bahrain Legal Framework is a dual action system that mainly comprises Islamic Sharia and aspects of conventional civil law. Sharia courts often take precedence, especially in matters involving Muslims.

Bahrain is a full member of:

  • i) the World Intellectual Property Organization (WIPO)
  • ii) the World Trade Organization (WTO) (1995).

Country problems

LForeign ownership is prohibited in the real estate, media, transportation of goods / people, car rental, supply of petroleum products, Muslim services, hiring of foreign labor, and accounting.

A maximum foreign ownership restriction of 49% also applies to the construction, trade and retail, travel and tourism, health care and pharmacy industries.

When registering a company outside of one of Bahrain's Free Zones, the employment of foreign workers is limited by a quota.

It takes 3 months to start a business and open a corporate bank account in Bahrain. Unfortunately, the Bahraini government and authorities are slow to provide the necessary approvals.

During the registration of a company in Bahrain, the Government frequently requests that the Embassy of Bahrain certify the documents in the country of origin of our Client. This is a costly and time-consuming exercise that prolongs the company formation process.

As there is a lack of Bahraini embassies around the world, our Clients may find it difficult to certify documents at a Bahraini embassy in the client's country of residence.

The cost of setting up a business in Bahrain is high due to various fees including:

  1. i) multiple legal and government fees
  2. ii) mandatory annual office rentals
  3. iii) paid-up capital requirements.

The country's high corruption remains a great challenge.

All companies incorporated in Bahrain must comply with Bahrainization policies; if they hire more than 10 expatriates. Under these policies, the company is required to hire a minimum number of Bahraini residents (this requirement can be calculated here), furthermore, expatriate employees may be subject to certain restrictions set by the LMRA in Bahrain.

The value added tax has been applied to 5% in Bahrain. As of January 1, 2019, locally incorporated Bahraini entities, foreign entities registered in Bahrain, and limited partnerships engaging in:

  1. i) activities of holding companies
  2. ii) banking business
  3. iii) distribution and service center businesses
  4. iv) finance and leasing
  5. v) fund management
  6. vi) headquarters business
  7. vii) insurance
  8. viii) ownership of intellectual property

MORE CONFIGURATION SERVICES SOLUTIONS

  • Shareholders and Agents
  • Office permits
  • Protection of trademarks and copyrights. - Market study.
  • Legal support
  • Proportion of details of temporary unions or associations
  • Fusions and acquisitions.
  • Internal control.
  • Group restructuring.
  • Financial management consulting.
  • Buy a business.
  • Valuation of companies.
  • Credit recovery
  • Job solutions
  • Due diligence search on existing companies and individuals

3. Commercial register

β€’ The national business registry includes the identity information of the legal owner.

β€’ Information on legal owners is not always available online (up to 10 EUR / GBP / USD).

4. Transparency of society

β€’ All businesses require the registration of all legal owners.

β€’ All names plus countries of residence plus addresses or NITs or dates of birth, passport or personal identifications, or incorporation numbers are always registered.

β€’ Updating of legal property information is mandatory for all partners.

5. Publication of Shareholders

β€’ All companies require the registration of all final beneficiaries at a threshold of more than any stake / influence, up to 10%.

β€’ All names plus countries of residence plus addresses or NITs or dates of birth, passport or personal identifications are always recorded.

β€’ Updating of the information on the identity of the final beneficiaries is mandatory.

β€’ Real property is not always available online (up to 10 EUR / GBP / USD).

6. Publication of the company account

β€’ It is mandatory to keep accounting data.

β€’ It is not always necessary to present the annual accounts to a public authority.

β€’ Business accounts are not always online (up to € 10 / US $).

7. Country-by-country financial reports

β€’ There is no public information on a country-by-country basis, except for the one-time EITI-style disclosure for newly listed companies.

8. Corporate tax return

β€’ There is no requirement for local submission of a global country-by-country reporting file (in accordance with OECD BEPS Action 13) by large corporate groups (with a worldwide turnover of more than 750 million euros) and subsidiaries local foreign groups.

β€’ Unilateral cross-border tax rulings (eg advance tax rulings, advance tax rulings) are NOT available in laws or regulations, or administrative practice.

9. Identifier of legal entities

β€’ The use of an annually updated Legal Entity Identifier (LEI), developed under the guidance of the Financial Stability Board, FSB, is not mandatory.

β€’ The use of a legal entity identifier (LEI) updated annually, developed under the guidance of the Financial Stability Board, FSB, is not mandatory both for trading derivatives and for some operators and / or assets in the financial market.

β€’ The use of an annually updated LEI for the identification of reporting financial institutions (in accordance with the Common Reporting Standard (CRS) is not mandatory.

10. Measures to avoid tax evasion

<br>β€’ Dividend payments: No unilateral relief for double taxation through a tax credit system.

<br>β€’ Interest payments: No unilateral relief for double taxation through a tax credit system

11. Tax matters judicial secrecy

β€’ None or restricted access to criminal / civil tax procedures.

β€’ None or restricted access to both criminal and civil tax judgments / verdicts.

12. Opaque structures

β€’ The jurisdiction DOES NOT issue or accept circulation of large bills / cash notes of your own currency (value over 200 EUR / GBP / USD).

β€’ Bearer shares are not available / not circulated.

β€’ Series LLC / Shielded Cell Companies are not available.

β€’ Trusts with escape clauses are not prohibited

13. Anti-money laundering legislation

β€’ Bahrain is not currently on the FATF List of countries that have been identified with strategic AML deficiencies.

β€’ The latest Mutual Evaluation Report related to the implementation of the rules against money laundering and terrorist financing in Bahrain was produced by the Financial Action Task Force.

β€’ International (FATF) in 2018. According to that Assessment, Bahrain was found to be in compliance with 8 and largely complies with 26 of the 40 FATF recommendations. It was considered highly effective for 0 and substantially effective for 3 of the effectiveness and technical compliance ratings.

β€’ Overall non-compliance score with FATF standards in percentage: 37,3%. (100% = all indicators rated as not met / low level of effectiveness; 0% = all indicators rated as completed or highly effective).

14. Automatic exchange of information

β€’ Signed the MCAA and committed to sharing information on or before 2019.

β€’ Number of significant activated AEOI relationships (under the MCAA) published by the OECD as of October 2019: 66.

What type of private banking exists in Bahrain?

International Banking
Local banking

Central bank security ⭐⭐⭐

Each filtering bag international and digital banks They're available.

CRS: YES.

Real bank operations: 90%.

Type of visa: BAHRAINI DINAR, US $, €.

Joint accounts.

Remote management account: To consult.

Asset management Depending on the rating of the company.

Rates: It depends on the type of account.

Credit / debit cards in local currency

Crypto-friendly banks: It depends on the correspondent bank.

Portfolio availability: No or depends on the correspondent bank.

Ability to issue letters of credit: SI

Why with Foster Swiss?

Foster Swiss is an international company registered in Switzerland aimed at providing financial and compliance advice on a variety of topics related to company formation
and commercial banking internationally. We are specialized in the implementation of businesses in different jurisdictions, which means that we offer value-added services helping our clients in their expansion abroad.

Some of these services include:
Advice and consultancy,
visas, offices, nominated director / shareholder / secretary,
accommodation if necessary… to name a few.
Check with your assigned consultant for more information.