The Bahrain economy is very diverse, with particular strengths in the financial services, technology and manufacturing and logistics sectors.

The dominant industries in Bahrain are financial services, technology, manufacturing and logistics.

As recorded in October 2020, the population of Bahrain is approximately 1.5 million. 47.4% are Bahraini nationals, with the remainder being expatriate workers.

Arabic is the official language of Bahrain, but English is widely spoken.

Bahrain encourages investment into the region. Although wholly or partially government-owned enterprises dominated the economy in the past, laws and regulations have been streamlined since 1990 to make the business climate conducive for foreign investment.

The Economic Development Board (EDB) is a dynamic Government agency with an overall responsibility for formulating and overseeing the economic development strategy of Bahrain, and for creating the right climate to attract direct investment into Bahrain.

The Economic Development Board attracts and encourages inward investment and currently targets five priority sectors for investment promotion, financial services, manufacturing, logistics, information and communications technology and tourism. As a result, international companies have been recently investing and expanding in Bahrain.

Bahrain is committed to the Bahrain Economic Vision 2030. It's aim is to shift Bahrain's economy (which is currently based on oil wealth) to a globally competitive economy based on its pioneering private sector that will add long-term stability to the country and create more opportunities and high-salary jobs to its citizens.

Moreover, to further reinforce its position as a regional hub for fintech, the Central Bank of Bahrain (CBB) issued rules on regulating crypto-currency as a framework governing virtual assets.

In Bahrain, there have been periods of unrest since 2011. However, the level of unrest has continued to decline (although there are still occasional minimal disturbances which are effectively controlled).

The country is generally now at peace, and there is no threat of any potential adverse political event(s) that may impact the country's security or economy.

Ministerial Order No. 83 of 2020 Regarding Criteria, Conditions and Rules Governing the Disclosure of Ultimate Beneficial Owner (UBO Regulation) was passed recently in Bahrain. Under Article 5 of the UBO Regulation.

Each holder of controlling interests (10% or more) in a company must submit an electronic statement in a format approved by the Ministry of Industry, Commerce and Tourism, which sets out certain details in relation to the ultimate beneficial owner of the shareholders. This must be done either:

There is no federal system in Bahrain. The legal system in Bahrain is influenced by Egyptian law, which is mainly based on French law (which is a civil law system).

Bahrain has a national constitution and the laws are codified.

Approval from the relevant regulatory body is required.

The Commercial Companies Law (Legislative Decree No. 21 of 2001) provides for the incorporation of companies with 100% foreign capital.

However, certain business activities are reserved for Bahraini nationals and companies.

Under recent amendments to the Commercial Companies Law, companies can be fully or partly owned by non-Bahraini shareholders, to practise activities reserved for Bahraini nationals or companies in which Bahrainis must be majority shareholders. The Council of Ministers determines those activities that can be undertaken by foreign ownership companies. Also, on approval of the Council of Ministers, the Minister of Trade Affairs can approve licences for companies with foreign capital to practise those activities that may have a strategic economic significance or a profitable return for Bahrain's economy.

The Commercial Companies Law further provided that an Edict determining the activities that can be conducted by foreign companies will be issued by the Council of Ministers. This follows the issuance of:

See above, Restrictions on Foreign Shareholders.

In addition to the Prime Minister's Edicts (see above), the website of the Ministry of Industry, Commerce and Tourism (www.sijilat.bh) sets out the restrictions on foreign ownership (if any) in relation to the relevant activity.

Bahrain does not trade with countries where there is a United Nations measure in place that prohibits trade with that country.

A prohibition exists under Law No. 5 of 1963 that bans all dealings with persons, entities and citizens of Israel (Israeli Boycott Law). An office was established to co-ordinate the prohibition (Israel Boycott Office). This office was subsequently closed.

The contracts of certain ministries impose conditions that goods should not be imported in violation of the Israeli Boycott Law.

With regards to the practical enforcement of the boycott, the authors are of the opinion that the Israeli Boycott Law has no practical effect, especially considering the closure of the Israel Boycott Office in Bahrain. However, legally the Israeli Boycott Law remains in force as the Vice-Prime Minister's order with respect to the closure of the Israel Boycott Office in Bahrain did not repeal the Israeli Boycott Law.

In June 2017, Bahrain severed diplomatic ties with Qatar. On 5 January 2021, representatives of the six member states of the Gulf Cooperation Council (GCC) congregated at a summit in the Saudi city of al-Ula. The GCC summit was a resounding success. Saudi Arabia, the UAE, Bahrain, and Egypt lifted their blockade on Qatar and restored diplomatic relations with the country (https://www.bloomberg.com/news/articles/2021-01-05/saudi-arabia-says-arab-states-to-fully-restore-ties-with-qatar).

There are no currency or exchange control restrictions currently in force under Bahrain law and the free transfer of currency in and out of Bahrain is permitted (subject to anti-money laundering regulations and international regulations).

Banks must verify the source of funds for those transactions, particularly where they are above the occasional transactions threshold of BHD6,000. Furthermore, conventional bank licensees must examine the background and purpose of the transactions and document their findings.

An entity's ultimate beneficial owner (holding 10% more) must be reported to the Ministry of Industry, Commerce and Tourism under Ministerial Order No. 83 of 2020 Regarding Criteria, Conditions and Rules Governing the Disclosure of Ultimate Beneficial Owner.

Companies with foreign capital may be permitted to hold directors' and shareholders' meetings outside of Bahrain on a case-by-case basis (subject to certain approvals).

Companies that do not want to purchase land in Bahrain can lease it from the government. This can be advantageous, with low rentals or even exemption from rentals for short periods of time.

See above, Grants.

See above, Grants.

The most common form of business vehicles in Bahrain are public joint stock companies, closed joint stock companies, and limited liability companies.

The Bahraini Commercial Companies Law also recognises and regulates unregistered partnerships.

The most commonly used business vehicle by foreign companies depends on the type of business activity. Limited liability companies are most commonly used for their flexible corporate structure, fewer corporate governance requirements, and lower regulation by the authorities. Limited liability companies are precluded from undertaking insurance, banking or third-party investment activities. Investors looking to provide such services must set up joint stock companies.

Foreign companies have the option of setting up branches or representative offices. Branches of foreign companies are incorporated with the same business activities as their parent companies, and representative offices are incorporated with the activity of promoting the business of their parent companies.

The following documents must be submitted for incorporation of a closed joint stock company and limited liability company:

The following documents must be submitted for the incorporation of a branch, agency or offices:

Foreign documents must be legalised or apostilled.

The authorities from which licensing and approvals are required depend on the type of business activity of the proposed entity. Companies offering financial services must also obtain a licence from the Central Bank of Bahrain (CBB), which takes around 60 days. Details can be obtained from www.cbb.gov.bh/.

If all documents are in order, commercial registration by the Ministry of Industry, Commerce and Tourism will be completed in approximately one to three weeks (depending on the business activity).

Annually, the company must file the following with the Ministry:

A company licensed by the CBB must file additional documents periodically with the CBB.

There are no costs for complying with the reporting requirements.

The minimum share capital (subject to being able to realise the company's objectives) is as follows:

Shares can be issued for non-cash consideration, for example, in kind and against certain services.

Restrictions on Rights Attaching to Shares. There are no restrictions on rights attaching to shares.

Automatic Rights Attaching to Shares. Specifically, shareholders have the following rights:

The management structure for the most commonly used business vehicles in Bahrain are as follows:

There are no restrictions on foreign managers. See Question 14.

Companies with activities that are subject to ESR (economic substance requirements), must submit to the Ministry an ESR report annually, showing that its main activities are conducted in Bahrain.

A director (and also shareholder or member of the management) is personally liable to the company, shareholders and third parties for acts involving the following:

A director is not liable if he or she opposed the resolution and his or her objection was recorded.

A parent company is generally only liable for the debts of its subsidiaries, if it has provided guarantees for those debts.

The main legislation which governs environmental requirements is Law No. 21 of 1996 with respect to Environment. The Supreme Council for Environment is the government entity in charge of the development of Bahrain's strategy for the environment and sustainable development. It is responsible for following up on the implementation of these strategies with the relevant ministries, agencies and institutions.

Businesses are only required to take environmental regulations into consideration if they are applying for a business licence/project which requires approval from the Supreme Council for Environment.

The Labour Law for the Private Sector (Law No. 36 of 2012) (Labour Law) and its amendments regulate employment relationships and apply to:

See above, Foreign Employees.

The Labour Law will be applied, as a matter of public policy, irrespective of the choice of law in the employment contract. However, the court can uphold foreign law provisions that are more favourable to the employee. Legislative Decree No. 48 of 2010 promulgating the Civil Service Code regulates the employment relationships of all civil servants employed in government authorities.

Contracts must be in a written form. In the absence of a written contract, the employee can establish his or her rights using all methods of evidence.

An employee's rights can be acquired through a contract of employment, the company's labour regulations or according to custom and practice. The important particulars of the contract must include the following:

Implied terms apply to the employment relationship if they are more beneficial than the Labour Law provisions.

Collective agreements apply to the employment relationship if they are more beneficial than the Labour Law provisions.

The Labour Market Regulatory Authority (LMRA) must issue visas (usually within one week) for foreign employees. The fee payable to the LMRA is BHD100 per year for a work permit, and BHD72 per year as a basic healthcare fee that is payable per year for each non-Bahraini employee. Also, a fee of BHD5 per month is payable for each foreign employee (up to five employees) and BHD10 per month from the sixth employee onwards. If the employer exceeds the minimum Bahrainisation percentage required (which varies depending on the commercial activity of the employer), the LMRA will charge an inflated fee of BHD250 per year for a work permit.

See above, Work Permits.

Employees are not entitled to management representation or to be consulted on corporate transactions.

Employees can be dismissed at will. No notice is required for the termination of individual employment contracts for serious infringements (Article 107, Labour Law) if the alleged infringement can be proven in an enquiry.

All other terminations require 30 days' notice (or a longer notice period if provided under the contract). The court must determine whether a termination is for a justified cause. An enquiry must be held to prove that the termination was justified. Compensation is awarded for unjustified termination. For an indefinite period contract, two days' salary for each month of service (between a minimum of one month and a maximum period of 12 months) is awarded. For a definite period contract, the salary for the remaining period of the contract is awarded, or if the parties agree, lesser compensation (whichever is less out of a minimum three months' salary or the unexpired term of the contract).

An employer may dismiss a worker without notice or compensation in the following instances:

Unfair dismissals are dismissals that are made for any of the reasons that are explicitly mentioned under Article 104 of the Labour Law. A termination will be deemed an unfair dismissal for the following reasons:

In case of unfair dismissal, the worker will be entitled to an additional compensation equivalent to half the compensation outlined above, unless the contract provides for a higher compensation.

For unjustified dismissals, employees must approach the Ministry of Labour in an attempt to settle the matter amicably, and if there is no amicable settlement, the matter will be referred to the court.

Employers can terminate employment contracts by giving one days' notice during the probation period of the employee (which cannot exceed three months) (Article 21, Labour Law).

The Labour Law protects the legitimate rights of the employer and employee.

Redundancies and mass termination are regulated under the Labour Law. The Ministry of Labour must be notified 30 days prior to notifying the worker of the termination.

See Question 17.

The concept of tax residence is not recognised in Bahrain.

Foreign nationals can own real estate on a freehold basis in Bahrain in designated areas, and can have access to a residence permit subject to fulfilling certain criteria.

This is not applicable in Bahrain.

There is no income tax payable in Bahrain.

Bahraini employees pay 7% of their salary and non-Bahraini employees pay 1% of their salary as social security contributions.

The following social security payments are made to the social security organisation on behalf of the employees by employers:

Salaries of over BHD4,000 per month are ignored for social security contributions with respect to the proportions exceeding the cap of BHD4,000.

The concept of tax residence for businesses is not recognised in Bahrain except in relation to VAT (see Question 21).

No taxes are levied in Bahrain except on companies (wherever established) that are directly engaged in the exploration or production of crude oil or other natural hydrocarbons from Bahrain for their own purposes or refining crude oil, wherever produced, in their own facilities in Bahrain.

There is no income tax in Bahrain. Businesses in Bahrain are subject to VAT at the rate of 5% with respect to any services or goods supplied to end customers or received from suppliers (notwithstanding the category of the goods or services being standard, zero-rated or exempt). VAT was introduced in January 2019 by virtue of Decree Law No. 48 of 2018 on Value Added Tax (VAT Law).

There is no tax levied on dividends, interest or royalty payments.

There are no thin capitalisation rules in Bahrain.

There are no controlled foreign company rules in Bahrain.

There are no transfer pricing rules in Bahrain.

Imports are taxed before delivery. Exports are not taxed in Bahrain.

Bahrain has executed double tax treaties with many countries, such as the UK, China and France. Double taxation treaties protect against the risk of double taxation where the same income is taxable in two states. Bahrain and the US have signed a free trade agreement.

Law No. 31 of 2018 is the main legislation that governs competition in Bahrain. It prohibits the restriction of competition, which includes acts such as creating a market monopoly or manipulating the price of products in a way that is detrimental to other competitors.

In addition, Legislative Decree No. 7 (Law of Commerce) addresses unfair competition and provides prohibitions for certain acts. The Law of Commerce provides for a broad prohibition on activities that would have damaging effects on competition and companies are forbidden from undertaking practices detrimental to their competitors or attracting the custom of their competitors.

The directorate for consumer protection is temporarily vested in the powers of the competition authority, which is yet to be officially established. Nevertheless, the Law No. 31 of 2018 provides the scope and duties of the new competition authority.

In addition, a law is in place to ensure prohibition on the monopoly of the cement trade. Also, the Consumer Protection Directorate is responsible for ensuring that the law with respect to determining prices and control is implemented and violators are punished.

Legislative Decree No. 19 of 2001 (Civil Code) addresses restrictive agreements. A contract containing arbitrary conditions can be amended by a judge.

A unilateral contract is prohibited in the cement trade and in relation to food commodities.

The Takeovers, Mergers and Acquisitions Module, Volume 6, Rulebook (TMA Module) issued by the Central Bank of Bahrain applies to takeovers, mergers and acquisitions affecting Bahrain domiciled publicly listed companies and overseas companies whose ordinary voting equity securities are listed on a licensed exchange in Bahrain. These include partial offers, offers by a parent company for shares in its subsidiary and certain other transactions where control of a company is to be obtained or consolidated. References to takeovers and offers include, where appropriate, all such transactions, including share repurchases by mandatory offer.

The TMA Module applies to persons involved in, engaging in or intending to engage in an offer for, takeover or merger or acquisition of a controlling interest (30% or more) in a company whose primary listing of its ordinary equity securities is on a licensed exchange in Bahrain. While the TMA Module applies to listed companies in which control may change, there are circumstances such as where an unlisted company is a target of a listed company (reverse takeover) in which it is necessary to consider the spirit, general principles, standards and rules of the Module wherever it is applicable.

The TMA Module applies to takeovers, mergers, acquisitions and share repurchases affecting:

In addition to the requirements of the TMA Module, the transaction must be approved by the sector specific regulator, for example in relation to the telecommunication sector, the Telecommunication Regulatory Authority.

There is currently no specific law governing anti-bribery and corruption. However, there are provisions that govern anti-bribery and corruption under other laws such as:

Definition and Legal Requirements. An invention is patentable if it:

A patent owner can prevent third parties from producing, using, exploiting or displaying for sale or import a patented invention.

Registration. A patent must be registered with the relevant Directorate of the Ministry of Industry, Commerce and Tourism.

Enforcement and Remedies. The patent owner can request the court to undertake one of the following measures:

Length of Protection. The term of protection is 20 years.

Definition and Legal Requirements. Bahrain adopts the unified GCC Trademark Law which was approved under Law No. 5 of 2014 to ensure harmonisation of trade mark regulations between the GCC member states.

A trade mark includes everything which has a distinctive form, such as:

A trade mark can also take the form of a sign or (group of signs) if the sign is used (or intended to be used) to:

A trade mark holder has the right to:

Registration. See above, Patents.

Enforcement and Remedies. See above, Patents.

Length of Protection and Renewability. Trade mark registration is valid for ten years and is renewable for ten year periods.

Definition. A design must be a feature of a shape, configuration, pattern or ornament applied to an object by an industrial process or means. The finished object must appeal to, and be solely judged by, the eye and the not by the function it performs.

Registration. See above, Patents.

Enforcement and Remedies. The right holder can seek the following remedies:

Length of Protection and Renewability. Registration of designs are valid for ten years in Bahrain and are renewable for five year periods.

Unregistered designs do not have any legal rights or protection in Bahrain.

Definition and Legal Requirements. Copyright protection is available to:

Protection. The protection of a copyright exists automatically.

Enforcement and Remedies. The rightsholder can seek the following remedies:

Length of Protection and Renewability. Protection lasts for 50 years.

Legislative Decree No. 10 of 1992 with respect to the Commercial Agency Law as amended regulates the:

In addition, Chapter 4 of the Law of Commerce contains certain provisions that regulate commercial agencies.

The law in Bahrain does not draw any distinctions between distributorship and agency. Therefore the provisions of the Commercial Agency Law apply to distribution agreements (see above, Agency).

The provisions of the Commercial Agency Law apply to franchising agreements (see above, Agency).

There are no specific laws or codes of practice relating to e-commerce. However, the Electronic Communications and Transactions Law (Law No. 54 of 2018) governs electronic contracts and their validity in evidence in case a dispute arises.

Law No 35 of 2012 with respect to Consumer Protection and its Implementing Regulations (Resolution No. 66 of 2014) issued by the Minister of the Industry, Commerce and Tourism deals with every natural or corporate person who advertises and promotes products by himself/itself or through another using any means necessary.

The Consumer Protection Law does not distinguish between online selling to consumers and online selling to businesses.

Law No. 35 of 2012 with respect to Consumer Protection is relevant. Due to the generic nature of the definitions of the term "advertiser", "products" and "supplier" the authors' are of the view that the Consumer Protection Law will apply to products that are marketed or sold via online platforms into Bahrain.

Article 14 of the Consumer Protection Law prohibits monopolistic practices. Article 40 of the Implementing Regulation of the Consumer Protection Law provides a non-exhaustive list of prohibited monopolistic practices to ensure fair competition, which includes selling the products at prices less than the cost price to create a monopolistic situation on the market, causing damage to the consumers.

Law No. 35 of 2012 with respect to Consumer Protection regulates advertising for products and services (non-financial). However, the Central Bank of Bahrain and Financial Institutions Law 2006 and its regulations (mainly rulebooks issued by the Central Bank of Bahrain) deal with advertising in the financial sector.

Those responsible for advertisements that are considered an offence under the Bahrain Penal Code will be subject to prosecution.

There are no specific digital advertising rules. Due to the generic nature of the definition of the term "advertiser", the authors' are of the view that the Consumer Protection Law will apply to digital advertising.

Under the Rulebook issued by the CBB, real time promotion made in the course of a personal visit, telephone conversation or other interactive dialogue in not allowed unless the client has been notified in advance and agreed to receive real time promotion.

Under the Implementation Regulations of the Consumer Protection Law, when advertising for sales promotions for any products, any warranties given will be valid throughout the sales period, and prices will be advertised before and during the sales period.

There are sector specific requirements. For example, in the banking sector, the Central Bank of Bahrain should be sent copies of documentation relating to promotional schemes at least ten days prior to their launch for information purposes. All documentation concerning promotional schemes should be in Arabic and English and, if relevant, any other language necessary for customers to fully understand and appreciate their terms and conditions. Any raffles/lotteries held as part of promotional schemes should be independently monitored (for example, by the institution's external auditor) and adequate systems put in place to ensure fair play and impartiality.

Law No. 30 of 2018 Promulgating the Personal Data Protection Act regulates the processing of data in Bahrain. In addition, certain legislations regulate the concept of data protection in relation to different sectors in Bahrain, such as the:

The same rules apply as in relation to data protection (see above, Data Protection Laws).

In Bahrain, product liability is regulated by the Civil Code and Law No. 35 of 2012 with respect to Consumer Protection. The seller/supplier must provide the buyer with all the necessary information about the item being sold. The seller/supplier is liable to the consumer for defective goods (except under certain circumstances).

Each supplier or advertiser must provide the consumer with accurate information about the nature and features of the product and must avoid giving a false or misleading impression to the consumer or causing any confusion or misunderstanding. A supplier will be exempt from liability if they are not a manufacturer or producer of the goods or service, unless the producer or manufacturer has provided them with that information. Further, an advertiser will be exempt from liability where the information provided in the advertisement is technical so that it is not possible for an advertiser to ascertain its authenticity as provided thereto by the supplier.

Main activities. These include:

Main activities. This government entity is in charge of the development of Bahrain's future strategy for the environment and sustainable development, and for following up on the implementation of this strategy with relevant ministries, agencies and institutions.

Main activities. These include providing effective central banking services to the government and the financial sector of Bahrain.

Main activities. These include providing a safe and secure movement of trade and travel while enhancing Bahrain's economic contribution.

Notarisation and legalisation requirements are an important factor that foreign investors may take into consideration.

Constitutional documents must be signed before a notary when it comes to establishing a company in Bahrain. Any representative of the foreign investor must present a legalised/apostilled power of attorney/ corporate resolution for completing the formalities before the notary.