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A liberal law for investors

Letters


Bahrain is one of the Arabian Gulf countries that have been looking to boost permissible levels of foreign ownership as a way of diversifying their economies, and alleviating economic hardships that have accompanied the recent plunge in oil prices.
The government of Bahrain approved new laws giving foreign investors the opportunity to have full ownership of various business assets in the market.

The new liberal approach towards foreign investment seeks to attract foreign companies and encourage investors to choose Bahrain as their destination of choice for doing business in the Middle East.

As part of recent corporate reforms, the Commercial Companies Law was amended by Law No. 50 of 2014 and Law No. 28 of 2015 (‘Revised Law’). 
In effect, the Commercial Companies Law has been amended to bring it in line with modern-day principles and also clarify areas that were previously a source of confusion and debate.
The changes are a result of Bahrain adopting 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 UN Secretariat. On the face of it, various foreign ownership restrictions have now been lifted allowing for greater investment and competition.

The most far-reaching reform in the new law is that it allows 100 per cent foreign ownership of a business or branch office, without the need for a local partner – no other Gulf state allows this.

Under the previous law, foreign investors must have a Bahraini partner holding at least 51pc of the capital with limited exception therein.

Bahrain does not tax corporate income, personal income, wealth, capital gains, withholding or death/inheritance.

There are no restrictions on repatriation of capital, profits or dividends.

Under the new ownership rules in Bahrain, foreign entities will be allowed to own 100pc of companies in the kingdom involved in industrial entities, establishment of representative offices or branches of foreign companies, 100pc foreign ownership for limited liability company without local sponsors, commercial agencies, administrative services, arts, entertainment and leisure, health and social work, information and communications, manufacturing, mining and quarrying, water supply, as well as professional, scientific, technical and real estate activities.

Wholly foreign-owned companies may be set up for regional distribution services and may operate within the domestic market as long as they do not exclusively pursue domestic commercial sales.

Private investment (foreign or Bahraini) in petroleum extraction is permitted only under a production-sharing agreement with Bapco.

However, the Industry, Commerce and Tourism Ministry maintains a small list of businesses that are restricted to Bahrain ownership, including Press and publications, Islamic pilgrimage, clearance offices and workforce agencies.

Despite these restrictions, it is possible for the minister to grant exemptions to allow foreign investment into restricted sectors if he considers such investment to be beneficial to the country and development of the economy as a whole.

The above is only a very brief snapshot of the investment environment in Bahrain and, typically, government departments are willing to assist potential entrants into the market.

There are, of course, other considerations for investors to consider when setting up business in Bahrain, such as labour law requirements.

Indeed, a new labour law came into force in 2012 (Bahrain Labour Law for the Private Sector No.36 of 2012) which attempts to bring the rights of employees and employers in line with international standards.

In addition, US investors have found more opportunities than others due to the bilateral investment treaty between US and Bahrain entered into force in 2006 and known as the US-Bahrain Free Trade Agreement.

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