New rules providing 100% foreign ownership will boost investment in Bahrain

The Kingdom of Bahrain is in the process of making comprehensive changes to its corporate laws and procedures to make it easier to set up and carry out business in Bahrain. The changes will allow for easier company incorporations, the streamlining of the company administration process and the easing of restrictions on foreign ownership.

A series of new laws and amendments have been introduced over the last 24 months to modernise and streamline the regulatory regime, enhance corporate governance and increase accountability, empower shareholders and facilitate foreign participation in Bahrain companies. They are designed to promote enterprise in Bahrain and encourage foreign investors to choose Bahrain as a destination of choice for doing business in the Middle East.

The Bahrain cabinet has further announced that it is to allow 100% foreign ownership in residency, real estate, administrative services, health and social work, information and communications, manufacturing, mining and quarrying, food, arts, entertainment and leisure, water supplying and professional, scientific and technical activities.

Business opportunities in Bahrain are set to increase heavily in the period leading up to the new the Ministry of Industry and Commerce (MOIC) regulations, which for the first time puts Bahrain on a competitive footing with some of the region’s mega free zones and business hubs. The nature and size of the proposed business, as well as the particular requirements of investors, will govern the choice of legal structure in Bahrain. All types of Bahraini companies give the shareholders or the directors an Investor’s Residence Visa.

Bahrain imposes no exchange control restrictions on repatriation of capital, profits and dividends, enabling full financial transferability of capital, profits and dividends. Bahrain currently levies no taxes on personal or corporate income. There is no capital gains tax, no withholding tax and VAT.

Forming a company in Bahrain offers excellent access to the GCC states, especially Saudi Arabia, which is the largest market in the region. Bahrain has an expanding treaty network that includes over 30 double tax agreements with key partners in Asia, Europe and the Americas, as well as the Middle East and Africa. This is supplemented by bilateral investment treaties with countries including India, Italy and the US, and Free Trade Agreements with trading partners such as the US and Singapore.

Potential investors should speak to a consultant to ensure that the company they are establishing complies with the various new MOIC rules and regulations. Sovereign is in a unique position, through its global network of offices, to give guidance on suitable structures available to meet any personal and business requirements.

The Bahrain property market is already highly competitive when compared to other regional locations due to its attractive residential and commercial rents and values, but the huge monetary investment into the city and its infrastructure combined with the new opportunities for foreign investment will certainly help to support sustained activity in the long term.

Given the boost to real estate values and rents in Bahrain, property owners should be ensuring that their ownership structures and succession plans are fit for purpose. Many property owners are not fully conversant with local legal procedures or taxes and may not fully recognise the longer-term implications in terms of potential exposures to capital gains tax, inheritance tax or forced heirship rules. Substantial benefits may be derived through the use of corporate, trust or foundation structures to address these issues.

Sovereign assists many of its clients with the acquisition of real estate worldwide. We advise on tax and structuring and can manage the transaction process and financing arrangements. With our regional knowledge of property ownership laws and regulations, along with our tax planning expertise, we can help you reduce any potential exposure.

Nabil Khoury
Managing Director - Sovereign Trust Consultancy (Bahrain) WLL
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