Investment Regulations

Openness to Foreign Investment

The government of Bahrain has a generally liberal approach to foreign investment and is eager to improve Bahrain's attractiveness to international investors and businesses.

In an economy that has been to a large extent dominated by parastatals (outside of the financial service sector), the government is actively seeking a greater private sector role in spurring economic growth. Mostly however, the government has focused its efforts on the entry of new private firms, particularly in the tourism, health and education sectors. A new telecom law, expected in the fall is being drafted to allow private international companies to compete with the Bahrain's monopoly telecom service provider, BATELCO.

The creation of the Economic Development Board was an attempt to streamline the investment process by creating the ever elusive, but highly desirable "one-stop-shop" for potential investors. Seeking to maintain Bahrain's status as the Gulf region's preeminent financial center, the Bahrain Monetary Agency (BMA) continues to strive for and meet the highest international standards of financial regulation. Oversight and regulation of the Bahrain Stock Exchange as well as the insurance sector are being added to the BMA's purview. GCC nationals are now permitted 100 percent ownership of listed companies on the Bahrain Stock Exchange. Non-GCC foreign nationals may own up to 49 percent; the Minister of Commerce may increase this percentage according to general interest of the national economy.

Bahrain offers several advantages to foreign investors, no personal or corporate taxation, no restriction on capital and profit repatriation, 100 percent foreign ownership of many types of companies, 100 percent ownership of land by foreign companies, a developed infrastructure with excellent transportation and communication facilities, and duty-free access to GCC member states for products manufactured (40 percent value added) in Bahrain. Foreign owned companies enjoy the same subsidized electricity and water rates as domestic companies.

The government permits 100 percent foreign ownership of new industrial and service companies that establish representative offices or branches in Bahrain (without local sponsors). Completely foreign-owned companies may be set up for regional distribution services (only one other GCC country required) and such companies may operate within the domestic market and offshore so long as they are not set up for the exclusive purpose of engaging in commercial sales in Bahrain. Joint ventures are permitted with Bahraini companies, but a 100 percent purchase of an existing company would probably not be permitted, as the government's aim is to attract additional companies, rather than reduce the number of Bahraini-held companies.

In general, the Bahraini government does not license companies wishing to compete with existing government-owned or parastatal companies, or which would be a danger to public health or other aspects of the general welfare. As part of its economic diversification program, the government seeks to encourage investment in sectors that are export oriented and which do not compete with established local enterprises. Industrial enterprises that would compete with government-owned or parastatal firms are generally not permitted (i.e. items prohibited for import would also be prohibited for production). Private investment (foreign or Bahraini) in petroleum extraction is permitted only under a production-sharing agreement with BAPCO, the state-owned petroleum company.

Generally speaking, there is no special screening of foreign investment. All significant investments, whether by Bahraini or foreign firms, must go through a lengthy and complicated government approval process. Taxation and import laws apply equally to Bahraini and foreign-owned companies, and foreign investors must comply with the same requirements and legislation as do local firms. The government actively seeks Bahraini and foreign private investments in large infrastructure projects. Previously, most such activity (other than hotels) has been funded by development agencies from other Gulf countries (particularly Kuwait, UAE, and Saudi Arabia). Foreign-owned companies are eligible for partial financing from the state-owned Bahraini Development Bank (BDB), if they meet certain criteria such as providing training and employment to a significant number of Bahrainis.

Conversion and transfer policies
Bahrain has no restrictions on the repatriation of profits or capital and no exchange controls. Bahrain's currency, the Bahraini Dinar (BD), is fully and freely convertible at the fixed rate of USD 1.00 = BD 0.377 (1 BD = USD 2.65). There is no black market or parallel exchange rate. Foreign exchange is readily available and a devaluation of the Bahraini Dinar over the next year is highly unlikely. There are no restrictions on converting or transferring funds, whether or not associated with an investment.

Dispute settlement
Bahrain has a long-established framework of commercial law. English is widely used, and well-known international law firms, working in association with local partners, provide expert legal services both nationally and regionally. Fees are charged according to internationally accepted practices. Although only a Bahraini lawyer can argue in a Bahraini court of law, lawyers of other nationalities can and do work on cases.

The GCC Commercial Arbitration Center, established in 1995, serves as a regional specialized body providing arbitration services. It assists in resolving disputes between GCC countries or between other parties and GCC countries. The Center implements rules and regulations in line with accepted international practice. The Center conducts seminars, symposia, and workshops to help educate and update its members of any new arbitration related matters. The Center's contact details are as follows:

GCC Commercial Arbitration Center
P.O. Box 16100
Aladlia, Kingdom of Bahrain
Tel : +973 17 825 540
Fax: +973 17 825 580

Arbitration procedures are largely a contractual matter. Disputes are historically referred to an arbitration body as specified in the contract, or to the local courts. Increasingly, Bahraini companies, in dealings with both local and foreign firms, include arbitration procedures in their contracts. Most commercial disputes are resolved privately without recourse to the courts or formal arbitration. Bahraini law is generally specified in all contracts for the settlement of disputes that reach the stage of formal resolution. Occasional lawsuits against individuals or companies for nonpayment of debts have been adequately handled by Bahrain's court system. The guidelines laid down by the International Chamber of Commerce (ICC) in Paris are generally respected, and disputes have been occasionally referred to arbitration at the ICC in Paris. Bahrain is a signatory to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitration Awards.

Performance requirements/incentives
There are no special performance requirements imposed on foreign investors. Foreign and Bahraini-owned companies must meet the same requirements and comply with the same environmental, safety, health, and other labor requirements. Officials at the Ministry of Labor and Social Affairs and the Ministry of Oil and Industry supervise, on a non-discriminatory basis, companies operating in Bahrain.

Industries must be set up in identified industrial areas. An Environmental Impact Statement (EIS) must be filed by all manufacturing facilities. After one complete year of operation, a manufacturing facility is eligible for relief from tariffs imposed by other GCC states on imported goods.

Right to private ownership and establishment
In principle, private entities may freely establish, acquire, and dispose of interests in business enterprises, subject to the limitations noted in this chapter.

Although foreigners generally may not acquire legal control of an existing Bahraini company, foreign investors may own up to 100 percent of a new company. As for public companies listed on the Bahrain Stock Exchange, GCC nationals may own up to 100 percent, while non-GCC foreigners are restricted to 49 percent. There is some discussion of lifting this restriction and the Minister of Commerce has the authority to approve exceptions. However, they must retain their shares for at least three years following the creation of a public company.

Since 1999 GCC nationals have been able to own land in Bahrain. In January 2001, this right was extended to foreign (both GCC and non-GCC) firms. Currently non- GCC individuals residing in Bahrain are allowed to buy and own lands and houses in specifically allocated investment areas such as the Seef and Juffair areas.

Protection of property rights
The Bahraini legal system adequately protects and facilitates acquisition and disposition of property rights. The concept of a mortgage exists, and there is a recognized and reliable system of recording such security interests.

The government has made progress in reducing copyright piracy. Patent and trademark protection has always been strong and there continue to be no reports of significant violations of patents and trademarks in Bahrain. Software piracy has been much more difficult to eradicate. Bahrain signed the Berne Convention for the Protection of Literary and Artistic Works and the Paris Convention for the Protection of Industrial Property in 1996. Although Bahrain argued that it was TRIPS compliant based on a constitutional clause giving international agreements precedence over local law, the WTO continues to seek the necessary revisions in local law. Bahrain has submitted these revisions for review and hopes to be fully TRIPS compliant by July 2002.

There are no technology transfer requirements that force firms to share or divulge technology through compulsory licensing to a domestic partner, nor are firms forced to commit to undertake research and development activities in Bahrain. There is no separate legal or regulatory protection of trade secrets.

As of July 2000, Bahrain had bilateral investment protection agreements in place with Algeria, China, Egypt, Jordan, Malaysia, Morocco, Syria and the UK.At last count, 19 other BITs were under discussion. Bahrain has economic and commercial cooperation agreements with Australia, Bangladesh, China, Cyprus, Egypt, France, Germany, Greece, India, Iraq, Jordan, Netherlands, Russia, Singapore, South Korea, Syria, Tunisia, Turkey and the UK. Bahrain has air transportation tax agreements with China, Cyprus, France, Germany, Greece, Singapore, Turkey, UK, U.S. and Yemen. Bahrain has concluded double taxation agreements with Egypt, France, India, Jordan, Malaysia, Morocco, the Philippines, Syria, Thailand and Tunisia.

Foreign trade zones/free ports
Mina Sulman, Bahrain's major port, provides a free transit zone to facilitate the duty-free import of equipment and machinery. The North Sitra Industrial Estate is an industrial free zone and another one is planned for Hidd. Foreign-owned firms have the same investment opportunities in these zones as Bahraini companies.

A 1999 law requires that investors in industrial, or industry-related, zones launch a project within one year from the date of receiving the land, and development will have to conform to the specifications, terms and drawings submitted with the application. Changes are not permitted without approval from the Ministry of Oil and Industry.

Major foreign investments

Foreign investments in Bahrain range from partial foreign ownership of large parastatals in the oil and telecommunications sectors to restaurant franchises. As the economy is virtually tax-free, the government does not maintain detailed statistics foreign direct investment flows. The largest, by value, of foreign holdings in Bahrain include:

  • Aluminum Bahrain (ALBA) and the Gulf Petrochemical Industries Complex (GPIC), each of which are owned as joint investments by several Gulf states.

  • The Arab Shipbuilding and Repair Yard (ASRY), which is jointly owned by Bahrain, Kuwait, Saudi Arabia, the United Arab Emirates, Qatar, Iraq (participation frozen) and Libya (participation frozen).

  • Britain's Cable and Wireless' 20 percent holding in the Bahrain Telecommunications Company (BATELCO).