Situated at the center of the Arabian Gulf, the Kingdom of Bahrain enjoys a unique strategic position for foreign investors to invest. With a rapid clearance time through the Khalifa Bin Salman port and excellent connectivity through road and air routes, foreign companies in Bahrain can easily access the 1.67 trillion market of the Gulf Cooperation Council (GCC), consisting of over 54 million consumers.
Thanks to its conducive business environment, Bahrain is an excellent business destination with 100% foreign ownership opportunities across its most thriving sectors. However, anyone planning to expand their business here must first set up a subsidiary business in Bahrain.
What Are the Types of Subsidiaries in Bahrain?
The primary business vehicle in Bahrain is a company. Under the Commercial Companies Law of 2001, business owners in Bahrain can choose from eight types based on the number of investors and the nature of the business activity.
A subsidiary business in Bahrain can be up to 100% foreign-owned, barring a few sectors reserved for Bahrain nationals, such as construction, shipping services, fishing, foreign manpower supply, car and motorbike rental, a gas cylinder distribution and gas bottling distribution services, and press.
There are some business activities such as import, export, catering service and sale of fresh flowers that require 51% of Bahraini investment.
The eight types of Bahraini subsidiaries:
Bahrain public shareholding company (BSC)
You can set up a subsidiary in Bahrain in the form of a public joint-stock company with at least seven shareholders having limited liability. With a minimum share capital of BHD 1 million and a minimum of 5 directors, a public joint-stock company can offer shares to Bahraini nationals or nationals of the GCC only. However, the Bahraini Minister of Industry and Commerce can permit special approvals for foreign investment under the investment percentage it prescribes.
Bahrain closed shareholding company (BSC)
A closed joint-stock company requires a minimum of two shareholders subscribing to it by negotiable shares. Shares are not available to the public, and the shareholders are liable for the debts and other obligations of the company only to the extent of their share values. With a minimum of 3 directors and minimum share capital of BHD 250,000, a closed joint-stock company can be 100% foreign-owned subject to their sector.
These subsidiaries must adhere to strict rules and regulations specified by the Ministry of Industry and Commerce. They must obtain an objection clearance certificate from the Ministry to conduct annual greeting meetings.
With Limited Liability Company (WLL)
Like a British private limited company, a WLL can comprise between two to 50 partners and minimum share capital of BHD 20,000. According to the subsidiary system in Bahrain, these companies have less strict mandates on passing resolutions (compared to Bahrain shareholding companies. They need not obtain permission to hold annual general meetings from the Bahraini Ministry of Trade and Commerce.
A WLL cannot issue public shares and can be wholly foreign-owned, subject to their operating sector. However, based on the business activity, there can be limited requirements for Bahraini ownership.
Partnership Company (general partnership)
A partnership company is formed by two or more individuals where all the partners share the liability of the company’s debt and obligations to the extent of their assets. It requires no minimum share capital. However, the company must have at least one manager in compliance with the foreign subsidiary system in Bahrain.
Simple Commandite Company (limited partnership)
Silent partners can establish this type of company without involvement in its management, and their liability is restricted to their shares only. It can also be set up by managing partners sharing the liability of the company’s debt to the extent of their assets. It must have two Bahraini managers or directors with the foreign investment limited to 49% for silent partners and 51% for managing partners.
Commandite by shares company (limited partnership by shares)
This type of company must have at least four partners, either joint partners or shareholders holding a negotiable share. If the number of shareholders exceeds more than ten individuals, at least three must be the company control board members. The company can be 100% foreign-owned with a minimum share capital requirement of BHD 20,000.
How to Set Up Subsidiary in Bahrain?
While the process of setting up a subsidiary in Bahrain differs with each entity, the common steps are –
- Register your business/company name (in both English and Arabic) by registering at the office of the e-Government Authority in Bahrain.
- Provide the number of directors, owners, and shareholders
- Determine the business structure as it will affect the registration process, insurance, and other conditions.
- Apply through the e-gateway system for company registration in Bahrain
- Acquire the commercial registration papers from the Bahrain Investors Centre or the Ministry of Industry and Commerce Commercial Registration Directorate.
- Submit the required documents and fill out company forms for registering your company.
- Receive a commercial registration certificate
- Open a Bahraini bank account for your company’s financial transactions.
- Lease suitable office space
- Hire skilled and educated employees
Benefits of Setting Up a Bahrain Subsidiary
Business owners can enjoy several benefits of setting up a subsidiary in Bahrain:
- Companies are exempt from different tax forms, including sales tax, VAT, company tax, and tax on dividends.
- Companies incorporated in the Bahrain Free Zone also enjoy benefits regarding custom duties.
- Bahrain has double taxation agreements with different countries to protect employers from taxing twice.
- Bahrain has a free trade agreement with America to lure in foreign investment.
- It is a member of the GCC, World Trade Organization (WTO), International Monetary Fund (IMF), and the United Nations Convention. Companies can enjoy various incentives for foreign investment.
- The Central Bank of Bahrain has also decided to train in finance and tax areas.
- According to the World Bank, Bahrain has the highest scores in the Middle East and North Africa (MENA) for human capital development.
- Bahrain ranks first in MENA and globally for life-work balance and career satisfaction rates.
- Bahrain is the world’s fifth easiest place to settle in.
Documents to Prepare When Opening a Subsidiary in Bahrain
Here is the document checklist for incorporation of a foreign subsidiary in Bahrain:
- The registered address of the business
- The register of the director(s) and the shareholders
- Notarized copies of passports of the director(s)
- Agreement of the shareholders
- Memorandum and Articles of Association
- A copy of the Certificate of Incorporation
What Business Forms can Bahrain Subsidiaries Take?
When establishing a subsidiary in Bahrain, organizations must be aware of the Bahraini subsidiary laws and other relevant regulations. Bahrain subsidiary system and Commercial Companies Law of 2001 offer foreign investors eight different business entity forms.
Foreign business owners can set up a public joint-stock company offering shares to Bahraini nationals and GCC citizens only or a closed joint-stock company. However, Bahrain’s most popular subsidiary business in Bahrain is a With Limited Liability Company (WLL) that safeguards both the parent company and the subsidiary from liability. Foreign entrepreneurs can also set up simple commandite companies, silent partnerships, or a foreign company branch in Bahrain.
Bahrain Subsidiary Laws
Employers must follow the country’s domestic laws for subsidiary company formation in Bahrain. Subsidiary laws in Bahrain mandate some business types to be prohibited, while some are reserved for Bahraini citizens to invest in only. Specific industries like gambling and import-export and industrial use of restricted chemicals are prohibited. Industries related to selling fuel for racing cars, accounting services, and printing press are reserved for Bahraini citizens only.
To establish a subsidiary business in Bahrain, you are required to open bank accounts with a Bahraini bank before setting up payrolls. While the opening days and hours may vary, the usual work hours stretch from Sunday to Thursday or Saturday to Wednesday. When you establish a subsidiary business in Bahrain, the structure you select affects the subsidiary law.
If you are looking to incorporate an LLC as a strategy of subsidiary company formation in Bahrain, you will require a Bahraini manager, 2 directors, and shareholders, and a minimum paid-up capital of 2,660 USD. Depending on the sector you are looking to operate in, your LLC can be subjected to local shareholding joint venture requirements. You will also need to submit audited financial statements and tax returns per annum.
Post Incorporation Compliance
After the initial registration process, entrepreneurs must follow these steps to set up a subsidiary in Bahrain:
- Limited Liability Companies (LLCs) are mandated to convene shareholder meetings within 6 months following the end of the financial year.
- Joint Stock Companies are required to convene shareholder meetings within 3 months following the end of the financial year.
- Limited Liability Companies (LLCs) are required to conduct board meetings if only there is any requirement within the statures to do so.
- Joint Stock Companies are mandated to hold board meetings every quarter of the financial year, resulting in 4 board meetings in every financial year.
- All subsidiary businesses in Bahrain are required to submit VAT to the National Taxation Authority (NTA).
- All subsidiary businesses in Bahrain need to be registered with the Central Bank of Bahrain and the Ministry of Industry, Commerce, and Tourism (MOICT) of Bahrain.
Taxes on Subsidiaries in Bahrain
Entrepreneurs must know the taxation process while setting up a subsidiary in Bahrain. Since Bahrain imposes no corporate tax, it offers a business-friendly environment to local and foreign entrepreneurs. Subsidiaries must submit Value Added Tax (VAT) of 10% to the National Taxation Authority.
Bahrain does not have a strict tax regime apart from specific taxes imposed on incorporating a foreign subsidiary in Bahrain that is directly engaged in the production and refinement of crude oil or any other natural hydrocarbons.
Tax Incentives for Businesses Setting Up a Subsidiary in Bahrain
The greatest benefit of a subsidiary company in Bahrain is that business owners need not pay any corporate tax. Only subsidiaries engaged in a few sectors must pay certain taxes.
Bahrain has signed double taxation treaties with different countries. So, businesses are exempt from double taxation. Bahrain has also signed tax information exchange agreements with many nations: India, Norway, Finland, Australia, Greenland, Canada, Sweden, and Iceland.
Other Important Considerations
Being aware of and compliant with the local labor laws and other legislature is critical while setting up a subsidiary in Bahrain.
While the country does not have any taxation apart from mandatory contributions to the General Organization for Social Insurance (GOSI), seeking help from a legal firm or representative during the registration process may come in handy. It will ensure that you have been compliant with all the rules and regulations while setting up a subsidiary in Bahrain.
It is crucial to plan the expansion meticulously and prepare accordingly to complete this lengthy process of establishing a subsidiary.
How Multiplier’s Employer of Record Can Help You Hire & Expand in Bahrain?
Setting up a subsidiary in Bahrain can be cumbersome without proper knowledge of local legislation, rules, and regulations. Entrepreneurs must fulfill numerous documents and legal affairs besides dealing with different ministries to set up their subsidiary businesses in Bahrain.
You can partner with Multiplier to make the process a lot easier. Our experts can help you start operating in Bahrain by onboarding employees without opening a subsidiary. We can handle multiple facets of your business, including payroll, employee contract generation, insurance & benefits, international team management, etc.