How to Set Up a Sole Proprietorship in Bahrain: A Complete Guide

Bahrain is a popular business destination for foreign investors due to its pro-business environment and relaxed legal and taxation regulations. Besides boasting a steadily increasing GDP, Bahrain is one of the most technologically advanced nations with an expanding tech ecosystem.

As a business owner setting up a business in Bahrain, a sole proprietorship is perhaps the best option if you want maximum independence in managing the operations. The simplest of all business entities, sole proprietorship gives you total freedom on all business matters, from how to run your business to the capital amount you invest. Business owners choosing the subsidiary form can hire any number of employees while enjoying a simple taxation structure.

This article will guide you to know how to register a sole proprietorship in Bahrain.

A sole proprietorship in Bahrain is owned and regulated by an individual or a company. The individual is responsible for all the obligations arising from the sole proprietorship. Thus, in a sole proprietorship, a single owner also acts as the Director. 

To be a sole proprietor in Bahrain, one must fulfill the following criteria:

• The primary requirement of setting up a sole proprietorship in Bahrain is to be a citizen of the country or the Gulf Cooperation Council. 
• Individuals willing to establish a sole proprietorship here can be a resident of the Kingdom of Bahrain or hold citizenship evidence of any countries having an agreement of free trade with Bahrain. 
• A sole proprietor must not be less than 18 years of age, have a sound mind, and not have any criminal history. 

Apart from these mandates, you must have a minimum capital of 50,000 BHD, a local office, and an external auditor to be a sole proprietor here. Sole proprietors must submit annual audited financial statements to the Ministry of Industry, Commerce, and Tourism. 

Setting up a sole proprietorship in Bahrain offers multiple benefits to individual entrepreneurs.

• Low cost of establishing the business: The minimum amount of capital required to cover sole proprietorship Bahrain costs is 1000 BHD, depending on your business activities. 
• Easy set-up and operation policy: Since you are the sole owner, registering the sole proprietorship takes much less time and money than other business forms. Moreover, a sole proprietorship in Bahrain can be 100% foreign-owned. However, some business activities (including construction, shipping services, fishing, press, a gas cylinder, and bottling distribution services) aren’t legally allowed under 100% foreign ownership. 
• Minimum tax liability: The only tax sole proprietors must pay is the VAT on supplies. No separate income tax provision is included in the personal income tax return. 
• 100% control and independence: As the sole owner of your company, you are the primary decision-maker. You exercise complete control over all business aspects, provided you comply with the sole proprietorship Bahrain law. 
• Sole ownership of gains: As a single owner entity, there is no profit sharing with anyone. 
• Simplified financial and corporate arrangements: Due to a double taxation agreement with the UK and USA, and other foreign countries, you will not be taxed twice if you import foreign resources or labor force for your firm. 
• Free trade agreement: The 2006 free trade agreement with the USA allows Bahrain companies to solicit foreign investment for their business. 
• Limited Liability: With only one owner, a sole proprietorship is accountable for limited liability company structure as per Article 292 of Company Commercial Law. 

To set up a sole proprietorship in Bahrain, you will need the following documents for your application to get sanctioned.

• The application form for company registration must be filled up and duly signed.
• A copy of the applicant’s passport or smart card 
• Registered business address 
• A copy of the Memorandum of Association (MOA)
• External auditor appointment letter 
• Issued copy of licenses and approvals, including the approval of the company name. The two categories of licenses are preliminary approval and industrial permit. 
• Evaluation and Capital Deposit Certificates: An authorized auditor must provide the certificate of the evaluated estimation of your capital requirements for setting up a sole proprietorship in Bahrain. After the assessment, you must provide a certificate stating your minimum capital needs have been fulfilled. 
• Articles of Association(AOA): These articles lay down all the regulations a company must operate. It must be certified by the Ministry and authorized by a notary.

The commercial domain of the business that is the company name for setting up a sole proprietorship in Bahrain must be chosen very carefully. 

• Your business name should be unique – it should not bear similarity to any registered trademark brand under the Ministry of Industry, Commerce, and Tourism (MOICT). 
• It should not conflict with religious sentiments, public law, customs, or traditions. 
• It should not infringe the rights of a previous owner of a similar trademark unless you get a special license from the registered trademark owner.

Regarding sole proprietorship Bahrain tax, sole proprietors must pay the income tax as their tax return. However, business owners in Bahrain must pay 10% VAT. The registration process for VAT is pretty simple. 

If your business supplies cost more than 37,500 BHD, “the mandatory minimum”, you must register your business. Voluntary registration is also available for businesses whose supplies are more than 18,750 BHD. Organizations with a turnover of more than 18,750 BHD and less than 37,500 BHD can decide whether they would voluntarily opt for VAT registration in Bahrain.  

To register your company for VAT payment, you must first register it at the National Bureau for Revenue(NBR) and fill in all the necessary details in the form. These include your eligibility criteria, legal information, contact information, financial activity history (like import and export), bank account details, and supply data. 

A breakdown of how to register a sole proprietorship in Bahrain:

Select company name

Pick a company name that is unique as per the criteria mentioned above. However, the company name should be different from other legally registered companies in Bahrain. 

Submit sole proprietorship registration form

Fill up the sole proprietorship registration form with mentioning the relevant personal and official information. Submit a scanned copy of the form to the Ministry of Industry, Commerce, and Tourism (MOIC) electronically, in person, or through an authorized intermediary. You must also attach the other necessary documents to the Ministry. 

Municipal fees

Once the Ministry grants your request, you must pay the municipal charge of ten dinars as application fees. The progress of the application is conveyed throughout the process. Once the specialists at the Ministry have verified your application and decide that your business deserves a license, they will approve it. 

Articles of Association

The next step is to get the Articles of Incorporation and Articles of Association notarized.

Requirements for commercial registration

You must meet all the requirements to set up a sole proprietorship in Bahrain. You must be 18 years or above, have a business mindset, and have a clear criminal record. 

Final approval

For the final commercial registration, you must submit a clear outline of your business idea to the MOICT for incorporating sole proprietorship in Bahrain. This process usually lasts for fourteen days. You can get an approval certificate for two dinars. You can start your business after obtaining this approval certificate.

Being a sole proprietor in Bahrain has numerous benefits. The most important of them is complete autonomy over your business. Bahrain’s simple tax structure and 100% foreign investment in sole proprietorships make it a viable option for business owners. 

However, the catch about single-person companies like a sole proprietorship in Bahrain is that you must appoint an external auditor. Furthermore, unlimited autonomy also comes with total liability. 

This is where a global PEO firm like Multiplier can quickly help you overcome these challenges. The team of experts at Multiplier can handle payroll, employee contract generation, insurance & benefits, etc. The100% secure payroll services ensure timely payment processing for full-time and freelance employees. The team always ensures your seamless setup of business operations and total compliance with Bahrain’s laws.