BAHRAIN: The new business center

BAHRAIN: The new business center

Stefania Katodrytou

Corporate Officer

PHS & Partners

24/03/2021

Following the signed Double Tax Treaty between Cyprus and Bahrain along with Bahrain’s current business environment, it should be well noted for a possible business expansion and tax structuring.

A. Why Bahrain?

1. Easy access to global markets due to its position in the The Gulf.
2. It is a member of the Gulf Cooperation Council and its economy is diverse which provides the basis for a regional and global hub for businesses.
3. Bahrain is a multicultural country with more than 50% of its population being expatriates, having flexible visa policies and English as a language is widely spoken and used in business circles.
4. Bahrain has one of the lowest costs in the region in relation to rent for offices and industrial land.
5. Bahrain is a regulated country, and it has signed the United Nations Convention against corruption.
6. It is considered by WTO as a safe and stable country with a growing economy.
7. The legal system is evolving to accommodate international disputes, i.e., the Bahrain Chamber of Dispute Resolution (BCDR) launched in 2010 which provides arbitration and mediation services resulting a final resolution of commercial disputes.

B. What type of business shall be established?

There are eight corporate entities that can be established under Bahrain law:

• With Limited Liability Company (WLL)
• Partnership Company
• Bahrain shareholding Company – public
• Bahrain Shareholding Company – closed
• Simple Commandite Company
• Branch of a foreign Company
• Holding Company

PHS suggests its clients to set up a WLL (with limited liability) that can have from 1 to 50 shareholders and each shareholder is responsible to the depts of the company to the extent of his share capital, 100% foreign ownership is allowed.

The minimum share capital of WLL amounts to USD 53,000 (BHD 20,000) is needed, however, this amount can be significantly lower depending on the activity and the share capital. This amount needs to be deposited at the point of opening a bank account, the funds are not blocked but can be withdrawn to meet the company’s cash flow needs.

Furthermore, the minimum number of directors required is two and an external auditor is required as the company has the duty to submit audited financial statements every year.

Also, local office presence is required to establish a connection to Bahrain.

C. Are there any ongoing/ renewal costs?

Yes, there are renewal costs payable every year.

The renewal costs of the company are estimated around 5,500 USD including the renewal costs, the subscription fee to the Bahrain Chamber of Commerce, the annual financial statements, and the proof of local office presence. To explain this further, local presence with a virtual office permits specific access to office space and use of the internet and conference facilities to assist company activities. If there is a need to rent an office and not use a shared office virtual address, the company will need to have at least one employee.

D. Employment in Bahrain

There is no requirement for the WLL to have an employee although this may depend on the activities of the company. However, if needed this can be either an expat or a Bahraini. There is no personal income tax for employees, only Social Insurance contributions.

Social Insurance applies to every person employed in Bahrain and the employer contribution is calculated at the rate of 12% for Bahraini workers and 3% for expatriates. The employee’s contribution is based on 7% for Bahraini workers and 1% for expatriates.

The application and the granting of visas to expatriates is a relatively easy and straightforward procedure that is mandatory for anyone who would like to visit or work in Bahrain except for other GCC nationals. Tourist’s and business visas can be obtained online via an access point; however, the e-visas limit the amount of time someone can stay in Bahrain for only 2 weeks. Further renewals and long-term residence visas are done at the embassy.

Furthermore, the employability of a foreign national is a common thing in Bahrain if the approval of the Labour Market Regulatory Authority is given.

E. What is the Bahrain tax regime?

Currently, there are no taxes in Bahrain in relation to income, transfer, capital gains or estates unless a company is involved in the oil and gas sector. However, since 2019, VAT was introduced in Bahrain as a standard rate of 5% – a threshold around USD 50,000 on annual vatable supplies.

Cyprus has signed a Double Tax Treaty with Bahrain.

F. Significant points of the treaty

The income tax treaty between Bahrain and Cyprus entered into force on 26 April 2016. The treaty, signed on 9 March 2015, is the first of its kind between the two countries.

G. Taxes Covered

The treaty covers Bahrain income tax, and Cypriot income tax, corporate income tax, the special contribution for the defense of the republic, and capital gains tax.

H. Hydrocarbon PE

The treaty includes the provision that a permanent establishment will be deemed constituted if an enterprise of one Contracting State is directly engaged in the exploration for or production of crude oil or other natural hydrocarbons from the ground in the other State, or when refining crude oil in its facilities in the other State.

I. Withholding Tax Rates

• Dividends – 0%
• Interest – 0%
• Royalties – 0%

J. Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

1. Gains from the alienation of immovable property situated in the other State; and
2. Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

K. Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

L. Effective Date

The treaty applies from 1 January 2017.