The legal system of Bahrain is a hybrid system, primarily based on civil law, complemented by Islamic Shari’a law in personal matters. The framework is largely influenced by Egyptian and French legal traditions (via codified laws), alongside local customs and principles of Islamic jurisprudence.

The Constitution of 2002 serves as the supreme law and explicitly guarantees the integrity and impartiality of the judiciary, mandating that the law ensure judicial independence.

Bahrain’s judiciary is organised into three main branches: Civil Courts, Criminal Courts, and Shari’a (religious) Courts. The Civil Courts have general jurisdiction over civil, commercial, and administrative cases, and they also handle personal status matters for non-Muslim residents.

The Shari’a Courts deal with family and personal status matters for Muslim citizens, applying Islamic law to issues of marriage, divorce, inheritance, and related matters. Finally, the Criminal Courts handle the prosecution of offenses and crimes; cases are brought by the public prosecution (state prosecutors), and the criminal courts adjudicate these matters in accordance with the Bahraini Penal Code and Criminal Procedure Code.

Each of the above court systems is structured in multiple tiers, generally including courts of first instance, appellate courts, and a supreme court of review. At the base are the Lower Courts (and in some instances “High Courts” for more serious or high-value matters) which serve as courts of first instance. Above them are intermediate Courts of Appeal ,often termed High Courts of Appeal (and in some instances “Supreme Courts of Appeal” for more serious or high-value matters) that review lower court judgments. At the top of the hierarchy, Bahrain has a Court of Cassation – the highest court in the country – which adjudicates final appeals in all civil, commercial, criminal and Sharia cases.

In addition to the ordinary courts, Bahrain’s legal system includes certain specialised courts and tribunals established to handle specific types of disputes. The Constitution provides for a Constitutional Court, which was established in 2002 and has exclusive authority to review the constitutionality of laws and regulations. This court (comprising a president and six members) acts as the guardian of the Constitution, assessing whether legislation and government actions conform to constitutional requirements.

Bahrain has also established the Bahrain Chamber for Dispute Resolution (BCDR) in 2009 as a special forum for complex and high-value commercial disputes. The BCDR consists of a dedicated court (the BCDR Court) and an arbitration centre; by law, any claim exceeding BHD 500,000 (approximately USD 1.3 million) that involves commercial dispute and commercial parties falls under the BCDR Court mandatory jurisdiction.

The Constitution provides that all laws in Bahrain are subject to the overlay of the shari’a (principles of Islamic law). The Constitution provides that the judiciary is an independent and separate branch of the government, headed by the Minister of Justice and Islamic Affairs, who is appointed by the Prime Minister.

As is usual in most civil law systems, there is no doctrine of binding precedent in the Bahrain and judges are under no obligation to take previous court decisions into consideration in an action before them, although prior rulings of the appellate courts have persuasive authority and are routinely sited by litigants in their pleadings and by the Bahraini Courts in their judgments. Similar to other civil law jurisdictions, Bahraini Courts also reference scholarly writings

The vast majority of proceedings are conducted in Arabic and all non-Arabic documents submitted in proceedings must be translated.

In summary, Bahrain’s current legal system features a civil-law-based, codified framework with Islamic law influences, a court hierarchy that separates civil, criminal, and Shari’a matters, and institutional safeguards (such as the Supreme Judicial Council and Constitutional Court) intended to ensure the proper functioning and integrity of the judiciary as it operates today.

• Branch of foreign entity.
• With Limited Liability company.
• Bahrain Shareholding Company (closed) i.e. Closed Joint Stock Company.
• Bahrain Shareholding Company (public) i.e. Public Joint Stock Company.
• General/limited partnership company.
• Association in participation.
• Partnership limited by shares.

By way of background, any person or entity which operates and/or provides commercial services in or from Bahrain is required to have a suitable legal presence in Bahrain, involving duly registering with the Bahrain Ministry of Industry and Commerce (“MOIC”) pursuant to the Commercial Registry Law (Bahrain Law Number 27 of 2015).

Depending on the precise nature of the intended business activities in or from Bahrain, additional approvals, consents and/or licenses may also be required from other competent government departments or agencies in addition to the MOIC.

There are generally no minimum share capital requirements in Bahrain. The Commercial Companies Law (Bahrain Law Number 21 of 2001) (“CCL”) provides, in a general sense, that that an incorporated entity’s capital must be adequate to enable the Bahrain entity to achieve its objectives, but without being prescriptive as to actual specific amounts.

As an exception to the above, depending on the nature of the activities which the entity proposes to engage in, certain authorities may require the entity to have a specified share capital requirement. Examples include entities licensed and regulated by the Central Bank of Bahrain (“CBB”).

The set-up of corporate entities in Bahrain is primarily conducted via the online portal Business Licensing System of the MOIC called Sijilat — an advanced electronic system. The MOIC is the primary licensing authority responsible for the issuance of licenses required for economic development projects and all entities in Bahrain must be registered with the MOIC (i.e. the company registrar). A With Limited Liability (“WLL”) is the most common entity that investors opt for, noting that for depending on the choice of commercial activity which an entity may be engaging in (selecting from the list published by the MOIC which is in turn based on the the International Standard Industrial Classification of All Economic Activities (“ISIC”) Revision 4 code (ISIC4) classification), a different form of entity may be required.

A WLL in Bahrain must have a minimum of one (1) shareholder, one (1) director or general manager and one (1) registered authorised signatory. Decisions may be passed by way of board/shareholder meetings or resolutions in line with the CCL and the entity’s articles of association.

In terms of the powers of the director or general manager of a WLL or a branch, under the CCL, a director or manager shall have the full powers to manage the day-to-day operations of the Bahrain entity, and to represent the entity before third parties, unless otherwise stipulated in the law or the entity’s constitutional documents. Whilst the Bahrain CCL does not contain a concise and clear list of duties as such, various duties can be gleaned from a number of Articles of the CCL, most of which do not refer expressly to duties as such, but rather, refer to the imposition of penalties upon inter alia directors/managers the event of such persons engaging in, or failing to engage in, certain actions. These include articles providing for the imposition of penalties upon directors/managers in the following scenarios:

• Where the director/manager participates in preparing or approving a balance sheet or profit and loss account that does not reflect the true financial position of the company.
• Where a director/manager takes remuneration in excess of any limits provided for in the company’s or parent company’s constitutional documents.
• Where the director/manager has utilised the company for fraudulent purposes or illegal acts.
• Where the director/manager deals with the company’s funds as the personal money of the director/manager.
• Not separating personal interests from the interests of the company.
• Where the director/manager encumbers the company with obligations, despite the supposed certainty or knowledge that the company cannot perform the same as they fall due or if the company fails to fulfil those obligations as a result of the gross negligence or wrongdoings of the director/manager.
• Where the director/manager causes the company to fall short in paying accrued taxes and fees to government departments or public institutions, despite the supposed certainty or knowledge of the same, or if the company fails to pay those taxes due to the gross negligence or wrongdoings of the director/manager.
• Where the director/manager willfully refrains from enabling the auditors or the staff of the MOIC or those who have the powers to undertake inspection to have access to the books and documents which they are permitted to have access to.

While WLL companies are not required to have a board of directors, if they do, the board operates similarly to that of a joint stock company.

The board of directors shall undertake the powers and the acts necessary for the company’s management in accordance with its objectives except for those banned by the law, the company’s constitutional documents or the shareholders’/general assembly’s resolutions. The board of directors may allocate its duties among its members in accordance with the nature of the company business, and the board must delegate any of its members or a committee from among its members to carry out a specific assignment or more or to supervise one of the company’s activities or to exercise some of the powers or authorities granted to the board. The board must also delegate a member or more to perform actual management, and the board shall specify the powers of the member delegated.

In a Joint Stock Company, the board of directors would need to comply with the Corporate Governance Code, as further detailed below.

WLL Companies

A WLL in Bahrain must have a minimum of one (1) director / manager and one (1) authorised signatory. The same individual can be appointed for both positions. The individual(s) is appointed (and changed) by the partner(s) of the WLL by way of a resolution of the partner(s).

Branch of a foreign company

A branch in Bahrain must have at least one (1) general manager. The general manager is appointed by a decision of the parent company of the branch. It is common that the parent company also issues a Power of Attorney in favour of the branch manager, setting out the manager’s precise powers and authorities with respect to the branch.

Closed Joint Stock Companies (BSC(c))

The board of directors of a joint stock company is initially appointed by the shareholders and must consist of at least 3 members for a period of 3 years renewable. The ordinary general assembly considers the election and dismissal of members of the board of directors.

Regarding residency, in general there are no requirements for directors, authorised signatories or shareholders to be resident in Bahrain. It should also be noted however that depending on the commercial activities chosen to appear on the Commercial Registration (CR) of the entity:

• Certain activities are subject to annual Economic Substance Requirement (“ESR”), and as part of the ESR rules, there is a requirement of annual board and shareholder meetings held on ground in Bahrain and evidence of the same.
• Certain commercial activities may impose restrictions on foreign ownership, and as such, a specified number of shares must be held by GCC nationals or GCC entities that are fully owned by GCC nationals / entities at every level of the ownership chain, depending on the precise commercial activities of the entity.
• Certain commercial activities have specific requirements regarding director and general manager residency, and may require the director to be physically present in Bahrain, with a valid work permit and Bahraini ID. Such activities include, but are not limited to: engineering activities, activities regulated by the National Health Regulatory Authority and cargo clearance activities.

Foreign entities can work with agents/distributors/resellers in Bahrain whereby a agents/distributors/resellers would represent the principal in engaging in the resale and/or distribution of the relevant goods and products.

It should also be noted however that in so far as the arrangement falls within the scope of the relevant laws relating to Commercial Agencies (Decree Number 10 of 1992, and the Implementing Regulations thereto) then that law will be of application. The Commercial Agency Law defines a commercial agency as an arrangement whereby an agent represents a principal in the distribution or sale of goods and products or the display of them for sale or trading purposes, or the provision of services, receiving in return a profit or commission.  The Commercial Agency Law provides that entities may distribute or their sell products and commodities in Bahrain through a registered agent. Where the provisions of any written agreement satisfy the requirements outlined above, then as per the Commercial Agency Law, the agreement should be registered as a commercial agency with the competent department within the MOIC.

Failure to register the same would bar any action in the Bahrain courts under the Commercial Agency Law (as, in order for the Commercial Agency Law to be applicable to a principal and agent relationship, the agency in question must be in writing and must be must be registered with the MOIC), noting that registration of an agreement of as a commercial agency is not necessarily conclusive as the arrangement and the agreement otherwise satisfying the requirements of the Commercial Agency Law.

Where the Commercial Agency Law is of application to an arrangement between a foreign principal and a local agent, then the local agent will enjoy the benefit of a variety of rights implied by law, including:-

• Restrictions on the foreign principal with reference to termination of the arrangement, which should be undertaken with the consent of the local agent, or in case there are justifiable grounds for termination, by way of an application before the MOIC.
• In case of unilateral termination by the foreign principal prior to the expiry date, the local agent is entitled to claim compensation from the foreign principal, on account of unlawful termination.
• Risks for the foreign principal in not agreeing to renew the arrangement upon the expiry of its fixed term, whereby the agent may be entitled to claim compensation if it can be proven that the efforts exerted by the agent led to success in the promotion of the principal’s products or to an increase in the number of its customers and due to the refusal of the principal to renew the agency agreement the agent was unable to receive the benefit of such success due to the non-renewal of the agency.
• In addition to compensation, foreign principal is required to reimburse the local agent for expenses incurred in conducting business of the agency in Bahrain.

Separately, foreign entities engaging in the retail industry may work with an authorised distributor/reseller in Bahrain with arrangements that fall outside of the scope of the Commercial Agency Law. In this regard, however, it is important to note that with reference to Decision 29 of 2024 concerning the conditions and controls for practicing the activity of authorised distribution and subject to certain specific exceptions, in the event that foreign principals and local distributors in Bahrain have entered into a distributorship relationship in any sector whereby the local party undertakes authorised distribution activities, such authorised distributor must have an active Commercial Registration (CR) with: a Bahraini shareholder holding at least 51% of the shares; and the ‘authorised distributor’ commercial activity (together with the relevant appropriate specific sale/trade commercial activity or activities) must be included on the Commercial Registration (CR).

In terms of what would constitute a distribution agreement or arrangement, there is no definition of a distribution agreement in the Decision. However, in broad guidance terms, taking from the language of the Decision as well as the description of the Authorised Distribution commercial activity appearing under ISIC4 Code 4699, the Decision can generally be considered as applying to distribution type arrangements whereby a local entity provides goods and/or services to customers with reference to an agreement/contract with the principal company that owns the relevant trademark.

It is also possible for foreign entities to supply/sell directly to end user customers without involvement of a distributor/reseller.

In all of the above scenarios (i.e. commercial agent/distributor/sale direct to end customer) the agent, distributor or end customer (as the case may be) should act as the importer of record and the foreign entity should not generally engage in on-shore promotional, sales or support activities in Bahrain or have on-the-ground personnel in Bahrain (unless it has a duly licensed legal presence in Bahrain).

The Corporate Governance Code, introduced by Ministerial Decree (19) of 2018 (and amended by Resolution Number (91) of 2022) (the “CG Code”), is applicable to all joint stock companies incorporated in Bahrain (expect for joint stock companies licensed by the Central Bank of Bahrain (CBB) which are required to adhere to the Corporate Governance Requirements promulgated by the CBB within the CBB Rulebook.

The CG Code includes mandatory rules generally based on the provisions of the CCL, coupled with best practice guidelines for relevant entities.

The code lists eleven (11) ‘fundamental principles’ of corporate governance that entities must comply with. An annual corporate governance report is required to be submitted by the company evidencing compliance.

The eleven (11) fundamental principles of the CG Code are:

1. The company shall be headed by an effective, qualified and expert Board.
2. The board and the executive management shall have the full loyalty to the company.
3. The board shall have rigorous control for financial audit and reporting, internal control and compliance with the law.
4. The company shall have effective procedures for the appointment, training and evaluation of Board members.
5. The company shall remunerate directors and officers fairly and responsibly.
6. The board shall establish a clear and effective management structure for the company, and define job titles, powers, roles and responsibilities.
7. The company should communicate with shareholders, encourage them to participate and respect their rights.
8. The company shall disclose its corporate governance.
9. Companies which offer Islamic services shall adhere to the principles of Islamic shari’a.
10. The board shall ensure the integrity of the financial statements submitted to shareholders, through the use of external auditors.
11. The company must seek social responsibility to exercise its role as a good citizen.

The specific requirements of the MOIC with respect to the CG Code include the following:-

1. Appointment of a Corporate Governance officer.
2. Preparation of a written guide and procedures for corporate governance.
3. Preparation of an independent corporate governance report to be prepared and include in the company’s annual report.
4. A separate item for corporate governance is to be included in the company’s general assembly agenda.

The CG Code is generally applied on the principle of ‘Comply or Explain‘ whereby companies to whom it applies are obligated to either comply with the CG Code requirements (and to provide evidence of the same as relevant) or to provide satisfactory explanations to justify the non-compliance. In this regard, the CG Code provides details of acceptable reasons for non-compliance, including the situation where a company has implemented different measures to those required by the CG Code due to the size of the company or due to it being a newly listed or incorporated entity, and noting that entities would be expected to increase their level of compliance gradually with a view to ultimately achieving compliance with the CG Code. The company should also include details of the reasoning for any non-compliance in the company’s annual corporate governance report and discuss them with the shareholders in the general assembly meetings.

It is also important to note that the implementation of the ‘Comply or Explain‘ principle will not  prevail over any mandatory legal provisions of Bahrain law.

All companies in Bahrain will have a registered share capital, with the same reflected on the entity’s Commercial Registration and Extract as maintained by the MOIC. Upon formation, such capital may be contributed by the founding shareholders by way of cash or in-kind contributions as follows:-

• In so far as cash contributions are concerned, the capital of an entity in Bahrain may be injected in cash into a local bank account in the name of the entity under formation as part of the corporate formation process – the bank will freeze the funds and issue a certificate confirming the receipt of the same, and this is then utilised to complete the corporate formation process, with the funds being unfrozen thereafter;
• It is also possible for founders to contribute capital in kind – If the capital of the company comprises of intangible in-kind capital, external locally registered auditors must prepare an audit report of the accuracy of the evaluation of the in-kind shares in accordance with the principles and provisions defined in the Implementing Regulations of the CCL, which states that such audit report must include:
  • A list of the in-kind shares.
  • A summary of the benefits gained by the company from such shares.
  • Contracts of exchange that the company handled during the previous five years, if applicable.
  • Any resulting mortgages and privilege rights, if applicable.
  • An undertaking to pay the MOIC fees, if applicable.

Regarding ongoing working capital, it is possible for shareholders to make cash injections into the business at any time, by payment into the bank account of the entity, without the need to reflect this in the registered authorised issued share capital of the company.

It is also generally possible for shareholders to make loans to the company, provided that all internal approvals and requirements (laid down by the CCL and any requirements of the entity’s constitutional documentation) are adhered to. In addition, it is possible for such shareholder loans to ultimately be converted into capital – again provided that all internal approvals and requirements are adhered to.

Entities registered in Bahrain are required to set aside 10% (or such higher percentage as may be provided for in the company’s articles of association) of the net profits annually to maintain a statutory (legal) reserve. Such deduction may be suspended if once the amount of the statutory reserve amounts to 50% of the paid-up capital of the company (or such higher percentage as may be provided for in the company’s articles of association).

The statutory reserve may not be distributed to the shareholders, but in so far as the amount of the reserve exceeds 50% of the paid-up capital of the company, then subject to the approval of the General Assembly, the excess may be distributed to shareholders in years in which the company does not achieve net profits sufficient to otherwise make a distribution of profits to shareholders.

Subject to the approval of the shareholders, a percentage of the company’s net profits that results from the sale of fixed assets or any compensation may be distributed, provided that this shall not lead to the company’s inability to restore the original condition of its assets or to buy new assets.

In terms of the general process for distribution of dividends to shareholders, at the of the company’s financial year end, and upon finalisation of the profit and loss account and the balance sheet, the dividend of each shareholder shall be determined. It is recommended that a resolution of the shareholders is passed for record-keeping. In practice, profits are usually paid into the company’s bank account, over which, the beneficiary would be the authorised signatory under a Power of Attorney and would then have power to transfer the sums at their discretion. The consideration for receipt of those sums is typically seen as the services that the beneficiary would provide to the company in operating it.

Regarding repatriation of capital to shareholders, this is permissible provided that the shareholder of the company pass a resolution approving the repatriation. The CCL envisages a return of capital to shareholders in the event of a capital reduction. A capital reduction shall be made, if it is more than the company needs, by reducing the nominal value of the shares, either by giving back a part of it to the shareholders equal to the decided percentage of reduction or by discharging them of the unpaid installments of the shares’ value in proportion to the decided reduction. A capital reduction is finalised by way of an online application to the MOIC.

We would always recommend that distribution of dividends and cash repatriations are discussed and cleared in advance with the company’s local external auditors and accountants.

For joint stock companies, the following matters can be passed by the ordinary general assembly (with a minimum voting majority of over 50%):

1. Election and dismissal of members of the board of directors.
2. Determination of the board members’ remunerations.
3. Consideration and approval of the board’s report on the company’s activities and financial position during the ended financial year.
4. Discharging or refusing to discharge the members of the board from any liability.
5. Appointment of an auditor or more for the following financial year and determination of his/their fees or authorizing the board to do the same.
6. Consideration of the auditor’s report on the financial statements of the company for the relevant financial year
7. Approval of the profit and loss account and the balance sheet and the statement allocating the net profits and determining dividends.
8. Consideration of recommendations relating to bond issue, borrowing, mortgaging and issuing guarantees and deciding thereon.

For joint stock companies, the following matters are reserved for the extraordinary general assembly (with a minimum voting majority of 75%):

1. Amending the company’s Memorandum or Articles of Association and extending the Company’s term.
2. Increasing or reducing the Company’s share capital – including issuing new shares.
3. The disposal of more than half of the assets of the company, with the approval of the board of directors.

For WLLs, approval of over 50% of the partners is required for the election and dismissal of managers, approval of at least 75% of the partners is required to amend the constitutional documents of the entity, and to increase or decrease the share capital, unless the constitutional documents provide for a higher percentage. Contrastingly, any decisions increasing partners’ obligations must be passed with unanimous approval of all partners. In practice however and anecdotally, for WLLs, where a decision requires an online application to the MOIC to amend Commercial Registration (CR) details and/or amend the articles of association, the MOIC prefer that all decisions are passed unanimously via a resolution.

All voluntary liquidations require a unanimous resolution of all partners.

Typically, shareholders would be authorised to issue binding instructions to management, in addition to the appointment and removal of managers/directors.

For WLLs, the partners are authorised to issue binding instructions to management, including limiting their authorities and powers to carry out the operations of the company, or extending such authorities by way of a Power of Attorney.

Similarly, for branches of foreign entities, the parent company is authorised to issue binding instructions to the branch manager including limiting their authorities and powers to carry out the operations of the company or extending such authorities by way of a Power of Attorney.

The board of directors of a closed joint stock company are required to comply with the Corporate Governance Code as further detailed below. The board would need to adopt a reasonable policy in delegating the authorities to the executive management, and the relevant committees. As such, it is common that in closed joint stock companies, the board has a more active and direct role without the interference of the general assembly provided that the decisions in question do not require general assembly approval.

We have set out below a summary of the core employment law rights and protections that employees benefit from in Bahrain. This is not exhaustive but covers the core areas.

1. National Minimum Wage

In Bahrain, there is no general statutory minimum wage for the private sector. However, the government has set a non-statutory minimum wage of 300 Bahraini dinars (around 800 US dollars) per month for Bahraini nationals working in the public and private sectors.

2. Working hours

The Bahrain Labour Law provides for maximum ordinary working hours of forty eight (48) hours per week at the rate of eight (8) hours per day. This assumes a six (6) day working week Overtime may not exceed two (2) hours per day, bringing the total working hours up to ten (10), except where business conditions necessitate further hours. During The month of Ramadan, Muslim employees shall not be employed for more than six (6) hours in every day or thirty six (36) hours a week.

Overtime

Employees are entitled to be paid for overtime hours worked at the minimum rate of 125% of their normal hourly rate; this minimum rate to a 150% of their normal hourly rate for hours worked during the night.

Rest periods

Employees are entitled to one interval of break of at least thirty (30) minutes daily for the purposes of prayers, eating and resting ensuring that the employee is not required to work for more than six (6) hours continuously without such a break. The break is not to be calculated as being part of the employee’s working hours.

Employers may require an employee to work during the employee’s weekly day of rest if this is required by the conditions of work. In such scenario the employee shall be entitled to his/her wage for this day and an overtime wage equivalent to 150% of such wage or shall be given another day in lieu thereof as selected by the employee of the overtime wage or day off. An employee shall not be required to work during his/her weekly day of rest for more than two successive times except with the employee’s written consent.

3. Discrimination

The general principle of equal treatment prevents an employer from treating an employee less favourably than other employees in the workplace without objective justification. The general principle of equal treatment is mainly applied in jurisdiction in the areas of remuneration, promotion, training, termination and social benefits.

In addition, the Bahrain Labour Law and the Constitution of Bahrain prohibit discrimination on the basis of sex, origin, language, religion or creed. The Bahrain Labour Law also explicitly prohibits discrimination in wages between male and female workers of equal status.

4. Statutory employee benefits

a) Annual leave and holiday entitlement.

An employee employed for at least one (1) year is entitled to a paid annual leave of not less than thirty (30) calendar days, with an average of two and a half day for each month. If the period spent in the service of the employer is less than one year, the employee shall be entitled to a leave pro-rate to the period of word. In all cases, the employee must enjoy an annual leave of fifteen days, including at least six consecutive days. Furthermore, employees are entitled to paid leave for holidays and official holidays. Where an employee is required to work on any such public holidays, then the employee shall have the choice between being paid overtime at the rate specified by law or to receive time in lieu.

b) Marriage leave.

The Bahrain Labour Law entitles employees to a three (3) day paid leave on the event of them getting married. Such entitlement is only available to an employee once during their period of service with their employer.

c) Bereavement leave.

An employee is entitled to a three (3) day paid leave for the death of his/her spouse or any of his/her relatives to the fourth degree of kin. In addition, an employee is entitled to a three-day paid leave for the death of his/her spouse’s relatives to the second degree of kin. Additionally, a Muslim female employee shall be entitled to one-month paid leave in the event of the death of her spouse; and is entitled to an Iddah (bereavement) period of three-months and ten-days, to be taken from the employee’s annual leave and/or unpaid leave. Furthermore, an employee is entitled to a three-day leave for the death of his/her spouse’s relatives to the second degree of kin.

d) Paternity leave.

A three (3) day leave entitlement is provided to male employees for the birth of a child.

e) Maternity related benefits and entitlements.

The Bahrain Labour Law entitles female employees to maternity leave on full pay for sixty (60) days, including the period before and after delivery, provided a medical certificate retained by one of the governmental health centres or one of the clinics retained by the employer, indicating the expected delivery date, is supplied. Note in addition to above, there is an entitlement for a further fifteen (15) day unpaid maternity leave. After the end of maternity leave and until the child is six (6) months old, female employees are entitled to two breastfeeding periods of not less than one hour each, during working hours. Such employees are also entitled to two periods of half an hour to provide care for the child during working hours, until her child reaches one (1) year of age. These two periods can be combined and no wage deduction can occur due to them. Note the employer may determine the timing of the above entitlements in accordance with the female employee’s circumstances and interest of the work.

f) Unpaid child care sabbatical.

Female employees are also entitled to an unpaid leave for taking care of her child (not exceeding six (6) years of age) for a maximum period of six (6) months (for each such child) and for no more than a total of three (3) times throughout the employee’s period of service (Art. 34).

g) Sick leave

Employees who have completed three consecutive months in the employer’s service, and whose sickness and entitlement to a sick leave are evidenced by a medical certificate from a government health centre or a clinic approved by the employer, are entitled to the following sick leaves during the same year:

• Fifteen days on full pay.
• Twenty days on half pay.
• Twenty days without pay.

5. Statutory termination payments

a) Payment in lieu of notice

The Bahrain Labour Law provides either party to a contract of employment may terminate the contract of employment by giving the other party at least (thirty) 30 days’ prior notice (or where the employer is terminating, then any longer period as provided for in the contract of employment).

If the terminating party does not abide by the notice requirement mentioned above, then the terminating party is required to pay the other party wages in lieu of notice. This is to be calculated on the basis of the employee’s last basic salary in addition to any “social allowance”. Note that the Labour Law does not define “social allowance”, and accordingly, it is open to the employee to potentially argue that any housing and/or the transport allowances constitute the social allowance. Similarly, where an allowance is not expressly defined, employees typically attempt to argue that entitlements should include such allowances as part of the calculation.

b) End of service gratuity

Employees who have been employed for at least three months will (subject to certain exceptions) be entitled to receive an end of service gratuity (ESG) payable to the employee upon the termination or expiry of the employee’s employment as follows:

• Half of one month’s wages for each year of service for the first three years (pro-rated for fractions of years); and
• One month’s wages for each year of service beyond three years of service (pro-rated for fractions of years).

The ESG applies to (i) employees who are not Bahraini nationals; and (ii) employees who are Bahraini nationals and earn in excess of 4,000 Bahraini dinars per month (in which case only the portion of the employee’s salary exceeding 4,000 Bahraini dinars will be utilised for the purposes of the ESG calculation). Employees accrue the right to end of service gratuity from day one of employment. The wages that are calculable for the ESG are the employee’s last basic salary and social allowance (if any).

As of February 2024, going forwardexpatriates end of service gratuity is now paid directly to the Social Insurance Organisation on a monthly basis. Similarly to pension contributions, employers receive monthly invoices and must ensure payment in a timely manner to avoid late interest fees applying. Upon termination, expatriate employees must therefore apply directly to the Social Insurance Organisation to collect their ESG.

6. Statutory termination compensation

a) Unlawful termination

The Labour Law provides that termination must be for a valid reason (i.e. probation, retirement, redundancy, misconduct etc.). There are perscribed methods of termination that must be followed in order for the termination to be considered valid. Where the Labour Law is not followed, the employee shall be entitled to compensation for unlawful termination calculated as follows for a definite and indefinite term contract:

• Indefinite term labour contract: Where the employee has a contract of employment with an indefinite or open term, and the employer terminates the contract without reason or for an illegitimate reason, the employee shall be entitled to receive compensation calculated as two working days salary per each month of service completed by the employee, subject to a minimum of one (1) month’s salary and a maximum of twelve (12) month’s salary; and
• Definite term labour contract: Where the employee has a contract of employment with a definite or fixed term, and the employer terminates the contract without reason or for an illegitimate reason, the employee shall be entitled to receive compensation calculated as the employee’s salary for the remaining period of the employment contract (unless the parties agree on a lesser compensation (subject to a minimum compensation of three (3) months salary)).

b) Arbitrary termination

A termination may be deemed an arbitrary dismissal where it is based on an employees gender, colour, religion, social status; termination of a female employee on account of being pregnant; the filing by the employee of a complaint or course case against the employer (except where such is of a vexatious nature), the employee exercising his right to take leave; as well as cases of deemed unfair dismissal (where the employee terminates the contract due to verbal or bodily assault by the employer, or the employer committing immoral acts against the employee or his family, the law provides that this shall be a deemed unfair dismissal by the employer). In such cases, the compensation payable to the employee shall be increased by 50%.

c) Redundancy

Employees who are made redundant with reference to the Labour Law shall be entitled to:

• Indefinite term labour contract: the employee shall be entitled to receive compensation calculated as one working day salary per each month of service completed by the employee, subject to a minimum of one (1) month’s salary and a maximum of twelve (12) month’s salary; and
• Definite term labour contract: the employee shall be entitled to receive compensation calculated as half of the employee’s salary for the remaining period of the employment contract (unless the parties agree on a lesser compensation (subject to a minimum compensation of three (3) months salary).

In Bahrain, an employer can dismiss an employee for various reasons, such as poor performance, misconduct, redundancy, or expiry of the contract term. However, the employer must follow certain procedures to ensure that the dismissal is considered for a legitimate cause as defined by the Labour Law for the Private Sector, failing which shall result in compensation being payable to the employee.

According to the Labour Law, the following shall be considered a legitimate cause for dismissal:

Misconduct

An employer may terminate an employee without notice or compensation in the following circumstances:

• If the employee has assumed a false identity or submitted false certificates or testimonials;
• If the employee has committed a fault that caused serious material loss to the employer, provided that the employer reports the matter to the competent authorities within two working days of the employer’s knowledge of the loss;
• If the employee, despite receiving a written warning, fails to comply with written instructions that are required for the safety of employees or the establishment, provided that such instructions are posted up in a prominent place in the workplace;
• If the employee is absent from work, without legitimate cause, for more than twenty intermittent days or for more than ten consecutive days in one year, provided that such dismissal is preceded by a written warning by the employer after an absence of ten days in the former case and an absence of five days in the latter case;
• If the employee fails to perform his essential duties under the contract of employment;
• If the employee discloses, without a written permission from the employer, the confidential information related to his employment;
• If the employee has been finally sentenced for a crime or misdemeanour involving dishonour, dishonesty or public morals;
• If the employee is found during the hours of work to be under the influence of alcohol or drugs; or if he has committed an immoral act at the place of work;
• If the employee assaults his employer or his responsible manager or commits a serious assault upon any of his supervisors of work during the course of employment or for reasons connected therewith;
• Employee’s failure to comply with the legally prescribed rules concerning the exercise of the right to strike; or
• If the employee becomes unfit to do his work subject to the contract due to a cause attributed to him such as cancelling his permit to practice his work or loss of the qualifications authorising him to do the mutually agreed work.

The employer must prove that the dismissal was for a legitimate cause, otherwise the employee can claim compensation for termination. As such, we generally recommend that a robust disciplinary process is closely followed when considering termination for misconduct to seek to minimize the risks of the termination being deemed for an illegitimate reason.

Poor performance

The employer may not terminate the employment contract due to the employee’s inefficiency or weak performance unless it has notified the employee of these matters and has granted the employee an appropriate opportunity (no less than 60 days) to make improvements to the required standards. Therefore, the employer may not consider termination for poor performance without placing the employee on a performance improvement plan for a minimum of sixty (60) days. If the employee fails to achieve such standards, the employer may terminate the contract.

Probation

Both the employers and employees each have the right to terminate the employment contract during the probation period provided for in the employment contract, by providing at least one (1) days’ notice, noting that as per the Labour Law, the maximum period for a probation period is 3 months (except for certain professions specified by the Minister of Labor and Social Development) and further, that no employee may be employed under probation more than once by the same employer.

Redundancy

For collective dismissals, The employer may terminate the employment contract because of the total or partial closure of its establishment, the downsizing of its activities or the replacement of its production system in a way that affects the size of the workforce. The employer must notify the Ministry of Labour of the reason for the redundancy 30 days before the date of issuing the notice of termination to the employee. The employer must also pay the employee a redundancy payment as described under question 14 above.

Retirement

Employers may terminate employees without notice or compensation once they reach the retirement age of 60.

Costs for each method of termination

All terminations shall result in the following payments being made:

• Wages up to termination date.
• Payment in lieu of notice (if notice not given). The calculation should be based on the basic salary (plus social allowance, if any).
• Payment in lieu of accrued but unutilized annual leave. The calculation should be based on the basic salary (plus social allowance, if any).
• End of service gratuity (if criteria of eligibility if met). The calculation should be based on the basic salary (plus social allowance, if any).

Where the termination is for an illegitimate reason the following additional payment should be made:

• Indefinite term labour contract: Where the employee has a contract of employment with an indefinite or open term, and the employer terminates the contract without reason or for an illegitimate reason, the employee shall be entitled to receive compensation calculated as two working days salary per each month of service completed by the employee, subject to a minimum of one (1) month’s salary and a maximum of twelve (12) month’s salary; and
• Definite term labour contract: Where the employee has a contract of employment with a definite or fixed term, and the employer terminates the contract without reason or for an illegitimate reason, the employee shall be entitled to receive compensation calculated as the employee’s salary for the remaining period of the employment contract (unless the parties agree on a lesser compensation (subject to a minimum compensation of three (3) months salary).

Where termination is for an arbitrary reason (with the Labour Law providing examples, including termination due to an employees gender, ethnicity, religion, social status, daily responsibilities or pregnancy, or where an employee lawfully participates in a trade union etc) an additional 50% of the abovementioned compensation for termination for an illegitimate reason should also be paid.

Where the termination involves a redundancy, the following additional payment should be made:

• Indefinite term labour contract: the employee shall be entitled to receive compensation calculated as one working day salary per each month of service completed by the employee, subject to a minimum of one (1) month’s salary and a maximum of twelve (12) month’s salary; and
• Definite term labour contract: the employee shall be entitled to receive compensation calculated as half of the employee’s salary for the remaining period of the employment contract (unless the parties agree on a lesser compensation (subject to a minimum compensation of three (3) months salary).

According to the Workers Trade Union Law of Bahrain, employees have the right to form and join trade unions to protect their rights and interests, and to participate in collective bargaining and labour disputes. Trade unions have an independent legal status and can join trade unions federations and international labour organisations. Employees cannot be discriminated against or dismissed for their trade union activities, and they have the right to strike in accordance with the law. For a trade union to be recognised, it must file its articles of association and the names of its founders with the Ministry of Labour and Social Development. Although no entites are exempt from the trade union regulations, we would highlight however that trade unions are extremely rare in practice here in Bahrain.

Bahrain does not have a consolidated anti-bribery law however the primary legal framework in Bahrain governing anti-bribery and anti-corruption is primarily established under the Bahrain Penal Code (Legislative Decree Number 15 of 1976) and its amendments, including Legislative Decree Number 1 of 2013. These laws criminalize bribery involving government officials and employees, as well as bribery in the private sector, with penalties ranging from imprisonment to fines and confiscation of the bribe.

Additional provisions can be found in other Bahraini laws and/or regulations including the following:-

1. Civil Service Directorate Number 12 of 2007 with respect to the schedule of violations and penalties;
2. Civil Service Directorate Number 2 of 2010 with respect to disciplinary measures; and
3. The Government Tenders Law (Bahrain Law Number 36 of 2002).

It is also notable that Bahrain has ratified the United Nations Convention Against Corruption (UNCAC) with reference to Bahrain Decree number 7 of 2010.

The Penal Code criminalises the following actions with respect to public sector bribery:-

• The solicitation or receipt of a gift or privilege of any kind (or a promise with respect to the same) by a Public Official on behalf of himself or others, in order to commit or omit an act in violation of his official duties. Such behaviour is criminalised, even if the Public official’s intention was in fact not to do, or to fail to do, the action in question (Article 186 Penal Code). In such circumstances, the Public Official is guilty of a criminal offence;
• The solicitation or receipt of a gift or privilege of any kind by a Public Official on behalf of himself or others, after he has committed or omitted an act in violation of his duties (Article 188 Penal Code). In such circumstances, the Public Official is guilty of a criminal offence;
• The solicitation or receipt of a gift or privilege of any kind by a Public Official in order to commit or omit an act which is not part of his function but he alleged so or wrongfully believed so (Article 189 Penal Code). In such circumstances, the Public Official is guilty of a criminal offence;
• The offering of a gift or privilege of any kind to a Public Official in order for him to commit or omit an act violation of his duties. The offence will be complete even if the Public Official declines the offer (it is the offer coupled with an intention to bribe which is criminalised) (Article 190 Penal Code). In such circumstances, the offeror of the bribe is guilty of a criminal offence;
• The offering of a gift or privilege of any kind to a Public Official or working or during a visit in a foreign country or the offering to any other person in order for him to commit or omit an act violation of his duties in return of securing or maintaining a commercial deal or any other benefit in respect of an international commercial business. The offence will be complete even if the Public Official declines the offer (it is the offer coupled with an intention to bribe which is criminalised) (Article 190 bis Penal Code).  In such circumstances, the offeror of the bribe is guilty of a criminal offence; and
• The solicitation of a gift or privilege of any kind by a person in return for intervening or exploiting that person’s influence to get a Public Official to commit or omit an act in violation of the Public Official’s duties (Article 237 bis Penal Code). In such circumstances, the person soliciting the bribe is guilty of a criminal offence.

The Penal Code criminalises the following actions with respect to private sector bribery:-

• The solicitation or receipt (whether for self or another) of a gift or privilege of any kind by a board director or employee or a board of trustees director of a private entity in order to commit or omit an act in violation of his duties or position to harm the interests of the employer or the private entity. The offence is established even if the bribe-taker does not intend to do or omit the act (it is the demand or receipt of the bribe which is criminalised) (Article 418 Penal Code).  In such circumstances, the person soliciting the bribe is guilty of a criminal offence;
• Solicitation or receipt of a gift or privilege of any kind after the commission or omission of the act for which the bribe is demanded or paid (Article 419 Penal Code). In such circumstances, the person soliciting the bribe is guilty of a criminal offence;
• Solicitation or receipt of a gift or privilege of any kind in order to commit or omit an act which is not part of his function but he alleged so or wrongfully believed so to harm the interests of the employer or the private entity (Article 420 Penal Code). In such circumstances, the person soliciting the bribe is guilty of a criminal offence;
• The offering of a gift or privilege of any kind to a board director or employee or a board of trustees director of a private entity in order for him to commit or omit an act violation of his duties or position to harm the interests of the employer or the private entity.  The offence will be complete even if the such employee declines the offer (it is the offer coupled with an intention to bribe which is criminalised) (Article 421 Penal Code).  In such circumstances, the offeror of the bribe is guilty of a criminal offence;
• Paying a gift or privilege of any kind to a board director or employee or a board of trustees director of a private entity in order for him to commit or omit an act violation of his duties or position to harm the interests of the employer or the private entity whether it was after he has committed or omitted such act (Article 422 Penal Code). In such circumstances, the offeror of the bribe is guilty of a criminal offence.

The Bahrain Penal Code is clear in its potential extra territorial application with respect to offences under the Penal Code (not limited exclusively to just bribery related offences) whereby:-

1. The Penal Code applies to offences committed abroad by civil servants or persons charged with public duties whether in the exercise of their duties or in their private capacity (Article 7 Penal Code);
2. Every Bahraini citizen, whilst abroad, who commits an act that renders him an offender or guilty partner according to the Penal Code shall be punished in pursuance of its provisions when he returns to Bahrain.
3. The Penal Code shall apply to every foreigner in Bahrain who may have committed an offence abroad.

Bahrain has established a comprehensive legal framework to address various forms of economic crime, including money laundering, terrorist financing, bribery and embezzlement. The primary legislation governing these offenses is the Law Concerning the Prohibition of and Combating Money Laundering (Legislative Decree Number 4 of 2001), which criminalizes money laundering activities and imposes penalties such as imprisonment and fines for those found guilty.

Additionally, the Central Bank of Bahrain (the “CBB”) has implemented detailed regulations to combat financial crimes. These include requirements for customer due diligence, internal reporting, and the appointment of a Money Laundering Reporting Officer (the “MLRO”). The CBB Rulebook provides guidance to assist licensees in monitoring transactions and fulfilling their reporting obligations.

Regarding the obligation to report economic crimes, the Ministry of Industry and Commerce (the “MOIC”) implemented a Ministerial Order Number (173) of 2017 Concerning the Obligations Related to the Procedures of the Prohibition of and Combating Money Laundering and Terrorism Finance in the Business of the Persons Registered in the Commercial Register and the Audit Registry in the Kingdom of Bahrain. As such. the MOIC requires certain businesses, particularly those in the jewelry sector and auditing firms, to report any suspicious transactions immediately through designated channels.

Furthermore, the CBB Rulebook outlines the responsibilities of financial institutions to detect and report suspicious transactions, emphasising the importance of internal reporting mechanisms and the role of the MLRO in ensuring compliance.

Bahrain regulates anti-money laundering (“AML”) and counter-terrorist financing (“CFT”) through a combination of ratified international treaties and conventions, domestic legislation, and regulatory oversight.

Bahrain has ratified several international conventions aimed at combating money laundering and terrorist financing, including:

• The United Nations Convention against Transnational Organized Crime; and
• The Arab Convention on Combating Money Laundering and Terrorist Financing.

Domestically, Bahrain has also established its own legal frameworks to address money laundering and terrorist financing. One of the primary pieces of legislation is Legislative Decree Number 4 of 2001 with Respect to the Prevention and Prohibition of the Laundering of Money, which criminalises money laundering and terrorist financing activities, imposing penalties on both individuals and entities involved in such crimes. Further, the law imposes obligations on any person, in the course of that person’s trade, business, profession, employment or otherwise, to actively avoid risk of money laundering and terrorist financing by obliging them to report suspicious transactions.

Bahrain has also implemented several other legislative pieces, each of which regulate particular sectors, including but not limited to:

• Decision Number 173 of 2017 regarding the Obligations Related to the Procedures of the Prohibition of and Combating Money Laundering and Terrorism Financing in the Business of Persons Registered in the Commercial Register and the Audit Registry in the Kingdom of Bahrain, which regulates persons authorised to practice the sale and trade of jewellery, audit, and cars; and
• Decision Number 14 of 2021 regarding the Procedures for Prohibiting and Combating Money Laundering, Terrorism Financing and Illegal Cross-border Transfer of Funds in the Legal Profession and Foreign Legal Consultancy Offices and the Rules for Freezing Funds and Lifting the Freeze and the Prohibition of Dealing with Persons or Entities Included in the Terrorism Lists, which regulates legal consultancy offices in relation to AML and CFT.

In addition to the above, the Central Bank of Bahrain (CBB), as the regulatory authority for financial institutions, has established its own set of rules to combat money laundering and terrorist financing. The CBB has also issued guidance papers related to AML and CFT to ensure compliance with these regulations. These guidance papers provide practical information on identifying indicators of AML or CFT risks, as well as instructions on aligning with international standards, such as those set by the Financial Action Task Force (“FATF”), to effectively address and mitigate such risks.

Bahrain does not have legislation specifically aimed at regulating compliance in the supply chain for acts such as slavery, forced labour, or child labour risks. However, Bahrain is a signatory to multiple conventions and protocols to combat against child labour, slavery, and trafficking which it had ratified into its jurisdiction.

Such conventions include but are not limited to the Slavery Convention (1926) as amended by the Protocol Amending the Slavery Convention (1953), the United Nations Convention on the Rights of the Child 1989 (Legislative Decree Number 16 of 1991), and the Supplementary Convention on the Abolition of Slavery, the Slave Trade, and Institutions and Practices Similar to Slavery (1956).

In addition to the above, Bahrain has promulgated the Law on Combatting Trafficking in Persons (Bahrain Law Number 1 of 2008). This law criminalises acts such as the recruitment (including military), transportation, transfer, harbouring or reception of persons, including the exchange or transfer of control over those persons, for the purpose of exploitation (whether through prostitution or forced labour). In this respect, crimes and punishments are personal.

Additionally, Bahrain is a signatory of Legislative Decree Number 44 of 2018 on the International Crimes Act, which imposes the penalty of temporary or life imprisonment on anyone who commits the act of, or promote or encourage the act of slavery, defined as exercising any right of ownership over a person, or depriving a person of his liberty or similar, or exercising such power by way of trafficking in persons, especially women and children.

A crime cannot usually be committed by a corporate entity, therefore the individuals committing the crime are generally punished. A corporate entity can be subject criminal proceedings if a crime is committed based on the consent, approval, collusion, or agreement of any of its directors, officers, or other senior members of management.

All entities in Bahrain must engage with a locally registered audit firm to prepare annual audited financial statements, within four (4) months of the entity’s financial year end.

A copy of the audited financial statements must be submitted to the MOIC within six (6) months of the entity’s financial year end via the MOIC’s online portal, Sijilat.

In summary, these include the following:-

• Commercial Registration (CR) renewal.
• Commercial Registration (CR) activity renewal.
• Ultimate Beneficial Owner (UBO) renewal / update (as applicable).
• Submission of annual audited financial statements.
• Maintenance of a lease over suitable premises registered as the commercial address on the Commercial Registration (CR).
• Submission of the annual ESR questionnaire via the online ITIES system (if applicable).
• Submission of the annual general assembly meeting invitation and minutes (applicable to Bahrain Shareholding Companies).
• Submission of the annual Corporate Governance Report (if applicable) and supporting documents including directors’ report.

Certain regulated commercial activities may necessitate separate annual filings, depending on the requirements of the relevant regulatory body, for example, annual special license renewals or submission of annual reports to such regulatory bodies.

The CCL provides that entities must hold annual general assembly meetings during the six (6) months following the end of the entity’s financial year. The agenda for such meetings typically includes: approval of the directors’ report, approval of auditor’s report, approval of the entity’s financial statement, discharge of directors’ liabilities and (re)appointment of external local auditors.

Online submission of annual general assembly meeting invitations and minutes is only required for Bahrain Shareholding Companies. Other entities must keep the annual general assembly documents in their internal records.

It should also be noted that some commercial activities are subject to annual ESR and as part of the ESR, there is a requirement of annual board and shareholder meetings held on ground in Bahrain and evidence of the same. Further, in accordance with Resolution 63 of 2021, the MOIC permits holding meetings virtually, provided that (i) the constitutional documents of the entity permit this; and (ii) the mechanisms, methods and requirements set out in the resolution are followed, such as setting alternative times in case of technical issues, ensuring an appropriate platform is used, appropriate security measure are in place etc.

With the exception of entities which are licensed and regulated by the Central Bank of Bahrain (CBB), the UBO rules apply to all natural or legal persons who are registered with the MOIC and have a Commercial Registration (CR) (“Registered Person(s)”).

Amongst other obligations, the Registered Person is required to provide the MOIC via the MOIC’s online platform, Sijilat, with all prescribed information and copy documents relating to its UBO(s), and has a continuing obligation to update such information and documents immediately (if applicable) upon a change of UBO(s) or their details. Where there is no change to the Registered Person’s UBO(s), the Registered Person must renew the UBO registration on the MOIC’s online portal.

The UBO rules prescribe a variety of items of information and documents which are to be submitted by a Registered Person to the MOIC with respect to each of its UBOs including the following:

• Full name(s);
• Passport Number and copy passport;
• Identification Card Number and copy of Identification Card Number (if applicable);
• Details of country of tax residence of UBO and UBO’s Tax Identification Number in the country of tax residence (if applicable);
• Residential address, email and contact phone number for UBO(s); and
• A UBO form.

Corporate Income Tax

Currently, Bahrain does not impose any corporate income tax on businesses, except for certain business which operate in the oil and gas sectors. Generally, businesses that derive income from the extraction or refinement of fossil fuels (i.e. hydrocarbons) in Bahrain are subject to tax at a rate of 46% on net profits for each tax accounting period, regardless of whether the business is considered to be a resident or non-resident person in Bahrain. Nevertheless, it has.

Additionally, as part of Bahrain’s commitment to implementing the global minimum effective tax rate under the Organisation for Economic Co-operation and Development’s (“OECD”) Base Erosion and Profit Shifting Project (“BEPS”) Pillar Two, Bahrain has recently introduced Decree-Law Number 11 of 2024 (“DMTT Law”) regarding the implementation of tax on large Multinational Enterprises (“Large MNEs”). Under the DMTT Law, Bahraini entities belonging to Large MNEs with a global consolidated revenue of EUR 750,000,000 may be subject to a Domestic Minimum Top-Up Tax (“DMTT”) with an effective rate of 15%.

In this regard, Large MNEs that may be subject to the DMTT are those that meet a consolidated group revenue threshold of EUR 750 million in at least two of the preceding four financial years of tested entity (e.g. the subsidiary or permanent establishment of a Large MNE in Bahrain) (i.e. the “Revenue Test”).

Value Added Tax

The Value Added Tax (Bahraini Decree-Law Number (48) of 2018) (as amended) (the “VAT Law”) provides that VAT shall be imposed on the on the supply and import of goods and services made by the taxable person in Bahrain unless the supply is zero-rated, exempt or outside the scope of VAT. VAT is applicable at the standard rate of 10% in Bahrain.

Other than the tax incentives offered by the Bahrain International Investment Park to entities setting up in that industrial zone (consisting of a guaranteed ten (10) year corporate tax exemption and income tax exemption) there are no incentive regimes in place, and businesses are generally not subject to corporate income tax unless they operate in the oil and gas sector or meet the requirements set out under the DMTT Law.

Additionally, there is currently no personal income tax on salaries and wages in relation to individuals in Bahrain. However, it is worth noting that employers may be required to make social insurance contributions for employees.

There is currently no withholding tax, exchange controls or capital controls in Bahrain.

However, customs duty applies to imported goods based the cost, insurance and freight (CIF) invoice value. The custom rate for most items is 5%. However, some goods are subject to a different rate.

With respect to real estate transactions, stamp duty is payable at the rate of two percent (2%) of the property value (reduced to one point seven percent (1.7%) if the duty is paid within sixty (60) days of the transaction date.

Bahrain has a dedicated regulatory framework governing public takeovers, mergers, and acquisitions, as set out in Volume 6 of the Central Bank of Bahrain (CBB) Rulebook. The relevant provisions are contained in the Takeovers, Mergers and Acquisitions Module, which applies to transactions involving Bahraini public shareholding companies listed on the Bahrain Bourse. This framework sets out comprehensive requirements covering various aspects of the takeover process, including the terms of the offer, necessary regulatory and shareholder approvals, and the whitewash procedure where shareholders may waive the obligation to make a mandatory offer under certain conditions, subject to a resolution and independent advice.

It also includes detailed rules on announcements, disclosure obligations throughout the transaction, and the form and content of documentation that must be provided to shareholders.

These rules are designed to ensure transparency, protect minority shareholders, and promote confidence and integrity in Bahrain’s capital markets.

Yes – the Law on Promotion and Protection of Competition (Bahrain Law Number 31 of 2018) (“Competition Law”) regulates all competition issues and related matters in Bahrain. This includes merger control regime which applies to all facilities/undertakings in connection with their economic activities inside Bahrain and any conduct or arrangement which is intended for or results in hindering the competition in Bahrain. There are some specific exemptions (such as where a transaction involves a Government agency etc.) where the regime would not apply; however, for most of the transactions it remains applicable.

The Competition law addresses and regulates “economic concentrations” in Bahrain, defined broadly as a change of control as a result of the following situations:

1. The merger of two or more previously independent undertakings (in whole or in parts).
2. The acquisition by one or more undertakings, providing direct or indirect control, over the whole or parts of one or more other undertakings.
3. The creation of a joint venture.

There is a general prohibition on economic concentrations that result in the significant reduction of competition in the market and such transactions cannot be undertaken without approval from the Competition Authority. However, till now, the Competition Authority is yet to publish the decision setting out the circumstances which may trigger the need to obtain approval of the Competition Authority. As such, there are no thresholds specified by the Competition Authority at this stage. Having said the aforementioned, the thresholds specified for abuse of dominant position, being forty percent (40%) where an entity is acting individually and sixty percent (60%) where acting collectively, may be taken as guiding purposes for market concentration transactions. The specific requirements would depend on the broader factual matrix and the transaction structure overall.

Bahrain law does not contain any specific good faith obligation specifically in relation to negotiations. However, the law does favour a party who has obtained a certain right based out of good faith, and would typically penalise a party where it has acted with fraud or with mala fide.

With regards to the performance of the terms of the contract itself (as contrasted to the negotiation of the contract), Article 129 of the Bahrain Civil Code, provides that a contract must be performed in accordance with its contents and in compliance with the requirements of good faith and honesty.

Employees automatically transfer where there is a full acquisition/sale of a company (by way of a share sale in the employer entity). In addition, employees’ rights and benefits, such as wages, leaves, termination procedures, compensation, and end of service gratuity, are preserved regardless of the type of transaction (asset or share deal). Notwithstanding this however, employers are able to make employees redundant in the event of an acquisition – in any case – employees would receive all their entitlements with reference to the Labour Law.

Strictly speaking, where the relevant employees are part of the trade union then consultations will need to take place. As previously highlighted however, trade unions are rare in Bahrain. In the absence of trade unions, consultations with the Ministry of Labour shall only be necessary in the event of terminating the employees as a result of the acquisition.

The Government of Bahrain has increasingly liberalised the restrictions relating to which commercial activities may be undertaken by one hundred percent (100%) foreign owned entities; with the result that, Bahrain law currently permits one hundred percent 100% foreign ownership with respect to the vast majority of commercial activities carried out in Bahrain.

Despite the above however, some sectors and activities are only allowed to be carried out by Bahrainis or entities fully owned by them (e.g. manpower supply) and some business activities may require a minimum Bahraini or GCC investment.

In terms of remaining foreign ownership restrictions, certain commercial activities are open to one hundred percent (100%) foreign ownership, while others require at least fifty one percent (51%) GCC Ownership, and others reference ‘a minimal percentage’ of GCC ownership. Where reference is made to GCC ownership, this means that either 51% or at least 1 share (as applicable based on the commercial activity) must be owned by a GCC national, or a GCC entity that is in turn owned one hundred percent (100%) by GCC nationals / entity at every level of the ownership chain. Decision 40 of 2021 lists out all commercial activities and the relevant permitted foreign ownership percentage.

In terms of specific approvals / licenses, all commercial activities require the approvals of the MOIC and Ministry of Municipalities Affairs & Agriculture. Depending on the specific commercial activities chosen, additional licenses and / or approvals may be required.  However unlike some other GCC States, no separate foreign investment licence or approval is required as such.

The Bahraini Dinar is freely convertible in Bahrain and Bahrain has no exchange control restrictions.

With the exception of relevant anti-money laundering related rules and regulations, there are no laws in Bahrain restricting the movement or repatriation of funds outside Bahrain.

An entity may be wound-up / liquidated / dissolved for any of the following reasons:

• completion of the purpose for which the company was set up;
• the loss of all or the majority of its capital when its continuation is no longer viable;
• its merger with another company;
• resolution of the owner of the capital of the company in relation to the voluntary liquidation of the company;
• by way of a court order i.e. an involuntary liquidation of the company.

A voluntary liquidation is done by way of submitting the resolution of the shareholders to the MOIC via its online platform, Sijilat. Such online application includes the publication of two (2) notifications in local daily newspapers.