Bahrain: Legal, Bank & Trade Systems

Published February 13th, 2000 - 02:00 GMT

Legal Analysis 

 

General 

 

A large part of the laws of Bahrain are based on published statutes, which derive from the Shar’ia (religious law). The Contract Law and Civil Wrongs Ordinance are based on principles of English common law, which were originally adopted during the British protectorate period. Much recent legislation is based upon and follows a civil-law format, much in the style of Egypt and France. 

 

Judiciary 

 

Bahrain's Civil and Commercial Procedures Law of 1971 provides the framework for the jurisdiction of the civil and commercial courts. Generally, the civil courts are composed of: (1) the Junior Court; (2) the High Court; (3) the High Court of Appeal; (4) the Court of Execution; and (5) the Summary Actions Court. 

 

The Junior Court 

 

The Junior Court has jurisdiction to hear both civil and commercial cases of claims involving small sums, and cases involving certain real property rights. Junior Court cases may be appealed to the High Court. 

 

The High Court 

 

The High Court has jurisdiction to hear all civil and commercial cases not falling within the jurisdiction of the Junior Court. The High Court is also authorized to hear cases concerning the personal status of non-Moslems and cases which are placed under its jurisdiction by law. The High Court also maintains jurisdiction over non-Bahraini citizens, including companies, that are resident or domiciled in Bahrain except in cases involving real property situated outside Bahrain. The High Court has jurisdiction to hear appeals from the Junior Court and the Court of Execution. The High Court has exclusive jurisdiction over appeals of judgments from the Summary Actions Court. Judicial precedent followed by the High Court is set by decisions of the High Court of Appeal and the High Court of Justice sitting as a court of appeal. 

 

The High Court of Appeal 

 

The High Court of Appeal sits as a court of appeal regarding all appeals made from the High Court. 

 

The Execution Court 

 

The Execution Court has jurisdiction to execute all final judgments made by the Junior Court, the High Court and the High Court of Appeal. 

 

The Summary Action Court 

 

The Summary Action Court hears claims that may be adversely affected by the lapse of time. Hearings are usually set to take place not less than twenty-four hours after the filing of an application for a summary trial, although, in cases of extreme urgency, this period can be reduced. 

 

Business Structures and Forms 

 

General 

The Law of Commercial Companies, Decree 28 of 1975, as periodically amended, governs most of the principal types of business entities in Bahrain. This decree contains the law relating to companies, partnerships and branches. In addition to the aforementioned entities, Ministerial Order 25 of 1977 created a specific entity known as the exempt company, an offshore company introduced in order to encourage foreign companies to locate their regional headquarters in Bahrain. To further promote Bahrain’s goal of being the regional financial center, many of the offshore entities are banking units and investment banks. 

In order to establish a joint-stock company, limited liability company, or partnership in Bahrain, at least 51 percent of the capital must be owned by Bahraini nationals. The laws and regulations governing the establishment of offshore exempt companies and offshore banking companies significantly relax the usual restrictions against foreign ownership. 

 

The terms used in the legislation are difficult to translate precisely. For example, the term "company" is often used to mean both company and partnership and the term "partner" to mean both partner and shareholder. A company or partnership is defined by the Law of Commercial Companies as a contract under which persons undertake to participate in a financial enterprise with a view to profits, each contributing money or services and dividing the profits or losses resulting from the enterprise. 

 

Bahraini law allows for the establishment of the following types of companies and partnerships: (1) general partnership (a partnership under a collective name); (2) limited partnership; (3) partnership limited by shares; (4) joint stock company; (5) limited liability company; and (6) joint venture. 

 

Any association which does not assume one of the prescribed forms will not be recognized by law and any persons who enter into a contract in the name of such an unrecognized entity are liable jointly and severally to third parties for resultant obligations. 

 

Companies Law 

 

Joint Stock Companies 

A joint stock company is a pure shareholding company in which all of the members are liable for company debts to the extent of the nominal value of their shares. This type of company can take the form of an exempt joint stock company, a closed joint stock company or a public joint stock company. While the latter type requires a minimum of 51 percent Bahraini ownership, the exempt and closed joint stock companies may be 100 percent foreign owned. All forms of the joint stock company must maintain permanent offices in Bahrain. 

 

Public stock companies may only be established with permission from the Ministry of Commerce and supported by an Emir decree. Seven founding shareholders are required in order to establish a public stock company. Together they must subscribe for between 7 and 20 percent of the shares of the company. 

 

An application to register a public stock company must be filed with the Directorate of Commerce and Industry in the Ministry of Commerce and Agriculture along with the company's Memorandum and Articles of Association. Public stock companies are authorized either for a fixed period of time or for the period of time necessary to achieve a specified objective. The Minister of Commerce and Agriculture makes a determination whether to register the company within thirty days of receipt of the application and recommendation of the Directorate of Commerce and Industry. Registration is completed after the approval of the Minister is published in the Official Gazette. Public subscription for shares must begin after the publication in the Official Gazette of the decree incorporating the company. A prospectus must be published prior to the opening of the subscription. The subscription is made through a bank where the proceeds are to be deposited in the name of the company. If the company cannot be established after the subscription period due to being under-subscribed, the founding shareholders are responsible for returning all subscriptions received. 

 

The public stock company may have a board of directors composed of between three and twelve directors, each nominated for a three-year term. A majority of the directors must be resident Bahrainis. Shares of a public stock company may be transferred freely. Bahraini shareholders, however, can sell their shares only to other Bahraini nationals. 

Closed stock companies are formed in the same manner as public stock companies and may be formed without an Emir decree provided that the founders submit an affidavit affirming that they undertake to have the company Memorandum and Articles of Association comply with the law; that all the shares of the company have been subscribed for by the founders and the value of the shares has been deposited in an authorized bank; that shares paid in kind have been evaluated in accordance with the law and are fully paid up; and that the founders have established the necessary management for the company. Five founding shareholders are required to establish a closed stock company. 

 

Limited Liability Companies 

The limited liability company, a shareholding company whose shares are not open to public subscription, is one of the most common forms of doing business by foreign investors. The company must have at least two and no more than fifty shareholders who are liable for the debts of the company only to the extent of their respective interest in the capital. At least one shareholder must be a Bahraini national, and the total shareholdings by Bahrainis may not be less than fifty-one percent. The words "With Limited Liability" must follow the name of the company. The limited liability company must have a limited life span not exceeding twenty-five years, which may be extended by a unanimous approval of the shareholders. The company must be managed by one or more managers who need not be partners. There is no legal requirement for a board of directors unless the number of partners exceeds two. A percentage of the company’s profits must be allocated on an annual basis for depreciation and a certain rate of the net profits thereafter must be allocated to a legal reserve until such reserve equals 25 percent of the company's capital. Limited liability companies may not engage in banking, insurance or brokerage activities. 

 

Partnerships 

 

General Partnerships 

 

A general partnership must be comprised of two or more Bahraini nationals; foreign investors can participate in partnerships, but Bahraini national participation must be at least 51 percent. In a partnership, the liability of the partners is unlimited, and they are jointly and severally liable with respect to the partnership's obligations to the entire extent of their assets. The name of the partnership must consist of the name of one or more of the partners adding thereto the words "Bahraini Partnership" or an indication that a partnership exists. 

 

Limited Partnerships 

 

A limited partnership is comprised of at least one general partner and one limited partner. The extent of a limited partner's liability for the partnership's commitments is restricted to the amount of capital invested by the limited partner in the partnership. A limited partner may not participate in the management of the business and if this is done, the limited partner will be jointly and severally liable for the partnership's liabilities in the same way as the general partners. All general partners must be Bahraini nationals and at least 51 percent of the capital must be owned by Bahraini partners. 

 

Partnerships Limited by Shares 

 

A partnership limited by shares consists of at least one general partner and at least ten shareholders. Management is the responsibility of the general partners and they are liable, to the extent of their entire assets, for the debts and commitments of the partnership. The shareholding partners are not responsible for the debts of the partnership, except to the extent of the value of their shares in the partnership. Shareholding partners may not interfere in the management of the partnership, and if they do so, they are personally liable for losses caused as a result thereof. 

 

Joint Ventures 

A joint venture, also known as an association in participation, is a company that does not enjoy a separate legal personality. Joint ventures are formed by the conclusion of a Memorandum of Association specifying the rights and obligations of the partners and the division of profits and losses. Joint ventures are not subject to any prescribed formalities. 

A joint venture affects only the legal relations between the partners, however, it does not acquire legal status recognizable vis a vis its relationship with third parties. Third parties have a right of legal recourse against the partners with which they deal and the partners may thereafter proceed against each other for contribution. 

 

Legal Structures for Non-Bahrainis 

 

General 

Commercial life in Bahrain can be broadly divided into the offshore and onshore sectors. In the offshore sector, which consists of exempt companies and offshore banking units, the rules regarding foreign participation are quite liberal. In the onshore sector, the rules governing each type of business entity impose certain limitations on foreign participation; all the partners of a general partnership must be Bahraini and foreign participation in other forms is limited to 49 percent. There are, however, certain exceptions to this rule. 

The Commercial Companies Law allows for the establishment of 100 percent foreign owned companies under the following terms: (1) the purpose of the company is to establish an industrial enterprise in the country; (2) a majority of the company's capital is to be invested in an industrial development project; or (3) the company's objective is to use this establishment as a primary center for the investment of funds related to the distribution of its goods and/or services. If the wholly foreign owned company takes the form of a joint stock company, it must be a closed joint stock company.  

Certain exceptions to the partnership rules allow some service sector partnerships, such as accounting, architectural and engineering firms to engage in partnership relations between Bahrainis and foreigners. In the event that there is only one foreign partner, the Bahraini partners must be entitled to at least 51 percent of the capital and operational earnings, and, if there are several foreign partners, to at least 30 percent thereof. 

 

Exempt Companies 

 

Exempt companies are joint stock companies that have been exempted from some or all of the requirements of the Law of Commercial Companies by the Minster of Commerce and Agriculture. An exempt company must register and situate its main office in Bahrain, but is set up to conduct its activities outside of Bahrain. This type of company may operate for a maximum twenty-five year period. The exempt company's activities must be conducted outside Bahrain. No more than 20 percent of the capital of an exempt company may be owned by Bahraini nationals without the permission of the Minister. An exempt company takes the form of a joint stock company. The phrase “Bahraini Exempt Joint Stock Company” and an indication of the entity’s capital must follow the company’s name. The company's activities may not include insurance, banking or brokerage. It is exempt from the requirements of local Bahraini participation in ownership applicable to most Bahraini companies. Without the consent of the Ministry of Commerce and Agriculture, an exempt company is not allowed to conduct any business or to undertake any commercial activities within Bahrain.  

Exempt companies must have at least two members, and the maximum number of members is unlimited. Exempt companies are managed by a board of directors of no less than two and not more than ten directors. A percentage of profits of the exempt company must be allocated each year for depreciation and 10 percent of the net profits thereafter must be allocated to form a compulsory reserve until the amount of such reserve equals 25 percent of the capital. 

The Directorate of Commerce and Companies' Affairs of the Ministry of Commerce and Agriculture has complete discretion to accept or to reject an application for the registration of an exempt company. It may exercise this discretion in accordance with its views as to the contribution that the proposed company will make to the economy of Bahrain and to Bahrain's reputation as an offshore center for business activity. Upon its incorporation, the exempt company is required to deposit a portion of its capital with the Bahrain Monetary Agency in order to guarantee any liabilities which might be outstanding upon the company's dissolution and may be paid only to the liquidator of the company. 

 

Foreign Company Branch 

 

The Law of Commercial Companies provides that companies established outside Bahrain may open branches or offices in Bahrain provided that the approval of the Minister of Commerce and Agriculture is obtained and a local sponsor is appointed. The Minister will not grant approval unless he is satisfied that the parent company is financially sound and will assume full responsibility for liabilities of the branch. The sponsor must be a Bahraini merchant, either a company or an individual. The Companies Law exempts branch offices of foreign companies from having a Bahraini sponsor if these offices use Bahrain as a regional center or as a representative office for their business activities. 

Commercial Agency 

 

The Commercial Agency Law of 1992 regulates the establishment of commercial agencies in Bahrain. In accordance with this law, overseas companies can distribute or sell their products and commodities in Bahrain through agents who may be either Bahraini nationals or majority-owned Bahraini companies. The Bahraini Commerce Ministry has been attempting since 1995 to implement the 1992 law in a more transparent manner and is preparing further reform legislation. 

 

There are two types of commercial agency: commission agency and commercial representation. A commission agency is a contract under which an agent acts in his own name for the account of the principal in return for a certain consideration. The agent carries out the commercial activities independently and, consequently, customers have no right of recourse against the principal. 

 

A commercial representation corresponds to the ordinary agency relationship according to which the acts of the representative bind the principal with respect to third parties. The agency relationship is usually governed by a contract of service or employment. 

 

An agency contract should, inter alia, contain the names and nationalities of the principal and agent, the rights and obligations of both parties, the amount of profit or commission to be paid, the agent's area of business activity, the term of the agency, etc. According to the Agency Law, agents are required to renew agreements with their principals once every two years. The law requires that agents assume responsibility for providing all customers the spare parts and tools necessary to maintain and to repair any machinery and equipment sold by the agency. 

 

All commercial agency agreements must be registered with the Commercial Registry of the Directorate of Commerce and Companies' Affairs in the Ministry of Commerce and Agriculture. Under the Agency Law, the Council of Ministers may limit the number and type of agency agreements which an agent may register. Any unregistered commercial agency shall not be recognized. 

 

A principal may appoint only one agent within the area of activity for which he is appointed. The agent is entitled to commissions for all transactions concluded in his area of activity irrespective of whether they are the result of the agent's endeavors, unless otherwise agreed upon by the parties. The Agency Law permits persons other than the authorized agent to import goods by paying the local agent a 5 percent commission. 

 

Either party cannot terminate agency agreements which are concluded for an indefinite period unless the other party commits a breach of contract without justifiable cause. If the agency is terminated by the principal prematurely or for any reason beyond the agent's control, the agent shall be entitled to compensation from the principal equivalent to any losses incurred and for loss of profits. If the agent terminates the agency agreement prematurely or without justifiable cause, the principal is entitled to compensation for any losses incurred as a result thereof. 

Bankruptcy and Liquidation 

 

As of 1996, Bahrain had passed no laws relating to insolvency, the bankruptcy of individuals, and the rights of creditors in cases of insolvency or provisions for the compulsory winding-up of companies. 

 

Bahraini Courts have been persuaded to turn to the legislation of other countries in cases where a judgment debtor was unable to pay the judgment debt. In other situations, under court supervision, creditors have been persuaded to appoint a receiver or a liquidator to collect the assets of a debtor (whether an individual or a company). 

 

Provisions regarding the distribution of proceeds of sale of a debtor’s movable or immovable property are contained in the Civil and Commercial Procedures Law of 1971. The only type of secured creditors are employees in respect to salary accrued, due and unpaid. Remaining assets are distributed on a pro rata basis to all unsecured creditors. It is provided that if the proceeds of sale are insufficient to satisfy a creditor who has seized and sold property of the debtor and no agreement to the contrary has been made between the seizer of the property and the other creditors, the proceeds of the sale will be divided amongst them pro rata to their respective debts. Bahraini law’s recognition of the prior rights of mortgages is an example of an agreement to the contrary. 

 

Furthermore, Bahraini law has occasionally appointed an official receiver to take custody of sequestered property or property in dispute. A receiver must keep, manage and return the property to the person who establishes a right to it and must submit an account of the proceeds of his management of the property. The disputing parties must agree to the appointment of the receiver. 

 

The Commercial Companies Law of 1975 contains provisions relating to the liquidations and winding-up of companies and the dissolution of partnerships and other entities. 

 

In general this law relates to the winding-up and dissolution of solvent entities although there are provisions relating to the winding-up of companies which are unable to proceed with conducting business as a result of all or a substantial part of their assets having been lost or destroyed, or as a result of incurring substantial losses. A partnership may be dissolved when one of the partners is declared bankrupt or insolvent. 

 

Detailed rules regulate the appointment of liquidators and the liquidation process. Liquidators are obliged to notify creditors of the commencement of the liquidation and to invite them to submit their claims. Liquidators may also advertise for creditors if the identity and domicile of the creditors are not known. 

 

The law provides that the costs and expenses of the liquidation will take priority over the debts owed to the company’s creditors. Following the payment in full of all debts owed to creditors, the remaining assets of the company are divided among the company’s shareholders pro rata to their respective holdings. 

 

The Commercial Companies Law does not provide for fraudulent preference and voidable transfers of assets made prior to liquidation by a company. 

 

Banking and Currency 

Currency Control 

The Bahrain Monetary Agency (BMA) is the regulatory body that oversees the commercial banks and other financial institutions operating in Bahrain and is the rough equivalent of a central bank. The BMA controls the issuing of currency and is the authority in charge of exchange matters. In addition, the BMA sets maximum interest rates for all loans made in Bahraini Dinar and recommends maximum rates of interest payable on deposits of Bahraini Dinar. 

 

Banking 

General 

Over the past twenty years, Bahrain has developed as a regional financial center for the Gulf region and for much of the Arab world. Bahrain's financial institutions attract funds from the Gulf region since, unlike most other countries in the region, Bahrain does not prohibit the use of interest in banking operations. Law of Commerce No. 7 of 1987, expressly permits interest in transactions; rates agreed to by parties to a contract will be enforced if not exorbitant in opinion of Bahrain courts. No hard and fast rule exists, but based on past cases interest in excess of 15 percent could be viewed as exorbitant. 

 

While other GCC countries like the UAE permit the use of interest, legislative initiatives like offshore banking units continue to attract foreign funds. 

 

In the past few years, however, there has been a rise in the number of Islamic banks operating in Bahrain that do prohibit the use of interest. In 1996 Citibank opened an Islamic bank. 

 

Bahrain has a well-developed commercial banking sector which includes many of the large international banks. A number of offshore banking institutions offer specialized commercial services. There is a housing bank, which provides long term finance for housing and commercial real estate developments. Additionally, there are several Islamic banks and financial institutions that constitute a significant factor in the financial community. The distinctive feature of Islamic banking is that no interest is paid; instead the bank charges fees and shares its profits or losses. In addition, the Bahraini Stock Exchange, established in 1989, has been open to foreign as well as Bahraini investors since 1990. 

 

Offshore Banking Units 

 

Bahrain has been encouraging the establishment of "offshore" banking units (OBUs) since the mid 1970s. An OBU is not allowed to provide local banking services but is allowed to accept deposits from governments and from large, regional financial organizations and to make medium-term loans for local and regional capital projects. The OBUs serve to channel money from the petroleum-producing region back into world markets. 

A license from the BMA is necessary in order to establish an OBU. The OBUs operate under the following conditions: (1) OBUs may be branches or joint ventures; (2) OBUs must be fully staffed and operational at all times; (3) OBUs may transact business with the Government of Bahrain, its agencies, or any licensed bank operating in Bahrain (conducting business with any other entity or individual resident in Bahrain requires the prior permission of the BMA which is normally given only if the transaction is related to a development project); (4) OBUs may provide non-residents of Bahrain with all banking services except checking accounts; (5) OBUs which are branches are not required to maintain any reserves with the BMA; (6) OBUs are required to supply to the BMA such information as may be prescribed by it from time to time; (7) OBUs are required annually to submit to the BMA a balance sheet and profit and loss account audited by auditors; (8) OBUs which are partly or wholly owned by banks or other entities are required annually to file with the BMA a copy of the consolidated accounts of the owners; and (i) OBUs are required to pay to the BMA an annual license fee of an amount as may from time to time be prescribed by the BMA. 

Representative Offices 

Foreign banks may open a representative office in Bahrain. This is often done by international banks wishing to establish a presence in Bahrain until such time as they are able to justify the additional cost of setting up an offshore banking unit. Representative offices are prohibited from conducting trade or business in Bahrain and are limited to collecting general financial, economic and commercial information, offering general representation and rendering assistance to customers of the bank. These offices have to be approved by the BMA and pay an annual license fee. 

 

Investment Banks 

 

Investment banks, characterized as non-bank financial institutions, operate under a licensing system by the BMA. They may not offer current account services, although deposits can be accepted from non-bank institutions in a minimum value of US$ 50,000 or the equivalent. Deposits may also be accepted from banks inside and outside Bahrain. Investment banks are allowed to grant loans to both residents and non-residents provided they are not in the form of an overdraft. In addition, they may also undertake all forms of business in securities including underwriting, placing and trading in securities, consultancy on issues of investment and the raising of capital. Investment banks may be formed as exempt companies. 

 

Intellectual Property 

 

General 

 

While Bahrain does have laws pertaining to the protection of patents, trademarks and copyrights, they are often considered inadequate by Western standards despite the fact that Bahrain has recently ratified the Berne Convention for the Protection of Literary and Artistic Works and the Paris Convention for the Protection of Industrial Property, and is contemplating joining the Madrid Agreement regarding the International Registration of Marks. Bahrain’s intellectual property legislation includes the Copyright Law of 1993 and the Patent, Design and Trademark Law of 1995. Notwithstanding the Copyright Law of 1993, works may be separately registered through a cumbersome and expensive process with the Ministry of Information which grants greater protection to the creator of the copyrighted material than the Copyright Law. The country is a signatory to the Trade Related Aspects of Intellectual Property Rights agreement (TRIPS) and must become compliant by January 1, 2000. 

 

Patents and Designs 

 

Patents 

 

Patents, trademarks and designs are protected in Bahrain by virtue of the Patent, Design and Trademark Law of 1995, as periodically amended. Protection is based on registration at the Patents and Trademarks Registration Office. 

 

If a registered patent or design is not used within two years of the filing date of the application to register, third parties may apply to the court for the registration to be revoked. 

 

The validity of a patent registration is for fifteen years only. It can be renewed for five years provided that the patent is of special significance and the income realized from it during the original term is not reasonable relative to the expenses incurred. The other procedures and protection regarding patents are similar to those of trademarks. One exception is that registration of patents in Bahrain requires either a home registration or any other foreign registration of the patent. 

 

Designs 

 

The validity of a design registration in Bahrain is for five years, renewable for two further terms of five years each. The other procedures of registration are similar to those of trademarks. One exception is that a design registration of designs in Bahrain requires either a home registration or any other foreign registration of the design. 

 

Trademarks 

 

According to the Patent, Design and Trademark Law, a trademark registration is valid for ten years from the date of filing the application. Thereafter, a trademark registration is renewable for periods of ten years each. Trademarks are defined as everything that takes a distinctive form such as names, words, signatures, characters, number, drawings, etc., if used in distinguishing products, goods or services. 

 

Trademark rights are acquired by registration, however, a trademark application can be opposed successfully upon producing sufficient proof of the prior use of the mark in Bahrain and elsewhere around the world. Marks which are not renewed will be canceled by the Commercial Registry. Unlawfully registered marks may be canceled by a court. 

Once a trademark application is filed, the trademark is examined as to its registerability. Trademark applications accepted by the Registrar are in the Official Gazette. There is a sixty-day period open for filing an opposition by any interested party. An authorized agent or the proprietors themselves as from the date of publication should present an opposition to the registration of a trademark before the Registrar within the prescribed period. Such an opposition case is settled by the Registrar. In the absence of opposition, a published trademark is registered, and the certificate of registration is issued. 

 

Use of trademarks in Bahrain is not compulsory for filing applications for registration nor for maintaining trademark registrations in force. But a trademark is subject to cancellation and may be canceled by any party who can establish that the trademark was not actually used during the five years immediately preceding the application for cancellation or that there was no bona fide intention of using the trademark on the goods in respect of which the trademark was registered. 

 

Unauthorized use of a trademark registered under the law or an imitation of such trademark applied on goods of the same class, or sale, storing for the purpose of sale, or exhibiting for sale of goods bearing a counterfeit mark, or using a mark duly registered under the law by another person to serve the purpose of unauthorized promotion of goods of the same class are offenses punishable by law in Bahrain. 

 

Copyright 

 

The Copyright Law was introduced to Bahrain's legislative system in 1993. The Copyright Law protects authors of intellectual property such as books, paintings, photographs, cinematographic, radio and television works and personally created computer software and databases and was enacted in order to combat pirating of videotapes, audiotapes, artistic work and computer software. 

Ministerial Order 4 of 1993 established a Copyright Protection Office in the Ministry of Information. The Copyright Protection Office examines applications for copyright protection, accepts the deposit of works after payment of fees, and registers the transfer of copyrights. The Office is also responsible for examining international copyright agreements and implementing those which Bahrain has executed. 

 

The Copyright Law applies to: (1) the works of Bahraini authors which are published for the first time, whether in or outside of Bahrain; (2) works of foreign authors that are published for the first time in Bahrain; and (3) works of Arab authors who are nationals of a Member State that has ratified the Arab Copyright Protection Agreement of 1958 and whose work is published for the first time in a Member State. 

 

Copyright protection lapses, in general, fifty years after the death of the author or, in the event of jointly owned intellectual property, fifty years after the death of the last surviving author. 

 

With respect to the following works, the protection lapses fifty calendar years after the date of publication: (1) films, photographs and applied art; (2) works published under a pseudonym; (3) works which belong to a corporate entity; and (4) works first published after the author's death. 

 

In the case of computer software, the copyright protection will lapse either fifty years after the completion of the work or forty years from the date of publication, whichever is earlier. 

 

Taxation 

 

Taxation of Companies 

The single corporate income tax in Bahrain is levied on oil, gas and petroleum companies at a rate of 46 percent. This tax is applicable to any oil company conducting business activity in Bahrain of any kind, including oil exploration, production, or refining, regardless of the company’s place of incorporation. 

 

Deductions are allowed for taxes and customs and duties, which are paid by the taxpayer. The costs of raw materials, production and management, may also be deducted from taxable income. Capital assets may be depreciated over the useful life of assets. 

 

Taxation of Individuals 

There is no individual income tax in Bahrain. 

 

Municipal Tax 

A municipal tax is payable by individuals or companies renting property in Bahrain. The rate of the tax varies according to the nature of the property, namely: unfurnished residential property, furnished residential property and commercial property. 

 

Social Security Taxes 

 

Employers who employ more than ten employees, irrespective of their nationality, must pay 10 percent of the employee's gross income to social welfare taxes. The employer's contribution is 7 percent of gross wages for pension insurance, disability and death (applicable only to Bahraini employees) and 3 percent of gross wages for insurance against employment injuries (applicable to all employees). The employee's contribution is five percent of gross wages for pension insurance, disability and death (applicable to Bahraini employees only). 

 

Withholding Taxes; Sales Tax 

 

No withholding of taxes exist. The only tax on sales or turnover is a tax on gasoline which is levied at a low rate of 12 percent. Bahrain has no value-added tax, property tax or production tax. 

Treaties for Prevention of Double Taxation  

While there is no existing provision in the law expressly preventing double taxation, the foreign tax paid on income subject to a foreign country's tax system will generally be deductible from the tax imposed on taxable income in Bahrain. 

 

Trade and Investment  

 

Investment Incentives 

The Bahraini government actively promotes foreign investment and, in recent years, has promulgated regulations permitting 100 percent foreign ownership of new industrial establishments and for the establishment of representative offices or branches of foreign companies without local sponsors. Most other commercial investments, however, are subject to government approval and generally must be made in partnership with a Bahraini national controlling 51 percent of the equity. Foreign nationals are not permitted to purchase land in Bahrain with certain exceptions made for GCC nationals. The government encourages the employment of local nationals by setting local-national employment targets in each sector and by restricting the issuance of expatriate labor permits. 

Investment Incentives Applying to Both Foreign and Bahraini  

 

Firms 

 

The Government of Bahrain, in recent years, introduced an industrial incentive program for private companies to employ locals and special measures to support new and existing small and medium-sized industries. These incentives include: 

- Labor: A subsidy of US$ 11,925 per year for the first three years, for each Bahraini employed by companies setting up factories in pioneering industries; US$ 7,950 per year for downstream industries, and US$ 2,650 per year for companies setting up factories in existing industries. 

- Electricity Charges: A 50 percent rebate for the first five years in all industries. 

- Land Rental: A 100 percent rebate of rental fees in Government industrial areas for the first five years, for all industries. 

- Customs Duties: A 100 percent rebate of customs duties for the first five years, for all industries. 

- Export Credit Facility: Available to all industries. 

- Tariff Protection: Subject to the approval of the National Committee on Tariff Protection, 10 to 20 percent protection may be given to pioneering downstream industries. 

 

Trade Agreements 

 

The Basic Statute of the Gulf Cooperation Council (GCC) was signed in 1981 and the signatories thereto are Saudi Arabia, Oman, Kuwait, the United Arab Emirates, Qatar and Bahrain. The GCC aims to attain cooperation in all fields, to draw up comparable legislation in finance, trade, education, health, tourism and administration, to establish research centers and to encourage scientific development in industry. The ministers from the GCC countries are cooperating with a view towards unifying customs tariffs, establishing a regional stock market and allowing Gulf companies to open representative offices in other Member States. 

 

The Uniform Economic Agreement was executed on 11 November 1981. It sets out various objectives which are to be realized by domestic legislation in the Member States. The Agreement deals with the free movement of goods within the Member States and exemption of goods from customs and other duties imposed by on imports. It contemplates uniform customs tariffs for goods entering the area of the GCC from outside. It also deals in general terms with the issue of free movement of workers between Member States, leaving the practical realization of these goals to separate legislation to be agreed upon by Member States. The Agreements also cover development programs, oil policy, scientific policy and cooperation on technology transfer agreements with third parties. 

 

The Member States have formed a customs union and have adopted a unified customs schedule based on the Brussels Tariff Nomenclature, the international standard for the classification of goods for customs. 

 

Customs 

 

Bahrain is, in some respects, a free port. There is no regulation restricting foreign trade with the exception that all goods imported into or exported from Bahrain must comply with certain requirements. Anyone wishing to import goods into Bahrain for sale or consumption must obtain a general license from the Customs and Ports Directorate of the Ministry of Finance and National Economy. 

Customs duties are levied only on goods imported for sale in Bahrain. The rates of duty include the following: 5 percent on foodstuffs from non-GCC countries; 5 percent on non-luxuries; 10 percent on general luxuries; 20 percent on cars and boats; 70 percent on cigarettes and tobacco; and 125 percent on alcoholic drinks. 

The Government of Bahrain permits the duty-free importation of raw material inputs for incorporation into products for export and the duty-free importation of equipment and machinery for newly established export industries. Except under special license, the private importation of weapons is generally prohibited, and only one private company is authorized to import explosives. The Government of Bahrain provides indirect export subsidies in the form of preferential rates for electricity, water and natural gas to select industrial establishments. 

 

Imported and exported goods are classified according to the Standard International Trade Classification (SITC), Revision 1. 

 

Public Sector Procurement 

 

The Government makes major public purchasing decisions through public tender processes. For major projects, the Ministry of Works, Power and Water extends invitations to selected, pre-qualified firms. Construction companies bidding on Government construction projects must therefore be registered with the Ministry of Works, Power and Water. Smaller contracts are handled by individual ministries and departments and are not subject to pre-qualification procedures. 

 

Environmental Law 

 

Bahrain is party to several international conventions pertaining to environmental issues. The Kuwait Regional Convention for Cooperation on the Protection of the Marine Environment from Pollution was enacted to help prevent, abate and combat pollution of the marine environment, to deal with pollution emergencies and to establish appropriate rules and procedures for the determination of civil liability and compensation for damage related to pollution of the marine environment. The Convention was adopted on April 24, 1978 and its date of entry into force was July 1, 1979. 

 

Bahrain is also a party to the Agreement for the Establishment of a Commission For Controlling the Desert Locust in the Near East, adopted on July 2, 1965, and entered into force in Bahrain on February 24, 1969. The Agreement’s objective is to promote national and international research and action to control the desert locust in the region. 

© 2000 Mena Report (www.menareport.com)

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