Rundown of legal requirements for incorporating foreign ownership of companies in Bahrain

 

Bahrain is a regional financial hub for investment and business in the GCC. This holds true due to the efforts set forth by the Ministry of Industry, Commerce and Tourism (MoICT), and its minister, Zayed R. Al Zayani, in cooperation with other ministries. The MoICT has taken steps to encourage and create lucrative opportunities for foreign investors and companies wishing to establish a presence in Bahrain. A foreign investor is any non-Bahraini individual or non-GCC national.

Additionally, and by virtue of the free trade agreement that exists between Bahrain and the US, an American investor is accorded with a status similar to that of a GCC national. Most recently, developments have been made regarding foreign ownership of companies in Bahrain, and the MoICT has taken a less stringent approach to the requirements of incorporating such companies.

LATEST AMENDMENTS: The latest amendments to the Commercial Companies Law (CCL) promulgated by Legislative Decree No. 21 of 2001 have arguably reinforced the concept of having a “business-friendly Bahrain”. Some of the important amendments, made pursuant to Decree Law No. 50 of 2014, are as follows: A shorter timeframe for processing documentation: Article 3 stipulates that all references to “60 days” in the CCL shall be substituted with “15 days”. This ensures a speedier process in receiving feedback on procedures such as company registration, amendments to constitutional documents, modifications to shareholdings and the like.

To illustrate, the case was formerly such that a change in the capital of a company would be effective only 60 days after publication in the Official Gazette. This period has been reduced to 15 days. Foreign investment: Article 65 has been amended to read that foreigners are now allowed to be directly involved in the establishment of Bahraini joint-stock companies – whether it be through the injection of foreign capital or offering foreign expertise – in certain sectors or activities, such as insurance, banking and financial services, subject to the permission of the relevant minister. Minimum capital requirements: Perhaps one of the most significant changes yet is the addition of Article 21 (bis) to the CCL. Previously, the incorporation of certain types of companies required a minimum amount of capital to begin with.

For example, business owners who wished to incorporate a With Limited Liability company were obliged to provide a minimum of BD20,000 ($53,100) upfront, with the exception of certain specific activities that required higher capital. Article 21 (bis) has abolished this requirement. Certain activities and sectors still require different amounts of capital, to be determined by the MoICT. However, the MoICT generally requires that the capital deposited must be sufficient to meet the objectives of the business. Requirements for holding meetings: Furthermore, Article 23 (recently amended) of the CCL eliminates the necessity for shareholders to physically attend meetings. This is subject to the express inclusion of the same in a company’s memorandum of association. Shareholder presence may be accounted for via electronic means or telephone communication.

The article does not apply to general assembly meetings of public shareholding companies, whereby shareholders are required to be in physical attendance to attend such meetings. Foreign branches: Articles 347 and 348 have been duly amended to allow the branches of foreign companies to be established in Bahrain without the need for a Bahraini sponsor, or a guarantee from the sponsor or a Bahraini bank. In this way, a guarantee may simply be issued by the head office or parent company in the form of a letter, along with the head office’s memorandum of association and amendments thereto, in addition to a copy of the audited financial details of the head office six months prior to its expiry date.

FOREIGN OWNERSHIP REQUIREMENTS: Moreover, Decree Law No. 28 of 2015, amending certain provisions of the CCL, also implements a few important changes. The most pertinent of them is the amendment of Article 345, drafted to accommodate foreign ownership in certain types of businesses and companies. The article currently reads that subject to the granting of a licence by the relevant minister and the provisions of the law, foreigners may fully incorporate companies with activities that are usually strictly fully or partially owned by or reserved for Bahrainis, GCC nationals or US citizens. Furthermore, companies incorporated by foreigners do not have to adhere to minimum capital requirements to initially set up their businesses, as discussed above.

On May 8, 2016, the Shura Council unanimously agreed upon a decision to amend the CCL and permit foreign organisations to own 100% of a business. Additionally, the subject of shelf corporations was discussed. Shelf corporations would essentially be companies that are established with “no activity” and then subsequently sold to those that do not wish to go through the process of incorporation. These would be offered to foreign investors and companies through legal firms. This decision was confirmed in July 2016 by the prime minister, Prince Khalifa bin Salman Al Khalifa, and his Cabinet. It is expected that the new amendment shall follow soon and will be issued before the end of 2016.

As it stands, foreigners are able to own 100% in several activities, including but not limited to food and beverage service activities, transportation and computer services. Trade and retail activities nevertheless require 51% Bahraini ownership, and specific trade restrictions may still apply, subject to financial regulations. The new amendment will allow foreigners to have 100% ownership in additional sectors such as real estate, food, administrative services, arts, entertainment and leisure, health and social work, ICT, manufacturing, mining and quarrying, water supplying, and professional, scientific and real estate activities.

While a full list of specific amendments to ownership has yet to be provided, there are a few worthy of mentioning. For instance, Decision No. 1 of 2016 pursuant to Article 345 of the CCL increases foreign capital ownership to 100% in the activity of re-appreciation of logistics and value-added services. Decision No. 2 of 2016 permits foreign capital ownership of up to 100% for shipping packaging.

Some decisions may continue to implement 51% Bahraini ownership, or sectors which were previously limited to Bahrainis will now permit 49% foreign ownership. For instance, Decision No. 3 of 2016 allows companies with 49% foreign capital to participate in air, land and sea freight activities. The much awaited issuance of the new amendment will bring with it a greater clarity as to what business activities foreigners will be able to carry out. Furthermore, specific activity requirements will also be published on the MoICT’s newly launched website, SIJILAT.

AUTOMATED & SMOOTHER PROCESS: The MoICT is continuing to work on streamlining the process of incorporation and business procedures. Most recently, a new commercial registration portal called SIJILAT was launched in May 2016. SIJILAT provides a more automated process regarding commercial registration of companies and the renewal thereof, amendments of constitutional documents, changes to directors and the like. Moreover, documents were previously required to be physically brought to the relevant ministry office for approval. Currently, all documents, including financial statements, are to be uploaded online. This will reduce the amount of time it may take to submit and review such documents.

The new system will bolster Bahrain’s position as a strong financial centre of the GCC, with hopes of attracting more foreign investment and creating a healthier and more prosperous economic environment.

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The Report: Bahrain 2017

Legal Framework chapter from The Report: Bahrain 2017

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