Bahrain

Executive Summary

The investment climate in the Kingdom of Bahrain is positive and relatively stable. Bahrain maintains a business-friendly attitude and liberal approach to attracting foreign investment and business.

In an economy dominated by state-owned enterprises (SOE), Bahrain aims to foster a greater role for the private sector to promote economic growth. Government of Bahrain (GOB) efforts focus on encouraging foreign direct investment (FDI) in the manufacturing, logistics, information and communications technology (ICT), financial services, tourism, health, and education sectors.

Bahrain’s total FDI stock reached BD 11.537 billion ($30.683 billion) in 2020. Annual FDI inflows dropped from BD 603 million ($1.6 billion) in 2018 to BD 355 million ($942 million) in 2019 and BD 333 million ($885 million) in 2020. The financial services, manufacturing, logistics, education, healthcare, real estate, tourism, and ICT sectors have attracted the majority of Bahrain’s FDI.

Bahrain’s economy saw a major recovery in 2021, following the slowdown of the COVID-19 pandemic, and the rise in global oil prices. In addition, the continuity of some key provisions from the BD 4.3 billion ($11.4 billion) financial relief package, that was launched in 2020 to help support businesses and individuals, helped boost Bahrain’s revenues and economic growth.

In November 2021, the government announced a new economic recovery plan focused on five pillars: (1) creating quality jobs for citizens; (2) streamlining commercial procedures to attract $2.5 billion in yearly FDI by 2025; (3) launching $30 billion in major strategic projects; (4) developing strategic priority sectors; and (5) achieving fiscal sustainability and economic stability, including by extending Bahrain’s Fiscal Balance Program to 2024. Since then, the government has released detailed development strategies for the industrial, tourism, financial services, oil and gas, telecommunications and logistics sectors and identified 22 signature infrastructure projects, including the creation of five new island cities, that will stimulate post-pandemic growth and drive the economic recovery plan. The government has not identified funding sources to finance these projects or its sector modernization strategies.

Bahrain’s Vision 2030 outlines measures to protect the natural environment, reduce carbon emissions, minimize pollution, and promote sustainable energy. Bahrain’s Sustainable Energy Authority (SEA), within the Ministry of Electricity and Water Affairs, designs energy efficiency policies and promotes renewable energy technologies that support Bahrain’s long-term climate action and environmental protection ambitions. Endorsed by Bahrain’s Cabinet and monitored by SEA, the National Energy Efficiency Action Plan (NEEAP) and the National Renewable Energy Action Plan (NREAP) set national energy efficiency and national renewable energy 2025 targets of 6 and 5 percent, respectively, with the NREAP target increasing to 10 percent by 2035.

To strengthen Bahrain’s position as a regional startup hub and to enhance its investment ecosystem, the GOB launched Bahrain FinTech Bay in 2018; issued new pro-business laws; and established several funds to encourage start-up investments including the $100 million Al Waha Fund of Funds and the Hope Fund to support startup growth. Since 2017, the Central Bank of Bahrain (CBB) has operated a financial technology regulatory sandbox to enable startups in Bahrain, including cryptocurrency and blockchain technologies, and regulate conventional and Sharia-compliant businesses.

The U.S.-Bahrain Bilateral Investment Treaty (BIT) entered into force in 2001 and protects U.S. investors in Bahrain by providing most-favored nation treatment and national treatment, the right to make financial transfers freely and without delay, international law standards for expropriation and compensation cases, and access to international arbitration.

Bahrain permits 100 percent foreign ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without Bahraini sponsors or local partners. In 2017, the GOB expanded the number of sectors in which foreigners are permitted to maintain 100 percent ownership in companies to include tourism services, sporting events production, mining and quarrying, real estate, water distribution, water transport operations, and crop cultivation and propagation.  In May 2019, the GOB loosened foreign ownership restrictions in the oil and gas sector, allowing 100 percent foreign ownership in oil and gas extraction projects under certain conditions.

The U.S.-Bahrain Free Trade Agreement (FTA) entered into force in 2006. Under the FTA, Bahrain committed to world-class Intellectual Property Rights (IPR) protection.

Despite the GOB’s transparent, rules-based government procurement system, U.S. companies sometimes report operating at a disadvantage compared with other firms. Many ministries require firms to maintain a local commercial registration or pre-qualify prior to bidding on a local tender, often rendering firms with little or no prior experience in Bahrain ineligible to bid on major tenders.

In February 2022, Bahrain’s Ministry of Industry, Commerce, and Tourism broke ground on the United States Trade Zone (USTZ) to incentivize U.S. companies to build out full turnkey industrial manufacturing, logistics, and distribution facilities in Bahrain to access the wider GCC market.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 78 of 175 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 78 of 129 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $571 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $19,900 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

The GOB has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses. Increasing FDI is a top GOB priority. The GOB permits 100 percent foreign ownership of a business or branch office, without the need for a sponsor or local business partner. The GOB does not tax corporate income, personal income, wealth, capital gains, withholding or death/inheritance. There are no restrictions on repatriation of capital, profits or dividends, aside from income generated by companies in the oil and gas sector, where profits are taxable at the rate of 46 percent. Bahrain Economic Development Board (EDB), charged with promoting FDI in Bahrain, places particular emphasis on attracting FDI to the manufacturing, logistics, ICT, financial services, tourism, health, and education sectors. As a reflection of Bahrain’s openness to FDI, the EDB won the 2019 United Nations Top Investment Promotion Agency in the Middle East award for its role in attracting large-scale investments. U.S. investors have never alleged any legal or practical discrimination against them based on nationality.

In January 2021, the U.S. Commerce Secretary and the Bahraini Commerce Minister signed an MOU to establish the United States Trade Zone (USTZ) in Bahrain. Located near Bahrain’s critical port, aviation, and logistics facilities, the USTZ will enable U.S. companies to own and operate full turnkey industrial manufacturing, logistics, and distribution facilities in a unified commercial zone in order to access the wider GCC market. In February 2022, the Bahraini government allocated a small land plot and organized an expedited groundbreaking ceremony to formally open the USTZ to accommodate initial U.S. company interest. The Bahraini government must now tender out dredging and other construction services to reclaim land from the sea before building out the bulk of the USTZ’s infrastructure, which could take up to three years.

The GOB permits foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity. The GOB imposes only minimal limits on foreign control, and the right of ownership and establishment of a business. The Ministry of Industry, Commerce, and Tourism (MoICT) maintains a small list of business activities that are restricted to Bahraini ownership, including press and publications, Islamic pilgrimage, clearance offices – such as expeditors and document clearance companies — and workforce agencies. The U.S.-Bahrain FTA outlines all activities in which the two countries restrict foreign ownership.

U.S citizens may own and operate companies in Bahrain, though many such individuals choose to integrate influential local partners into the ownership structure to facilitate quicker resolution of bureaucratic issues such as labor permits, issuance of foreign visas, and access to industrial zones. The most common challenges faced by U.S firms are those related to bureaucratic government processes, lack of market information, customs clearance, and preregistration requirements to bid on local tenders.

The World Trade Organization (WTO) conducted a Trade Policy Review of Bahrain in November 2021.

Bahrain ranked 43 out of 190 countries on the World Bank’s overall Ease of Doing Business Indicator in 2020.

The CBB’s regulatory sandbox allows local and international FinTech firms and digitally focused financial institutions to test innovative solutions in a regulated environment, allowing successful firms to obtain licensing upon successful product application.

The MoICT operates the online commercial registration portal “Sijilat” ( www.sijilat.bh ) to facilitate the commercial registration process. Through Sijilat, local and foreign business owners can obtain a business license and requisite approvals from relevant ministries. The business registration process normally takes two to three weeks, from start to finish, but can take longer if a business requires specialized approvals. In practice, some business owners retain an attorney or clearing agent to assist them through the commercial registration process.

In addition to obtaining primary approval to register a company, most business owners must also obtain licenses from the following entities to operate their businesses:

  1. MoICT
  2. Electricity and Water Authority
  3. The Municipality in which their business will be located
  4. Labour Market Regulatory Authority
  5. General Organization for Social Insurance
  6. National Bureau for Revenue (Mandatory if the business revenue exceeds BD 37,500)

To incentivize foreign investment in Bahrain’s targeted sectors and investment zones, the GOB provides industrial lands at reduced rental rates; customs duty exemptions for industrial and manufacturing projects, including imports of raw material, plant machinery equipment, and spare parts; and a five-year exemption of the “Bahrainization” recruitment restriction.

The GOB neither promotes nor incentivizes outward investment. The GOB does not restrict domestic investors from investing abroad.

3. Legal Regime

In 2018, the GOB issued a competition law, a personal data protection law, a bankruptcy law, and a health insurance law to enhance the country’s investment eco-system. The Law of Commerce (Legislative Decree No. 7, passed in 1987) addresses the concept of unfair competition and prohibits acts that would have a damaging effect on competition. Companies also are forbidden from undertaking practices detrimental to their competitors or from attracting the customers of their competitors through anti-competitive means. There is no official competition authority in Bahrain and the country has yet to institute comprehensive anti-monopoly laws or an independent anti-corruption agency.

Bahrain’s industrial sector is dominated by state-controlled companies such as Aluminum Bahrain (ALBA), Bahrain Petroleum Company (BAPCO), and Gulf Petrochemical Industries Company (GPIC). De facto monopolies also exist in some industries led by individuals or family-run businesses.

The GOB uses International Financial Reporting Standards (IFRS) as part of its implementation of Generally Accepted Accounting Principles (GAAP). IFRS are used by domestic listed and unlisted companies in their consolidated financial statements for external financial reporting.

Bahrain adopted International Accounting Standard 1 (IAS 1) in 1994 in the absence of other local standards. Non-listed banks and other business enterprises use IASs in the preparation of financial statements.

The 2001 Bahrain Commercial Companies Law requires each registered entity to produce a balance sheet, a profit-and-loss account and the director’s report for each financial year. All branches of foreign companies, limited liability companies and corporations, must submit annual audited financial statements to the Directorate of Commerce and Company Affairs at the MoICT, along with the company’s articles and /or articles of association.

Depending on the company’s business, financial statements may be subject to other regulatory agencies such as the Bahrain Monetary Agency (BMA) and the Bahrain Stock Exchange (banks and listed companies).

Bahrain encourages firms to adhere to both the International Financial Reporting Standards (IFRS) and Bahrain’s Code of Corporate Governance. Bahrain-based companies by and large remain in compliance with IAS-1 disclosure requirements.

There are no informal regulatory processes managed by non-governmental organizations or private sector associations.

According to the World Bank, the GOB does not have the legal obligation to publish the text of proposed regulations before their enactment but bills that are discussed by Parliament may be reported in the local news. The text of the proposed regulations is publicly available one day, two weeks or thirty days after it is published in the Official Gazette. Bahrain, therefore, ranks among the countries with low rule-making transparency.

Bahrain’s laws can be drafted or proposed by the Cabinet or originate in the bicameral National Assembly, comprised of an elected, lower house Council of Representatives (COR) and an appointed, upper house Consultative Council (“Shura”). The independent Legislation and Legal Opinion Commission drafts legislation based on the proposals. The King’s signature is required to ratify any laws following parliamentary approval; laws are in force once published in the Official Gazette. The King may issue royal orders and royal decrees that are immediately effective once issued. For matters deemed urgent, the King can also decree-laws when COR is in recess. These decree-laws must be approved by both chambers with no changes within a month of the COR resuming session, or they are considered null. GOB ministers and heads of agencies are authorized to issue regulations that pertain to the administration of their respective bodies.

Bahrain is a member of the GCC, which created a Unified Economic Agreement to expedite trade and the movement of people and goods within GCC borders.  The GCC has also adopted several unified model laws, such as the GCC Trademark Law.  Bahrain is a signatory to the Apostille Convention and is a member of the Permanent Court of Arbitration.  It is a dualist state, therefore, international treaties are not directly incorporated into its law and must be approved by the National Assembly and ratified by the King.

Commercial regulations can be proposed by the EDB, MoICT, Cabinet, or COR. Draft regulations are debated within the COR and Shura Council. The Bahrain Chamber of Commerce and Industry board of directors may raise concerns over draft legislation at committee meetings or send written comments for review by Members of Parliament; bills are otherwise not available for public comment. The Cabinet issues final approval of regulations.

The e-Government portal and the Legislation and Legal Opinion Commission website list laws by category and date of issuance. Some laws are translated into English. The National Audit Office publishes results of its annual audits of government ministries and parastatals.

As a GCC member, Bahrain has agreed to enforce GCC standards and regulations where they exist, and not to create any domestic rules that contradict established GCC-wide standards and regulations.  In certain cases, the GOB applies international standards where domestic or GCC standards have not been developed.  Bahrain is a member of the WTO and notifies all draft technical regulations to the WTO Committee on Technical Barriers to Trade. Bahrain ratified the Trade Facilitation Agreement (TFA) in September 2016 through Law No. 17 of 2016.

Bahrain’s Constitution defines the Kingdom as a sovereign, independent, Arab Muslim State. Article 2 of the Constitution states that Islamic Sharia (Islamic law) is the main source of legislation; however, general matters and private transactions are governed mainly by laws derived from international law. Three types of courts are present in Bahrain: civil, criminal, and family (Sharia) courts. The civil court system consists of lower courts, courts of appeal, and the Court of Cassation – the highest appellate court in the Kingdom, hearing a variety of civil, criminal, and family cases. Civil courts deal with all administrative, commercial, and civil cases, as well as disputes related to the personal status  of non-Muslims. Family courts deal primarily with personal status matters, such as marriage, divorce, custody, and inheritance.

High-ranking judges in Bahrain are often from prominent families but may be non-Bahraini citizens. On January 19, 2022, the king appointed nine English-speaking foreign judges and legal experts to the Court of Cassation, all of whom are commercial arbitration specialists. Bahraini law borrows elements from European or other Arab states’ legal codes.

Bahrain has a long-established framework of commercial law. English is widely used, and several well-known international (including U.S.) law firms, working in association with local partners, are authorized to practice law in Bahrain and provide expert legal services nationally and regionally. Fees are charged according to internationally accepted practices. Non-Bahraini lawyers can represent clients in Bahraini courts. In April 2007, the government permitted international law firms to be established in Bahrain. These firms provide services such as commercial and financial consultancy in legal matters.

Investors report general satisfaction with government cooperation and support. Foreign competitors have occasionally perceived that legal interpretation and application varied between Ministries and was influenced by prominent local business interests or the stature and connections of an investor’s local partner. Such departures from the consistent, transparent application of regulations and the law are uncommon.

The GOB is eager to develop its legal framework. The U.S. Department of Commerce’s Commercial Law Development Program (CLDP) has conducted training and capacity-building programs in Bahrain for years, in cooperation with the National Assembly; Ministry of Justice, Islamic Affairs, and Endowments; Supreme Judicial Council; Bahrain Chamber for Dispute Resolution; Judicial and Legal Studies Institute; and MoICT.

Judgments of foreign courts are recognized and enforceable under local courts. Article nine of the U.S.-Bahrain BIT outlines the disposition of U.S. investment cases within the Bahraini legal system. The most common investment-related concern in Bahrain has been the slow or incomplete application of the law. Although some international law and human rights monitoring organizations have collected anecdotal evidence pointing to a lack of transparency, the judicial process in civil courts is generally considered fair, and cases can be appealed.

The U.S.-Bahrain BIT provides benefits and protection to U.S. investors in Bahrain, such as most-favored nation and national treatment, the right to make financial transfers freely and immediately, the application of international legal standards for expropriation and compensation cases, and access to international arbitration. The BIT guarantees national treatment for U.S. investments across most sectors, with exceptions of a limited list of activities, including ownership of television, radio or other media, fisheries, real estate brokerages, and land transportation. Bahrain provides most-favored nation or national treatment status to U.S. investments in air transportation, the purchase or ownership of land, and the purchase or ownership of shares traded on the Bahrain Bourse.

The national treatment clause in the BIT ensures American firms interested in selling products exclusively in Bahrain are no longer required to appoint a commercial agent, though they may opt to do so. A commercial agent is any Bahraini party appointed by a foreign party to represent the foreign party’s product or service in Bahrain.

Bahrain generally permits 100 percent foreign ownership of new industrial entities and the establishment of representative offices or branches of foreign companies without local sponsors or business partners. Wholly foreign-owned companies may be set up for regional distribution services and may operate within the domestic market provided they do not exclusively pursue domestic commercial sales. Private investment (foreign or Bahraini) in petroleum extraction is permitted.

Expatriates may own land in designated areas in Bahrain. Non-GCC nationals, including Americans, may own high-rise commercial and residential properties, as well as properties used for tourism, banking, financial and health projects, and training centers.

Bahrain issued Bankruptcy Law No. 22 in May 2018 governing corporate reorganization and insolvency. The law is based on U.S. Chapter 11 insolvency legislation and provides companies in financial difficulty with an opportunity to restructure under court supervision.

Below is a link to a site designed to assist foreign investors to navigate the laws, rules, and procedures related to investing in Bahrain: http://cbb.complinet.com/cbb/microsite/laws.html 

The GOB issued Competition Law No. 31 in July 2018 to prevent the formation of monopolies or the practice of anti-competitive behavior. This law makes it easier for new businesses to enter existing markets and compete with significant players.

MoICT’s Consumer Protection Directorate is responsible for ensuring that the law determining price controls is implemented and that violators are punished.

There have been no expropriations in recent years, and there are no cases in contention. The U.S.-Bahrain BIT protects U.S. investments by banning all expropriations (including “creeping” and “measures tantamount to”) except those for a public purpose. Such transactions must be carried out in a non-discriminatory manner, with due process, and prompt, adequate, effective compensation.

ICSID Convention and New York Convention

Bahrain uses multiple international and regional conventions to enhance its commercial arbitration legal framework. Bahrain is a party to the UNCITRAL Model Law on International Commercial Arbitration, the New York Convention, the International Centre for the Settlement of Investment Disputes (ICSID), and the GCC Convention for Execution of Judgments, among others. These conventions and international agreements established the foundation for the GCC Arbitration Centre, and the Bahrain Chamber for Disputes & Resolution (BCDR). Bahrain’s Constitution stipulates international conventions and treaties have the power of law.

Investor-State Dispute Settlement

Article 9 of The U.S.-Bahrain BIT provides for three dispute settlement options:

  1. Submitting the dispute to a local court or administrative tribunals of the host country.
  2. Invoking dispute-resolution procedures previously agreed upon by the foreign investor or company and the host country government; or,
  3. Submitting the dispute for binding arbitration to the International Center for Settlement of Investment Disputes (ICSID) or, the Additional Facility of ICSID, or ad hoc arbitration using the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL), or any other arbitral institution or rules agreed upon by both parties.

Bahrain Chamber for Dispute Resolution Court

The Bahrain Chamber for Dispute Resolution (BCDR) Court was established by Legislative Decree No. 30 of 2009. It operates in partnership with the American Arbitration Association (AAA). BCDR’s casework emanates from disputes brought before the BCDR Court and BCDR’s international arbitration wing, BCDR-AAA.

The BCDR Court administers disputes in excess of 500,000 Bahraini Dinars (approximately $1.3 million) in which at least one party is a financial institution licensed by the Central Bank of Bahrain, or the dispute is of an international commercial nature.

Since its establishment in 2010, BCDR has administered more than 350 cases under its jurisdiction as a court with monetary claims totaling over $6.2 billion.

In February 2022, the Minister of Justice clarified the use of travel bans against insolvent debtors (individuals and companies). The new Enforcement Law  in Civil and Commercial Matters 22/2021 stated that the insolvent debtor must disclose any owned assets, within seven days from the beginning of the judicial proceedings. Companies can settle their debts within 21 days. The justice ministry said it would coordinate with debt collectors from the private sector to expedite the enforcement process.

BCDR-AAA International Arbitration Center

BCDR-AAA is an international arbitration center with jurisdiction over disputes with respect to which the parties have agreed in writing that the BCDR-AAA Arbitration Rules shall apply.

As of December 2020, BCDR-AAA registered 17 cases under its jurisdiction as an international arbitration center, one in 2013, one in 2015, three in 2016, five in 2017, two in 2019, and five in 2020. Of these cases, only seven are ongoing: one that was filed in 2017 and one filed in 2019, five that were filed in 2020. The remainder were awarded or settled.

Bahrain Chamber for Dispute Resolution
Suite 301, Park Plaza
Bldg. 247, Road 1704
P.O. Box 20006
Manama, Kingdom of Bahrain
Tel: + (973) 17-511-311
Website: www.bcdr-aaa.org 

The United Nations Conference on Trade and Development (UNCTAD) reported that Bahrain faced its first known Investor-State Dispute Settlement (ISDS) claim in 2017. The case involved investor claims over the CBB’s 2016 move to close the Manama branch of Future Bank, a commercial bank whose shareholders included Iranian banks. Bahrain and Iran are party to a BIT. UNCTAD reported another investor-state dispute case involving Qatar Airways in 2020.

International Commercial Arbitration and Foreign Courts

Arbitration procedures are largely a contractual matter in Bahrain. Disputes historically have been referred to an arbitration body as specified in the contract, or to the local courts. In dealings with both local and foreign firms, Bahraini companies have increasingly included arbitration procedures in their contracts. Most commercial disputes are resolved privately without recourse to the courts or formal arbitration. Resolution under Bahraini law is generally specified in all contracts for the settlement of disputes that reach the stage of formal resolution but is optional in those designating the BCDR. Bahrain’s court system has adequately handled occasional lawsuits against individuals or companies for nonpayment of debts.

Bahrain Law No. 9 of 2015 promulgating the Arbitration Law (the “New Arbitration Law”) came into effect on August 9, 2015. The law provides that the UNCITRAL 1985 Model Law with its 2006 amendments on international commercial arbitration (the “UNCITRAL Law”) will apply to any arbitration, taking place in Bahrain or abroad, if the parties to the dispute agreed to be subject to the UNCITRAL Law.

The GCC Commercial Arbitration Center, established in 1995, serves as a regional specialized body providing arbitration services. It assists in resolving disputes among GCC countries or between other parties and GCC countries. The Center implements rules and regulations in line with accepted international practice. Thus far, few cases have been brought to arbitration. The Center conducts seminars, symposia, and workshops to help educate and update its members on any new arbitration-related matters.

GCC Commercial Arbitration Center
P.O. Box 2338
Manama, Kingdom of Bahrain
Arbitration Boards’ Secretariat
Tel: + (973) 17278000
Email: case@gcccac.org 
Website: http://www.gcccac.org/en/ 

The GOB enacted its original bankruptcy and insolvency law through Decree by Law No. 11 in 1987.  In May 2018, the GOB issued and ratified Law No. 22, updating the original legislation. Modeled on U.S. Chapter 11 legislation, the law introduces reorganization whereby a company’s management may continue business operations during the administration of a case. The Bankruptcy Law also includes provisions for cross-border insolvency, and special insolvency provisions for small and medium-sized enterprises that were further amended in July 2020 and enhanced creditors rights and expediting liquidation proceedings. The Bahrain credit reference bureau, known as “BENEFIT,” is licensed by the CBB and operates as the credit monitoring authority in Bahrain.

As part of a wider effort to promote sustainability and transparency in Bahrain’s capital market, Bahrain’s national stock market, the Bahrain Bourse (BHB), announced in 2020 new Environmental Social & Governance (ESG) reporting guidelines for listed companies . The voluntary reporting guidance aims to assist listed companies to integrate ESG issues in their reporting cycle and better meet the demands of institutional investors for material ESG information. The ESG reporting guidance encourages listed companies to disclose a set of 32 ESG metrics and indicators in alignment with the recommendations of the Sustainable Stock Exchanges (SSE) initiative and the World Federation of Exchanges, Global Reporting Initiatives (GRI) standards, and the United Nations Sustainable Development Goals. The guidance explains the key regional and international drivers for adoption of ESG reporting, the importance of ESG reporting, the ways to report on ESG, and emphasizes Bahrain Bourse’s efforts in promoting sustainability.

4. Industrial Policies

The GOB offers a variety of incentives to attract FDI. The Bahrain EDB, the Bahrain Logistics Zone (BLZ), Bahrain Development Bank (BDB), Bahrain International Investment Park (BIIP), U.S. Trade Zone (USTZ), and labor market fund Tamkeen offer incentives to encourage FDI. Some examples of incentives include assistance in registering and opening business operations, financial grants, exemption from import duties on raw materials and equipment, and duty-free access to other GCC markets for products manufactured in Bahrain.

Khalifa bin Salman Port, Bahrain’s primary commercial seaport, provides a free transit zone to facilitate the duty-free import of equipment and machinery. The GOB has developed two main industrial zones, one to the north of Sitra and the other in Hidd. The Hidd location, known as BIIP, is adjacent to a logistics zone, known as BLZ. Foreign-owned firms have the same investment opportunities in these zones as Bahraini companies.

MoICT operates BIIP, a 2.5 million square-meter, tax-free zone located minutes from Bahrain’s main Khalifa bin Salman port. Many U.S. companies operate out of this park. BIIP is most suited to manufacturing and services companies interested in exporting from Bahrain. The park offers manufacturing companies the ability to ship their products duty free to countries in the Greater Arab Free Trade Area. BIIP has space available for potential investors, including some plots of vacant land designated for new construction, and some warehouse facilities for rental. BIIP offers several incentives for international companies, including: competitive land-lease rental rates starting at $2.66 sqm/year; competitive utility costs; 100 percent foreign ownership; corporate and income tax exemptions; duty-free access to the GCC and U.S. markets; 5 percent customs duty exemption on raw materials, plant machinery, and spare parts imported for manufacturing; grants for funding, machinery, training, and employment; and a five year exemption from hiring Bahraini nationals.

BLZ is a boutique logistics park. Regulated and managed by the Ports and Maritime Affairs at the Ministry of Transportation and Telecommunications, BLZ offers local and international companies a base from which to operate in a customs-bonded area to export products and services to the northern Gulf and GCC markets. The park accommodates logistics companies engaged in:

  • Third-party logistics (3PL) and freight forwarding services.
  • General and specialized storage and distribution activities for re-export purposes.
  • Value-added logistics services such as component assembly, packing and packaging, labeling, testing and repair, mixing, weighing and filling, and other light manufacturing activities.

BLZ offers several incentives for international companies, including: competitive land-lease rental rates starting at $11 sqm/year; 100 percent foreign ownership; corporate and income tax exemptions; 12-month grace period on utility payments for water, sewage, electricity, and telecommunication services.

A 1999 law requires investors in industrial or industry-related zones to launch a project within one year from the date of receiving the land, and development must conform to the specifications, terms, and drawings submitted with the application. Changes are not permitted without approval from MoICT.

In February 2021, MoICT inaugurated the USTZ to attract U.S. companies to build, own, and operate full turnkey industrial manufacturing, logistics, and distribution facilities in a unified commercial zone that will facilitate streamlined access to the wider GCC market. MoICT expects the USTZ to include many of the same land lease discounts, customs exemptions, and other incentivized features as the BIIP and BLZ.

Companies in Bahrain are obliged to comply with so-called “Bahrainization” employment targets, under which the Labour Market Regulatory Authority (LMRA) mandates that a certain percentage of each company’s employees are Bahraini nationals. Companies may contact LMRA to determine the “Bahrainization” rate, which differs based on sector, or use a calculator to determine the rate: http://lmra.bh/portal/en/page/show/193 . The applicable Bahrainization rate is mandatory across a company’s corporate structure. Per Cabinet Resolution Number 27 of 2016, LMRA announced that companies unable to comply with the rates would only be eligible to apply for new work permits and sponsorship transfers by paying an additional annual fee of BD 250 ($663) per non-Bahraini worker. LMRA may apply fines to companies that do not comply with “Bahrainization” requirements.

The GOB introduced the National Employment Program initiative in 2019 to enhance Bahraini nationals’ employment through trainings and qualification programs. The program, in its two versions, worked on replacing expat employment with Bahraini nationals in several occupations, mainly, in the health, education, and telecommunication sectors.

The GOB issued Law No. 1 in March 2019 amending Article 14 of the Private Health Establishments Law, which gives priority to recruiting qualified Bahraini physicians, technicians, and nursing staff in private health establishments.

There is no excessively onerous visa, residence, work permit, or similar requirement inhibiting the mobility of foreign investors or their employees in Bahrain. Americans and citizens of many other countries can obtain a two-week visa with relative ease upon arrival in Bahrain or online. Bahrain also offers American citizens a five-year, multiple-entry visa, if required.

Bahrain has a liberal approach to foreign investment and actively seeks to attract foreign investors and businesses; no product localization is enforced, and foreign investors are not obliged to use domestic content in goods or technology. There are no government-imposed conditions on permission to invest, including tariff and non-tariff barriers, on American investments.

There are no special performance requirements imposed on foreign investors. The U.S.-Bahrain BIT forbids mandated performance requirements as a condition for the establishment, acquisition, expansion, management, conduct, or operation of a covered investment. Foreign and Bahraini-owned companies must meet the same requirements and comply with the same environmental, safety, health, and labor requirements. Officials at the Ministry of Labor and Social Development, LMRA, and MoICT supervise companies operating in Bahrain on a non-discriminatory basis.

The CBB regulates financial institutions and foreign exchange offices. Foreign and locally owned companies must comply with the same rules, policies, and regulations.

There are no requirements for foreign IT providers to turn over source code and/or to provide access to surveillance.

Bahrain enacted Law No. 30 of 2018 with respect to Personal Data Protection on July 12, 2018. The nationwide Data Protection Law, which went into force on August 1, 2019, promotes the efficient and secure processing of big data for commercial use and provides guidelines for the effective transfer of data across borders.

5. Protection of Property Rights

The GOB enforces property rights protections for land and homeowners. Most land has a clear title. Ownership of land is highly concentrated among royal family members; certain areas may be closed to Bahraini investors as well as expatriates. Foreign firms and GCC nationals are permitted to purchase land in certain areas in Bahrain. Non-GCC nationals can acquire high-rise commercial and residential properties in designated areas. Foreign investors may purchase property to operate businesses in various fields of business including, but not limited to, manufacturing, tourism, banking and financial services, education and training, design, and advertising.

Foreign investors may own commercial property in the following geographic areas:

  1. Ahmed Al-Fateh (Juffair) district
  2. Hoora district
  3. Bu Ghazal district
  4. Seef district
  5. Northern Manama, including the Diplomatic Area, where the main international corporations are located

Foreign investors may own residential property in the following tourist areas:

  1. Durrat Al Bahrain
  2. Riffa Views
  3. Amwaj Islands
  4. Bahrain Financial Harbor
  5. Bahrain Bay
  6. Reef Island
  7. Diyyar Al Muharraq
  8. Some areas in Saar

Most of the new development projects in Bahrain permit expatriates and international investors to own houses, buildings, outlets, or freehold apartments.

Legally purchased property cannot revert to other owners, even if such property is unoccupied.

Under the U.S.-Bahrain FTA, the GOB committed to enforce intellectual property rights (IPR) protections. Bahrain signed the Berne Convention for the Protection of Literary and Artistic Works, Patent Cooperation Treaty, Nice Agreement, Madrid Agreement, Budapest Treaty, Trademark Law Treaty, and the Paris Convention for the Protection of Industrial Property in 1996. The GOB ratified revised legislation in 2006 to implement Bahrain’s obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The GOB has passed laws related to IPR to bring Bahrain’s local laws into compliance with its Paris Convention commitment, and in anticipation of acceding to the Singapore Treaty on the Law of Trademarks and the Locarno Agreement on establishing an international classification for industrial designs, and the International Patent Classification (IPC). Bahrain has acceded to the World Intellectual Property Organization (WIPO) Copyright Treaty and the WIPO Performances and Phonograms Treaty. Bahrain ratified Law No. 31 on the Protection of New Plants Varieties in 2021 and is expected to accede to the International Union for the Protection of New Varieties of Plants by the end of 2022.

The GOB has made progress in reducing copyright piracy and there are few reports of significant violations of U.S. patents and trademarks in Bahrain. The GOB’s copyright enforcement campaign began in late 1997 and was based on inspections, closures, and improved public awareness. The campaign targeted the video, audio and software industries with impressive results. Commercially pirated video and audio markets have been mostly eliminated. However, audio, video, and software piracy by end-users remain problematic. There are no technology transfer requirements that force firms to share or divulge technology through compulsory licensing to a domestic partner, nor are firms required to undertake research and development activities in Bahrain.

In May 2016, the GOB issued the Implementing Regulations for the Trademark Law of the GCC, which had originally been approved by Law No. 6 of 2014. Law No. 6 provided a unified trademark regime for all six GCC countries.

Bahrain is not included in the United States Trade Representative (USTR) Special 301 Report or the Notorious Markets List. Bahrain does not track or report on seizures of counterfeit goods. For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ . The Embassy’s webpage also offers a link to local lawyers, some of whom specialize in IPR and/or patent law: https://bh.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys/

Resources for Intellectual Property Rights Holders:

Peter Mehravari
Patent Attorney
Intellectual Property Attaché for the Middle East & North Africa
U.S. Embassy Abu Dhabi | U.S. Department of Commerce U.S. Patent & Trademark Office
Tel: +965-2259-1455
Peter.Mehravari@trade.gov

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ 

6. Financial Sector

Consistent with the GOB’s liberal approach to foreign investment, government policies facilitate the free flow of financial transactions and portfolio investments. Expatriates and Bahraini nationals have ready access to credit on market terms. Generally, credit terms are variable, but often are limited to 10 years for loans under $50 million. For major infrastructure investments, banks often offer to assume a part of the risk, and Bahrain’s wholesale and retail banks have shown extensive cooperation in syndicating loans for larger risks. Commercial credit is available to private organizations in Bahrain but has been increasingly crowded out by the government’s local bond issuances.

In 2016, the GOB launched a new fund designed to inject greater liquidity in the Bahrain Bourse, worth $100 million. The Bahrain Liquidity Fund is supported by several market participants and acts as a market maker, providing two-way quotes on most of the listed stocks with a reasonable spread to allow investors to actively trade their stocks. Despite these efforts, the market remains small in comparison to others in the region.

In October 2019, the GOB established a BD 130 million ($344 million) Liquidity Fund to assist distressed companies in restructuring financial obligations, which was expanded in March 2020 to BD 200 million ($530 million) in response to the Covid-19 pandemic.

The GOB and the CBB are members of the IMF and fully compliant with Article VIII.

The CBB is the single regulator of the entire financial sector, with an integrated regulatory framework covering all financial services provided by conventional and Islamic financial institutions. Bahrain’s banking sector remained healthy despite sustained lower global oil prices. Bahrain’s banks are well capitalized, and there is sufficient liquidity to ensure a healthy rate of investment. Bahrain remains a financial center for the GCC region, though many financial firms moved their regional headquarters to Dubai over the last decade. The GOB continues to drive innovation and expansion in the Islamic finance sector. In 2021, Bahrain ranked as the second in the MENA Islamic finance market and placed fourth globally, according to the ICD-Thomson Reuters Islamic Finance Development Indicator (IFDI).

Bahrain has an effective regulatory system that encourages portfolio investment. The CBB has fully implemented Basel II standards and is attempting to bring Bahraini banks into compliance with Basel III standards. Bahrain’s banking sector includes 89 banks, of which 30 are retail banks, 59 are wholesale banks, 17 are branches of foreign banks, and 13 are locally incorporated. Of these, nine are representative offices, and 16 are Islamic banks.

There are no restrictions on foreigners opening bank accounts or corporate accounts. Bahrain is home to many prominent financial institutions, among them Citibank, American Express, and JP Morgan Chase. Ahli United Bank is Bahrain’s largest bank with total assets estimated at $41.9 billion as of December 2021.

Bahrain implemented the Real-Time Gross Settlement (RTGS) System and the Scripless Securities Settlement (SSS) System in 2007 to enable banks to carry out their payment and securities-related transactions securely on a real time basis.

In 2017, Bahrain became the first in the GCC to introduce fintech “sandbox” regulations that enabled the launch of cryptocurrency and blockchain startups. The same year, the CBB released additional regulations for conventional and Sharia-compliant financing-based crowdfunding businesses.  Any firm operating electronic financing/lending platforms must be licensed in Bahrain under the CBB Rulebook Volume 5 – Financing Based Crowdfunding Platform Operator.  In February 2019, the CBB issued cryptocurrency regulations.

Foreign Exchange

Bahrain has no restrictions on the repatriation of profits or capital and no exchange controls. Bahrain’s currency, the Bahraini Dinar (BD), is fully and freely convertible at the fixed rate of USD 1.00 = BD 0.377 (1 BD = USD 2.659). There is no black market or parallel exchange rate. There are no restrictions on converting or transferring funds, regardless of whether they are associated with an investment.

Remittance Policies

The CBB is responsible for regulating remittances, and its regulations are based on the Central Bank Law ratified in 2006. Foreign workers comprise most of the labor force in Bahrain and many remit significant quantities of funds to their countries of origin. Commercial banks and currency exchange houses are licensed to provide remittances services.

Commercial banks and currency exchange houses require two forms of identification before processing a routine remittance request, and any transaction exceeding $10,000 must include a documented source of the income. Bahrain enables foreign investors to remit funds through a legal parallel market, with no limitations on the inflow or outflow of funds for remittances of profits or revenue. The GOB does not engage in currency manipulation tactics.

The GCC is a member of the Financial Action Task Force (FATF). Bahrain is a member of the Middle East and North Africa Financial Action Task Force (MENAFATF) which is headquartered in Bahrain. Participating countries commit to combat the financing of terrorist groups and activities in all its forms and to implement FATF recommendations.

Bahrain established a sovereign wealth fund, Mumtalakat, in 2006. Mumtalakat, which maintains an investment portfolio valued at roughly BD 6.6 billion ($17.6 billion) as of 2020, issues an annual report online. The annual report follows international financial reporting standards and is audited by external auditing firms. By law, subsidiaries of Mumtalakat are audited and monitored by the National Audit Office. In 2020, Mumtalakat received the highest-possible ranking in the Linaburg-Maduell Transparency Index for the seventh consecutive year, which specializes in ranking the transparency of sovereign wealth funds. However, Bahrain’s sovereign wealth fund does not follow the Santiago Principles.

Mumtalakat holds majority stakes in several firms. Mumtalakat invests 62 percent of its funds in the Middle East, 30 percent in Europe, and eight percent in the United States. The fund is diversified across a variety of business sectors including real estate and tourism, financial services, food and agriculture, and industrial manufacturing.

Mumtalakat acts more like an active asset management company than a sovereign wealth fund, including by taking an active role in managing SOEs. Most notably, Mumtalakat has been instrumental in helping Gulf Air, Bahrain’s state-owned airline, restructure and contain losses. A significant portion of Mumtalakat’s portfolio is invested in 29 Bahrain-based SOEs.

Mumtalakat did not directly contribute to the State Budget through 2016. However, beginning in September 2017, Mumtalakat annually contributed $53 million to the State Budget, which was increased to $106 million in the 2021-2022 State Budget.

8. Responsible Business Conduct

The Ministry of Labour and Social Development in 2011 authorized the creation of the Bahrain Corporate Social Responsibility Society (BCSRS) as a social and cultural entity. Though there are no measures in Bahrain to compel businesses to follow codes of responsible business conduct, the BCSRS has sought to raise awareness of corporate social responsibility in the business community, and in 2021 hosted the GCC International Conference on Social Responsibility and Sustainable Development. The Society is a founding member of the Arab Association for Social Responsibility, which includes representatives of most Arab countries.

In 2003, Bahrain established a National Steering Committee on Corporate Governance to improve corporate governance practices. The MoICT promulgated the new Corporate Governance Code pursuant to Decree No. 19 of 2018. The new code expanded the base of companies obligated to implement responsible governance, as per the country’s Corporate Governance Code issued in 2010, to include all locally incorporated closed joint stock companies. The law stipulates minimum standards required for corporate governance and applies to all companies incorporated in Bahrain, other than companies that provide regulated financial services licensed by the CBB.

The GOB drafted a Corporate Governance Code to establish a set of best practices for corporate governance and provide protection for investors and other company stakeholders through compliance with those principles. The GOB enforces the code through a combined monitoring system comprising the MoICT, CBB, Bahrain Stock Exchange (BSE), Bahrain Courts, and other professional firms, including auditors, lawyers, and investment advisers. The code does not create new penalties for non-complying companies, but states that the MoICT (working closely with the CBB and the BSE) may exercise penalty powers granted to it under the Commercial Companies Law 2001.

The GOB has put in place advanced regulations and laws protecting labor rights, including vulnerable categories such as migrant workers from South and Southeast Asia. Despite legislative guarantees of certain rights, workers may be exposed to unfair labor practices such as unpaid overtime, denied vacation, or nonpayment of wages. Labor courts have not been fully effective in settling labor disputes between employers and employees. However, there have been reports of cases that were settled in favor of employees in Bahraini labor courts. Bahrain is a class five country on the International Trade Union Confederation (ITUC) Global Rights Index for freedom of association and workers’ rights, with the index ranging from one to five in ascending order from best to worst.

Beginning in 2022, all companies must integrate into the Wage Protection System (WPS) to pay employees’ salaries via prepaid card or financial transfers through a bank or financial institution approved by the Central Bank of Bahrain. Domestic workers and Flexi-Permit holders are exempt from the mandate. The LMRA has the authority to review employer-employee transactions in the system.

Law Number 35 of 2012, the Consumer Protection Law, ensures quality control, combats unfair business practices, and imposes sanctions for breaches of the law’s provisions. MoICT is highly effective in implementing the law.

Bahrain’s amended Corporate Governance Law enhances transparency and ethical business conduct standards. Among the changes, the GOB urged companies to submit audited ratified accounts to the MoICT.

The GOB does not maintain a National Contact Point (NCP) for the Organization for Economic Cooperation and Development (OECD) guidelines, nor does it participate in the Extractive Industries Transparency Initiative (EITI).

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

Bahrain’s Vision 2030 outlines measures to protect the natural environment, reduce carbon emissions, minimize pollution, and promote sustainable energy. Bahrain’s Sustainable Energy Authority (SEA), within the Ministry of Electricity and Water Affairs, designs energy efficiency policies and promotes renewable energy technologies that support Bahrain’s long-term climate action and environmental protection ambitions. Endorsed by Bahrain’s Cabinet and monitored by SEA, the National Energy Efficiency Action Plan (NEEAP) and the National Renewable Energy Action Plan (NREAP) set national energy efficiency and national renewable energy 2025 targets of 6 and 5 percent, respectively, with the NREAP target increasing to 10 percent by 2035.

9. Corruption

Senior GOB officials have advocated publicly to reduce corruption. Legislation countering corruption is outlined in Bahrain’s Economic Vision 2030 and National Anti-Corruption Strategy. Bahrain joined the United Nations Convention Against Corruption (UNCAC) in 2003. Bahrain ratified its penal code on combatting bribery in the public and private sectors in 2008, mandating criminal penalties for official corruption. In December 2013, the Ministry of Interior launched the National Strategy to Combat Corruption. Under Bahraini law, government employees are subject to prosecution and punishments of up to 10 years imprisonment if they use their positions to engage in embezzlement or bribery, either directly or indirectly. The law does not require GOB officials to make financial disclosures. In 2010, Bahrain ratified the UNCAC and the Arab Convention Against Corruption, and in 2016, joined the International Anti-Corruption Academy. In December 2021, the Ministry of Interior General Directorate of Anti-Corruption and Economic and Electronic Security initiated 96 embezzlement, bribery and abuse of authority cases and three economic infractions that were referred from the Cabinet. In January 2022, the Public Prosecution Office referred seven corruption cases, 12 tax evasion and 10 money laundering cases to the courts, in addition to two tax evasion cases and five money laundering cases that have been pending since 2021. Giving or accepting a bribe is illegal. The GOB, however, has not fully implemented the law, and some officials reportedly continue to engage in corrupt practices with impunity.

The National Audit Office, established in 2002, is mandated to publish annual reports that highlight fiscal irregularities within GOB ministries and other public sector entities. The reports enable legislators to exercise oversight and call for investigations of fiscal discrepancies in GOB accounts. In 2013, the Crown Prince established an Investigation Committee to oversee cases noted in the National Audit Office annual report, which lists violations by GOB state bodies. On March 1, 2022, Deputy Prime Minister Shaikh Mohammed bin Mubarak Al Khalifa stressed the importance of consolidating responsibility and accountability to protect public funds and directed all agencies to cooperate with the National Audit Office.

The Minister for Follow-Up Affairs was designated in 2015 to execute recommendations made in that year’s National Audit Office annual report. The Crown Prince, who concurrently has served as Prime Minister since November 2020, urged all GOB entities and the COR to work closely to implement the report’s recommendations.

The Ministry of Interior’s Anti-Corruption and Economic and Electronic Security Directorate signed an MOU with the United Nations Development Programme to enhance the anti-corruption directorate’s capabilities.

Bahrain has conflict-of-interest laws in place, however, their application in awarding contacts is not fully enforced.

Local non-governmental organizations generally do not focus on corruption-related issues, though civil society activists have spoken out against corrupt practices in the public sector.

Few cases have been registered by U.S. companies reporting corruption as an obstacle to their investments in Bahrain.

Bahrain signed and ratified the United Nations Anticorruption Convention in 2005 and 2010, respectively. Bahrain, however, is not a signatory to the OECD Convention on Combating Bribery. In 2018, Bahrain joined the OECD’s Inclusive Framework on Base Erosion and Profit Shifting (BEPS).

Resources to Report Corruption

Contact at government agency or agencies responsible for combating corruption:

General Directorate of Anti- Corruption & Economic & Electronic Security
Ministry of Interior
P. O. Box 26698, Manama, Bahrain
Hotline: 992

Contact at “watchdog” organization:

Dr. Hussain al-Rubaie
President
Bahrain Transparency Society
P.O. Box 26059
Adliya, Bahrain
Phone: +973 39642452

 

10. Political and Security Environment

Bahrain is an open, liberal Gulf state that enjoys close diplomatic ties with the United States. Bahrain has experienced intermittent cycles of violence, with the most recent period of unrest taking place in 2011-2014. In 2017 and 2018, the GOB dissolved the country’s two largest opposition political societies and closed the country’s only opposition-leaning independent newspaper in 2017. On May 13, 2018, the Parliament passed a law banning members of political societies dissolved by the GOB from running in elections that took place later that year. Since 2017, protests centered on sociopolitical or economic demands have occurred in isolated neighborhoods but have largely been controlled by GOB authorities. Elections of the popularly elected lower house of the National Assembly, also known as the Council of Representatives, are scheduled for November 2022.

Neither demonstrators nor violent extremists have generally targeted Americans or other Western expatriates. American citizens visiting Bahrain and companies interested in investing in Bahrain should visit the Embassy’s website to receive the most up-to-date information about the security situation and register with the Embassy’s consular section.

11. Labor Policies and Practices

In 2006, the King ratified the Labor Reforms Law, which established the LMRA and the capacity-building labor fund known as Tamkeen. The law imposed a monthly fee of BD 10 ($26.67) on each expatriate employed by any company registered in Bahrain. The revenues collected under this program are earmarked to provide job training for Bahraini nationals. Companies pay BD 5 ($13.35) for the first five foreign workers and BD 10 ($26.67) for every additional employee. The COR regularly discusses amending the fee structure.

Bahrain’s Labor Law No. 36 of 2012 guarantees employees’ rights by requiring clear contractual terms for employing domestic staff, and prohibiting discrimination practices of wages based on gender, ethnicity, religion, or language. Bahrain’s Labor Law has introduced enhancements for annual leave, maternity leave, sick leave entitlement, and resolution of labor disputes.

Expatriate workers should be registered by their employer with LMRA to receive a valid residence permit and work permit. Employers are prohibited from employing foreigners without a valid work permit. To work in Bahrain, foreign employees should be medically fit, have entered the country lawfully, possess a valid passport, and retain residence and work permits.

As of the first quarter of 2021, the LMRA estimated Bahrain’s labor force in the private sector to be 522,164 foreign workers (including housekeepers). Eighty percent of Bahrain’s total workforce is comprised of foreigners, the majority being unskilled construction workers. According to Bahrain’s Information and eGovernment Authority, foreigners comprised about 53 percent of Bahrain’s population in 2020.

The GOB’s primary initiative for combating unemployment among Bahraini nationals is “Bahrainization,” a policy that mandates employers hire Bahraini nationals instead of foreign workers.

Companies occasionally experience difficulty obtaining mandatory work permits and residence visas for expatriate employees due to “Bahrainization” policies. Bahrain’s Ministry of Labor and Social Development reported that 2,775 private companies have implemented the “Bahrainization” system as of June 2020. According to the Minister of Labour and Social Development, over 26,000 jobseekers and 12,000 recent graduates were hired in 2021. The GOB stipulated through Decree No. 1 of 2019 that priority will be given to Bahraini physicians, technicians, and nurses with the required qualifications and experience. Since July 2020, the LMRA requires private sector companies to advertise job vacancies in local newspapers for two weeks and provide Bahraini nationals with priority access to applying, before considering expatriates. “Bahrainization” requirements may be temporarily waived for FDI in Bahrain’s special economic zones, including BIIP and BLZ.

According to the LMRA, as of March 2021 there are nearly 50,000 out-of-status workers in Bahrain – that is, workers without a visa or valid work permit. This number is down from nearly 65,000 out-of-status workers in early 2020. In April 2020, the GOB implemented a temporary amnesty to allow thousands of out-of-status workers to regularize their immigration status. In August 2020, the Cabinet approved new regulations for the flexible work permit, also known as the “flexi” permit, which allows foreign workers to live freely and work in a non-specialized occupation without a sponsor for a renewable period of one to two years. The new regulations empower LMRA to increase inspection visits on “flexi” permit employers to ensure they are not working in professional activities that require a specialized work permit.

The Labor Law of 2012 allows an employer to terminate an employee in the event of the total or partial closure of an establishment. The employer must render a notice and reason for termination to the Ministry of Labour and Social Development at least 30 days prior to serving notice of termination to the affected employee. The amount of compensation due an employee for termination is set by law and is based in part on length of service.

In September 2021, migrant workers contracted by Bahrain Petroleum Company (BAPCO) gathered to protest poor living and working conditions. An agreement was reached among the employer, contractor, and workers.

In 2007, the Minister of Labour and Social Development introduced an unemployment allowance to be paid from a general labor fund. The fund is financed by deducting one percent from the wages of all workers and is the first such program in the GCC.

In 2002, the King approved the Workers Trade Union Law of 2002 that recognizes the right of workers to collectively organize, to form trade unions, and to strike, with some restrictions. The law prohibits workers from striking in certain sectors deemed vital by the Prime Minster, including security, aviation, ports, hospitals, and utilities. The law does not provide for the right to collective bargaining. With the exception of domestic workers, foreign employees are allowed to join trade unions. The law prohibits employers from dismissing an employee for trade union activities. In 2011, the King issued a decree that changed Bahrain’s labor law as it pertained to trade unions and federations. Union leadership criticized the new law for provisions that appear to inhibit freedom of association. The 2012 law prohibits multi-sectoral labor federations and prohibits individuals convicted of felonies from holding union leadership posts. While the amendment allowed for the formation of multiple trade union federations, it gave the Ministry of Labour and Social Development the right to select the federation to represent the country’s workers in international fora and in national-level bargaining.

In 2010, the U.S. Department of Labor and Bahrain Ministry of Labour and Social Development convened the first meeting of the U.S.-Bahrain Sub-Committee on Labor Affairs, as established under the U.S.-Bahrain FTA. At the meeting, they reaffirmed their obligations under the FTA related to internationally recognized labor rights, including their obligations as members of the International Labor Organization (ILO) and commitments stated in the ILO Declaration on Fundamental Principles and Rights at Work (1998).

Bahrain has maintained “Tier 1” status in the U.S. Department of State’s Trafficking in Persons Report since 2018. There were no instances of child labor and no violence against labor rights defenders during the most recent reporting period. Forced labor including nonpayment of wages, debt bondage, involuntary sex work, and other instances of human trafficking are documented in the report.

During the civil unrest of 2011, Bahraini employees were dismissed from private and public-sector jobs. In June 2011, the AFL-CIO filed a petition with the Department of Labor accusing Bahrain of violating the labor rights terms of the U.S.-Bahrain FTA. The November 2011 Bahrain Independent Commission of Inquiry report concluded that most of these dismissals were motivated by retaliation against employees suspected of being involved in civil demonstrations. By the end of 2012, the majority of the dismissed workers in the public and private sectors were reinstated, with the GOB working to resolve the remaining cases. In March 2014, the Minister of Labour and Social Development, Bahrain Chamber of Commerce and Industry, and the General Federation of Bahrain Trade Unions signed a tripartite agreement to resolve the remaining worker reinstatement cases. Subsequently, the ILO dropped a related complaint it initiated in 2011. Bilateral consultations are ongoing between the U.S. and Bahrain – invoked under the Labor Chapter of the FTA in response to the 2011 AFL-CIO complaint.

14. Contact for More Information

Manama Commercial Office
U.S. Embassy Manama
P.O. Box 26431
Bldg. 979, Rd. 3119
Block 331, Zinj
Kingdom of Bahrain
Telephone No. +973 1724-2700
E-mail address: manamacommercial@state.gov 

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