Foreign investors may set up a subsidiary in Bahrain for the purpose of expanding their international business to this area. The subsidiary and the branch are both two forms of establishing a foreign business in this location, however, there are important differences between them, mostly in terms of the foreign company’s liability towards its counterpart in Bahrain.
| Quick Facts | |
|---|---|
| Applicable legislation (home country/foreign country) |
Foreign country |
|
Best used for |
Strictly regulated activities, such as the financial ones |
|
Minimum share capital |
– |
| Time frame for the incorporation (approx.) |
Appox. 4 week |
| Management (local/foreign) |
Local (resident director must be appointed) |
| Legal representative required |
Yes |
| Local bank account |
Yes |
| Independence from the parent company | Fully dependent on the parent company’s decisions |
| Liability of the parent company | Fully liable for the branch office’s debts and obligations |
| Corporate tax rate | 15% |
| Possibility of hiring local staff | Yes |
The subsidiary is a locally registered legal entity while the branch is a mere extension of the parent company. This can be important for foreign companies that do not want to be liable for the branch’s activities. Having a Bahraini joint stock company as a subsidiary can be advantageous for those foreign companies that want to expand their operations here and consolidate their position through a local company, not a branch.
Company formation in Bahrain is not a complicated process, however, certain steps are mandatory. Our team of agents can assist foreign investors interested in setting up a subsidiary with all of the needed information about the general and the special requirements.
What types of companies can be set up as subsidiaries in Bahrain in 2024?
Foreign investors are allowed to own 100% of the company for a public joint stock company, a closed joint stock company or the limited liability company, some of the common business forms used to set up a subsidiary in 2024.
The list below describes the main characteristics of these business forms.
- Liability: the founders have limited liability when opening a public/closed joint stock or an LLC.
- Activities: the public and closed joint stock can engage in banking and insurance activities; the LLC cannot.
- Minimum capital: it is larger for the public joint stock than for the closed one; not applicable to the LLC.
- Founders: at least two founders are needed to open these business forms.
The minimum capital for the public joint stock is 1,000,000 BD with 25% of the capital provided upon incorporation and the remainder within five years. For the closed joint stock it is 250,000 BD of which 50% of the capital is deposited upon incorporation and the rest within three years. The public joint stock must have at least two founders and five members on the Board of Directors while the closed one must have at least two founders and three members on the Board of Directors.
The right type of company may be chosen according to the available capital for incorporation and the business sector in which the company will activate. For example, investors should remember the restrictions that apply to the LLC in certain business fields. Because the public joint stock has the largest minimum capital out of the presented business forms, investors can choose to open a closed joint stock company. The shares are non-negotiable and cannot be subscribed publicly for this business form, however, its characteristics and lower minimum capital make it accessible to investors.
One of our agents who specializes in company registration in Bahrain can give investors more details on the characteristics of these business forms.
An important step to set up a company in Bahrain is choosing the business form. Your choice of structure will have an impact on the terms and conditions, licensing, and registration requirements. These legal forms include foreign branches and companies with limited liability for most foreign investors seeking to enter this market. The electronic registration of commercial companies is overseen by the Ministry of Industry, Commerce and Tourism, and the applications for the subsequent licenses and permits are also checked by this Ministry.
What is the general process for company formation in Bahrain?
Below, our team lists the main steps for company formation in Bahrain:
- Choose the type of company: investors can start by choosing the business structure that fits their needs.
- Choose the company name: the commercial name of the company must be an available one and it must not violate public order.
- Apply for registration: the prepared company documents, along with the required filled in forms are filed for registration.
- Complete the registration: the company receives the commercial registration certificate once everything is approved.
- Post-registration steps: open a bank account, lease the needed office space and hire employees in Bahrain.
Companies may also be required to receive other licenses and approvals, some of them from the municipal authorities and some from other relevant Bahraini authorities. For example, an industrial license will be required by companies that will engage in industrial projects. Entrepreneurs will also need to register for VAT purposes, if applicable.
How to set up a Bahraini subsidiary as an LLC
In order to set up a company in Bahrain for forming a subsidiary, the following requirements must be met:
- a minimum paid-up capital of approximately USD 2,600 (BD 20,000);
- at least 2 directors, out of which one must have a valid Bahraini residence permit;
- a minimum of 2 shareholders.
Furthermore, depending on their industry, the subsidiary may be subject to Bahraini local shareholding joint venture rules. The company must also comply with specific tax regulations, which include filing annual tax filings and providing audited financial accounts. Limited liability companies are to hold shareholder meetings no later than 6 months after the fiscal year ends.
Our lawyers in Bahrain can assist with detailed information on the requirements of setting up a subsidiary under this business form. We can also assist with immigration to Bahrain in the case of the resident director.
Using the closed joint stock company to open a subsidiary
A closed joint stock corporation needs a minimum of 2 shareholders that subscribe the shares in the Bahraini subsidiary. These shares cannot be traded to the general public. The shareholders are solely financially responsible for the amount that their shares are worth when it comes to the company’s debts and other commitments.
Subject to industry regulations, a closed joint-stock company may be 100% foreign-owned with a minimum of 3 directors and a minimum share capital of BHD 250,000.
The Ministry of Industry and Commerce has strict laws and regulations that these subsidiaries must follow. Among them, they need to get a certificate from the Ministry stating that objections have been cleared and hold annual general meetings. It is mandatory for joint stock companies to hold shareholder meetings no later than 3 months after the fiscal year ends.
Feel free to address our company formation specialists in Bahrain if you choose to create a subsidiary using this legal entity.
Documents required to establish a subsidiary in Bahrain
No matter the type of structure chosen, the parent company must draft specific documents that will be filed with the Trade Register in Bahrain. These are:
- the registered address (for this purpose, you can opt for a virtual office in the beginning);
- the shareholders’ and directors’ details;
- certified copies of the director(s)’ passports;
- the shareholders’ agreement;
- Articles of Association and Memorandum of the subsidiary;
- a copy of the Certificate of Incorporation of the parent company.
Our local advisors can assist with the drafting the documents required to set up a subsidiary in Bahrain.
Subsidiary legislation in Bahrain
While forming a subsidiary company in Bahrain, the parent business must also respect certain local regulations. One of them refers to the subsidiary acting as an employer. For this purpose, it is required to abide by the national regulations applicable to employees. Prior to setting up the payroll, the company must open a bank account with one of the Bahraini banks.
Some companies cannot operate in certain economic sectors under subsidiary regulations, while others are restricted to investments. Prohibited businesses include gambling, import-export, and the industrial use of substances that are restricted. The printing press and accounting services are exclusive to Bahraini nationals.
You can rely on our local specialists for accounting and payroll services in Bahrain.
Why open a Bahraini subsidiary in 2024?
Bahrain is one of the most prolific economies in the Middle East and it attracts many foreign investors who can set up various types of companies in 2024.
Among these, foreign companies can expand their operations through Bahraini subsidiaries in 2024, especially if they target the trading sector. The simplified company registration procedure is one of the main reasons to choose this business form.
The fact that the parent company in Bahrain does not have to pay corporate tax is the biggest advantage of having a subsidiary. A few industries are the only ones required to pay specific taxes.
Starting a subsidiary in Bahrain in 2024 implies incorporating a domestic company and obtaining various licenses and permits which are easy to acquire. Also, one of the reasons to expand a business in this country is its economic performance.
For 2024, the economy is expected to grow by 1.8% thanks to the country’s oil sector. When it comes to non-oil-specific industries, the travel and tourism sector has been a major growth engine recently. Over the first three quarters of 2023, it averaged year-on-year growth of 7.7%, and in Q3, visitor numbers increased by 7.0%. Bahrain is on pace to surpass its 2018 record of 12.1 million visitors for the entire year, with 5.9 million visitors in the first half of the year. But with the benefits of reopening fully realized, this growth will probably considerably slow down in 2024. With growth of 8.4% on an annual basis in Q3, the financial companies sector continues to be the largest in Bahrain’s non-oil economy.
Our specialists can also offer accounting services in Bahrain.
How can investors receive assistance to set up a company in Bahrain?
Our team is ready to assist foreign investors interested in opening a subsidiary in Bahrain. We can commence by preparing the company’s Articles of Association and Bylaws and provide counseling on choosing the right business form.
One of our agents can assist investors in making all of the submissions, as required for the particular business field in which the company will activate. Contact us for more information.