Barriers and Opportunities for Enhancing Capital Flows
In the COMCEC Member Countries
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issuer of euro bonds with which it provides full and detailed prospectuses (several
government-linked entities, such as Mumtalakat, the sovereign wealth fund, have also tapped
international markets on the back of sovereign support). Bahrain most recently issued a
sovereign euro bond in 2012 when it sold a US$1.5bn ten-year conventional bond with a
coupon of 6.125% which according to the central bank was four times oversubscribed.
Policy initiatives to attract capital flows
To further attract foreign capital inflows, Bahrain levies no corporation tax outside of the
hydrocarbons sector; there is also no capital gains tax. These policies are unlikely to be
changed in the future unless there is a significant decline in the performance of the Bahraini
government’s main revenue source, hydrocarbons production. Even then, Bahrain would be
unlikely to make itself less competitive on a tax basis compared with its regional peers in the
Gulf.
The economy is much smaller in Bahrain than in neighbouring Qatar and Saudi Arabia,
meaning it lacks a significant domestic market with which to attract foreign inflows of capital.
As such, the kingdom has prioritised acting as a financial hub for the Gulf region, although it is
facing increasing competition, including from Dubai and Qatar. Bahrain’s attractiveness
relative to its peer is that the country in effect acts as a free zone, allowing funds and
investment to enter and leave the country without restrictions and making it an effective base
for operations in the Gulf region.
However, the government of Bahrain does impose some limitations on the flow of foreign
capital into property investments in the country. Notably, only local and GCC nationals are
allowed to own property. Foreigners and foreign companies are, however, allowed to own
property in a number of new developments and in areas of the Bahrain Financial Harbour.
Foreign ownership of land is allowed without restriction in the Bahrain International
Investment Park, an industrial zone which applies exemptions to import duties and has no
workforce restrictions.
Bahrain has an open policy towards FDI. Foreign firms can own 100% of a company based in
Bahrain provided it does not operate in a sector subject to restriction. These sectors include
the print media, and Hajj and umra travel (pilgrimage services). In businesses active in
import/export and other trade, a minimum 51% of the ownership must be held by Bahrainis if
the foreign investor is from outside the GCC; if the foreign investor is from the GCC, a Bahraini
partner is required, but no ownership requirement is stipulated.
To further streamline the process of setting up a business, Bahrain has established the Bahrain
Investors Centre (BIC) as a “one-stop shop” that assists with all aspects of establishing a firm.
Regulatory authorities are accessed through the BIC and it has ready links with local financial
firms to aid the process of setting up corporate financial services.
The Bahrain Economic Development Board (EDB) was established in 2000 and is specifically
tasked with targeting inward investment and promoting various sectors (including financial
services, manufacturing, telecommunications) whose development the government is