Bahrain's Free Zones: Business Opportunities And Tax Exemptions

The Kingdom of Bahrain has become a global hub for infrastructure, business development, and investment opportunities. The country offers free zones with numerous advantages for foreign businesses, including tax exemptions, a business-friendly environment, and access to a skilled workforce. Bahrain's free zones provide companies with a competitive edge by offering purpose-built infrastructure, specialised facilities, and exclusive connectivity to major industrial areas.

The country has three main Free Trade Zones (FTZ): the Bahrain Logistics Zone (BLZ), the Bahrain International Investment Park (BIIP), and the Bahrain International Airport (BIA). These zones offer 100% foreign ownership, tax benefits, and streamlined processes for company formation.

In addition to the three main FTZs, Bahrain also has special free zones, such as the Sheikh Khalifa bin Salman Port (KBSP) and the Bahrain Investment Wharf (BIW), which offer their own unique advantages and incentives for businesses.

With its stable economy, business-friendly laws, and strategic location, Bahrain presents an attractive opportunity for companies looking to expand their operations in the Middle East and connect with global markets.

Bahrain's free zones: an overview

Bahrain has been focusing on leveraging business opportunities to attract international investors. The country has implemented the concept of "Free Zones" to create special zones dedicated to uplifting business opportunities and boosting the economy. Bahrain's free zones offer a competitive edge to foreign businesses with purpose-built infrastructure, world-class facilities, separate rules and regulations, and excellent connectivity to ports and other major industrial areas.

Benefits of Setting Up a Business in Bahrain's Free Zones:

• 100% foreign ownership
• Tax exemptions
• Easy company formation process
• Access to a skilled workforce
• Proximity to international markets
• Modern infrastructure
• No requirement of a Bahraini partner
• Low setup costs
• Streamlined customs procedures
• Lowest taxes in the Gulf
• No corporate, personal, or withholding tax
• No duties on goods entering/leaving the zone
• Exemption on national labour hiring

Types of Business Entities in Bahrain's Free Zones:

• Individual Establishment
• Branch of Foreign Company
• Simple Person Company (S.P.C)
• With Limited Liability Company (W.L.L)
• Bahrain Shareholding Company (B.S.C) Public
• Bahrain Shareholding Company (B.S.C) Closed

List of Bahrain's Free Zones:

• Bahrain International Investment Park (BIIP): BIIP is one of the largest industrial parks in Bahrain, home to over 114 MNCs and manufacturing companies. It offers benefits such as low land rates, property lease for 25 years, pre-built units, tailored office spaces, and duty exemptions.
• Bahrain Logistics Zone (BLZ): BLZ is a regional trans-shipment hub with highly integrated logistics, purpose-built infrastructure, large-scale berthing facilities, and excellent connectivity. It offers benefits such as 100% foreign ownership, multimodal access, flexible plot sizes, and 24-hour customs services.
• Bahrain International Airport (BIA): BIA is a significant aviation hub in the region, offering top-notch airport facilities and modern air logistics. While it is not technically a free zone, it allows 100% foreign ownership and has a bonded cargo terminal.
• Sheikh Khalifa bin Salman Port (KBSP): KBSP is a premier trans-shipment hub strategically located in the Northern Gulf. It offers benefits such as a modern business model, a dedicated web portal, and tailored warehouses.
• Bahrain Investment Wharf (BIW): BIW is a privately-owned industrial zone that offers business opportunities in IT, commercial spaces, and real estate projects. It provides benefits such as high-built storage facilities, low setup costs, complete tax exemption, and no requirement for a local sponsor.

The benefits of setting up a business in a free zone

Bahrain has established itself as a global hub for foreign investment, with world-class infrastructure, excellent connectivity, low operating costs, and business-friendly laws. The country offers various incentives and tax-friendly policies to attract foreign direct investment.

Tax Advantages:

Bahrain has a very competitive tax environment, with no corporate, personal, or withholding taxes. The country also offers tax exemptions for businesses operating in its FTZs, including no duties on goods imported and exported within the zone. Additionally, Bahrain has double taxation treaties with other countries, which can provide additional tax benefits for businesses.

Ownership and Operational Benefits:

Bahrain allows 100% foreign ownership in most industries, which means that foreign companies can establish their businesses without the need for a local partner. FTZ companies also have the advantage of no annual rental fees and a 50% reduction on utility costs. The country also offers streamlined business policies and simplified regulations, making it easier for companies to operate and conduct business.

Strategic Location and Infrastructure:

Bahrain is strategically located in the Arabian Gulf, providing easy access to international markets, especially in the Middle East and North Africa (MENA) region. The country has excellent multi-modal connectivity through sea, land, and air transport systems. Bahrain's FTZs offer purpose-built infrastructure, such as warehouse facilities, and specialized facilities like IT centers.

Cost-Effectiveness:

In addition to the tax advantages, Bahrain offers other cost-effective benefits for businesses in its FTZs. There are no land rental costs for the first three years of operation, and electricity rebates of 50% for the first five years. The cost of setting up a company in Bahrain is also relatively low, and the documentation process can be completed within a short span.

Skilled Workforce and Business Support:

Bahrain has a skilled workforce, and companies in the FTZs are not required to hire local staff. However, for those who wish to employ locals, Bahrain offers residence visas and work permits. Additionally, FTZ companies can benefit from the services of capable account managers who provide personalized end-to-end services.

Free zone company formation in Bahrain: a simple process

Bahrain is an attractive prospect for foreign investors due to its business-friendly environment, low taxes, and excellent infrastructure. The country offers various incentives and tax-friendly policies, making it a desirable location for companies looking to expand their operations in the Middle East.

Benefits of Setting Up a Business in Bahrain's Free Trade Zones

• 100% foreign ownership
• Tax exemptions
• Easy company formation process
• Access to a skilled workforce
• Proximity to international markets
• Modern infrastructure
• No duties on goods entering/leaving the zone
• 100% exemption on land usage for the first three years of operations
• 50% rebate on electricity consumption for the first five years

Types of Free Trade Zones in Bahrain

Bahrain has three main Free Trade Zones (FTZ):

• Bahrain Logistics Zone (BLZ)
• Bahrain International Investment Park (BIIP)
• Bahrain International Airport (BIA)

Steps to Setting Up a Free Zone Company in Bahrain

• Choose a location: Select one of the three FTZs mentioned above based on your business needs and requirements.
• Determine the corporate structure: Decide on the specific corporate structure that best suits your business. This could be a limited liability company, a branch of a foreign company, or another available structure.
• Reserve the company name: Reserve your desired company name through the online business portals of the free zone authorities.
• Prepare and notarize documents: Prepare the necessary incorporation documents, including the articles of association, and notarize them at the public courts.
• Open a corporate bank account: Open a bank account with a Bahrain bank and deposit the required paid-up share capital.
• Submit license application: Submit the license application, along with the necessary documents, to the specific free zone authorities.
• Obtain work visas: Apply for work visas from the Labour Market Regulatory Authority (LMRA) for yourself and your employees.
• Register for taxes: Register your company for applicable taxes and acquire the necessary licenses.
• Rent an office: Rent an office within the selected free zone. This is mandatory, but there is no requirement to hire staff.

By following these steps and working with specialized consultants, you can efficiently establish your company in Bahrain's Free Trade Zones, taking advantage of the numerous benefits they offer.

The disadvantages of free zone company formation

Disadvantages of Free Zone Company Formation

While there are many benefits to setting up a business in a Bahrain free zone, there are also some disadvantages to be aware of. Here are some key disadvantages to consider:

Limited Business Activities

Free zone companies must restrict their business activities to within the zone and cannot serve customers in the rest of Bahrain unless they use a local sponsor. This limits their ability to access the wider Bahraini market and cater to a broader range of customers.

Competitive Entry Process

Entering the free zones is competitive, and companies must obtain approval from the free zone authorities. This involves proving that their business will serve the Bahraini economy, contribute to free zone development, start a major project within a year, and hire local employees within five years. This process can be challenging and may deter some businesses from establishing in the free zones.

Higher Costs

Free zone companies are required to rent an office within their chosen free zone, which adds to their operational costs. Additionally, the paid-up share capital for a free zone business can range from US$1 to US$133,000, depending on the specific zone and company structure. This initial investment may be a burden for some businesses.

Annual Compliance Requirements

Free zone companies must renew their licenses annually, which involves complying with specific free zone laws, including submitting annual audited financial statements to the Free Zone Authority. This adds an extra layer of administrative burden and compliance requirements for businesses.

Limited Flexibility

Free zone companies are subject to restrictions on their business activities and are required to launch a project within the first year of operation. This lack of flexibility may be a disadvantage for businesses that need to adapt their strategies or take a more gradual approach to establishing their operations.

Overall, while the free zones in Bahrain offer many advantages, it is essential to carefully consider these disadvantages and how they may impact a company's ability to operate and grow in the region.

Bahrain's free zones: a comparison

Bahrain has been ranked as one of the most free economies in the world, surpassing G7 nations in terms of economic characteristics. The country offers a competitive edge for foreign businesses with its free zones, providing benefits such as tax advantages, simplified regulations, and streamlined customs procedures.

Bahrain's Main Free Zones:

• Bahrain Logistics Zone (BLZ)
• Bahrain International Investment Park (BIIP)
• Bahrain International Airport (BIA)
• Sheikh Khalifa bin Salman Port (KBSP)
• Bahrain Investment Wharf (BIW)

Bahrain Logistics Zone (BLZ):

BLZ is a regional trans-shipment hub with highly integrated logistics and purpose-built infrastructure. It offers large-scale berthing facilities, flexible plot sizes, and 24-hour customs services. BLZ is ideal for import-export businesses and logistics companies, offering zero-tax and duty exemptions. It is also a boutique centre for manufacturers, providing component assembly, packaging, testing, and repair services.

Bahrain International Investment Park (BIIP):

BIIP is one of the largest industrial parks in Bahrain, home to numerous MNCs and manufacturing companies. It offers the lowest annual competitive land rates, property leases of 25 years, pre-built units at affordable rents, and tailored office space solutions. BIIP is strategically located between Bahrain International Airport and the new Shaikh Khalifa Sea Port, providing easy access to facilities.

Bahrain International Airport (BIA):

BIA is a significant aviation hub and a driver of economic growth in the region. While it is not technically a free zone due to some duties on exports, it does offer 100% foreign ownership and a "bonded cargo terminal," allowing delayed payment of duties. BIA provides top-notch airport facilities, modern air logistics, and best-in-class customer service.

Sheikh Khalifa bin Salman Port (KBSP):

KBSP is a premier trans-shipment hub strategically located in the Northern Gulf, serving as a link between Bahrain and the rest of the GCC and other nations. It offers tailored warehouses, a dedicated web portal to ease business processes, and a modern business model.

Bahrain Investment Wharf (BIW):

BIW is a privately-owned industrial zone, resulting from a partnership between Inovest and the Government of Bahrain. It offers business spaces, logistics zones, IT centres, commercial spaces, and residential development estates. BIW provides high-built storage facilities, low setup costs, complete tax exemption, and no requirement for a local sponsor.

Benefits of Bahrain's Free Zones:

• 100% foreign ownership
• Tax exemptions
• Easy company formation process
• Access to a skilled workforce
• Proximity to international markets
• Modern infrastructure
• No duties on goods entering/leaving the zone
• Streamlined business policies

Frequently asked questions