Bahrain introduces new Economic Substance Rules – a major development relevant to Bahrain’s status as a jurisdiction of choice for holding companies, and repositioning of Bahrain’s standing in terms of the international taxation landscape. With direct relevance to Bahrain’s removal from the EU list of noncooperative jurisdictions for tax purposes, the Bahrain Minister of Industry, Commerce and Tourism, H.E. Zayed bin Rashid Al Zayani (“Minister”) has issued Resolution No. (106) of 2018 regarding the requirements of validating the actual economic substance of traders’ activities in the Kingdom of Bahrain (“Economic Substance Rules”). The Economic Substance Rules have been issued in accordance with Decree-Law No. (27) of 2015 regarding the Commercial Register and its amendment No. (52) of 2018 (“Law”). The Ministry of Industry, Commerce and Tourism (“MOICT”) has confirmed that this is a national obligation and that the MOICT’s internal portal will be updated in the near future so that any company that is not complying with the Economic Substance Rules and the Law will have a violation placed against its commercial registration (“CR”). The MOICT will carry out annual reviews to ensure compliance with the Economic Substance Rules. The Economic Substance Rules place certain obligations on various types of entities incorporated or registered in Bahrain, requiring that such entities have an actual economic presence in Bahrain.
The Economic Substance Rules currently only apply to companies that undertake distribution activities, service centers, activities of head offices, activities of holding companies, shipping activities, intellectual property activities, and leasing activities (“Relevant Companies”). In our experience, many start-ups and SMEs located in Bahrain have commercial activities that potentially render them to be Relevant Companies. As such, it is key to understand the extent of the relevant obligations imposed on such Relevant Companies by the Key Obligations for Relevant Companies All such Relevant Companies will fall within the ambit of the Economic Substance Rules and should comply with the following requirements:
(i) details of activities;
(ii) the amount and type of gross income; and
(iii) the amount and type of expenses and assets.